The ACD Method

[Maverick74]

I think I'm with you so far. We have variance where moves are random, and volatility which tries to measure that randomness right? How do we apply that to our trading and ACD?Are we trying to predict future volatility and if we are, is looking at past vol the best way to do it? Reading over that post the part that really has me confused is the "let me predict variance" comment, how do you predict something that for the most part is random?

No, variance is just a measure of the distribution of prices. It's a description of volatility. We use volatility in ACD because I believe volatility explains price action better then simply price. I also believe time explains price action better then price hence my previous comments from last week. We are NOT trying to predict future volatility. What we are doing is using volatility to "explain" price action. Volatility is random and time is in fixed units. Price is also random. But when you combine all three, you get what we call association. The given variables "explain" the market to us.

 

[Maverick74]

Hopefully I cleared everything up. Simple right?

 

[samuel11]

This is correct. The only difference between the two is standard deviation is measured in the same units as the determining variable. Variance is not. So we often solve for variance and then take the sq root so we are back in our original units of measurement.

Variance is additive. Volatility is not.

 

[Maverick74]

Variance is additive. Volatility is not.

That is correct.

 

[wow12]

2) Value is in the eye of the beholder. What makes the word value tricky is time. Value has a different price in different periods of time and that value has to be discounted over time t by the appropriate risk factor taking into account the total opportunity cost. There is a lot of math here, I'll leave it out. LOL.

Mav don't hold back i'm all for learning

 

[DT3]

Hopefully I cleared everything up. Simple right?

Hah not really! But thanks I'm gonna digest what you wrote and do some research on the terms you used.

So when you said you are trying to predict variance you do this how? Could you give a recent example with a trade you put on, I think that would be very helpful to put what your saying in theory into translation.

 

[Maverick74]

Hah not really! But thanks I'm gonna digest what you wrote and do some research on the terms you used.

So when you said you are trying to predict variance you do this how? Could you give a recent example with a trade you put on, I think that would be very helpful to put what your saying in theory into translation.

You are not trying to predict variance. It's a given in this model. We "know" what the variance is because it's backward looking. So it's a constant. We are using variance to "benchmark" price action. We are looking for price and market movement to behave "differently" in the present then it has in the past in the hopes of ascertaining future price behavior.

 

[DT3]

OK I'm gonna take a crack at this lmk if I'm way off. Variance is anytime price moves between our A levels without confirming. When it does confirm we have a volatility based indication that this is not just a variance move?

 

[Maverick74]

OK I'm gonna take a crack at this lmk if I'm way off. Variance is anytime price moves between our A levels without confirming. When it does confirm we have a volatility based indication that this is not just a variance move?

No. Variance has nothing to do with ACD. It's a mathematical term. It's how we measure dispersion. Volatility is a more broad term and it's usually associated with "movement". A levels are simply a measurement of that movement and they allow us to "quantify" it for the purpose of benchmarking and daily scoring.

 

[Maverick74]

Some market notes:

1) Nikkei at fresh new 20 year highs
2) Yen trades continue to work
3) short bond trade continues to pay off
4) yield curve continues to steepen (nobody on ET is talking about this)
5) world commodities continue to get crushed worldwide