The Flaw in Trading System Reasoning...?

Quote from AMT4SWA:

What indicator could you use for an automated system that has several lines and one of them tracks (gives a value for...) volatility? The higher the volatility the better your signal is for entry....or at least if the volatility is low at entry, then your volatility value should at least be increasing to give the best entry signal. Trade systems that use a volatility value/measurement as one of your entry conditions are the trades that will give you very powerful profits....trade entries into high or increasing volatility work the best IMO. Automated trade entries in a low volatility environment or one that is decreasing give you most of those "chop" type trades that whittle down your equity curve....as I have said before in this thread, find a way to include a value/measurement of volatility to add as one of your conditions for very strong system yield curves. :)

Merry Christmas All!!!
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Thanks for the hint.

Do you have any preferences/ pointers to measure volatility? :confused:
 
Quote from mogul:

it doesn't matter if there are are infinite or finite number of systems to be created, since if there is a finite number none of us will ever come close to exhausting the potential

if you feel limited to what you perceive as the 'finite' systems your not a very good systems developer

start from scratch and try to make a simple MA crossover indicator into a working system, because it definitely can be done
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Yes....agreed. Although, unless you are first to make a trade, I believe all similar systems do not increase in value as more people use them. This is quite the opposite of the fax machine idealogy (the more users the more value the fax machine has, even as its price drops). So, perhaps, the less people that trade systems close to one's own, the more potential for profit. Thats just a theory. Something I believe in more strongly is that the more original one's system of trading is (the corollary being that less people will be trading it than a "less original" system) the less noise there is likely at the trading signals. This may or may not be true, the idea is difficult to test, its just something I think about in various forms from time to time.
 
Quote from AMT4SWA:

Yes, try the DMI (Directional Movement Indicator) with the ADX line/value as one of your volatility trend indications. Here is a brief explanation from the ET website for the DMI/ADX...
http://www.elitetrader.com/tr/index.cfm?s=15&t=67

Here is the explanation from Stockcharts.com....
http://stockcharts.com/education/IndicatorAnalysis/indic_ADX.html

Getting in front of uptrending volatility has the making for powerful trades that can increase your per trade profit averages.
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Thanks again for the input.

Would you also find Wilder's Volatility Index and ADXR to be useful?

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The Directional Movement Index (Average Directional Movement Index Rating ADXR) is my answer to this problem.

--- New concept in technical trading systems, Welles Wilder
UQ
:confused:
 
Q
Volatility is also an indicator of movement. The paradox is that volatility is always accompanied by movement, but movement is not always accompanied by volatility.

A commodity can move up very slowly and be high on the Average Directional Movement Index Rating (ADRX) but still be low on the Volatility Index.
UQ
:confused:
 
Talking about trend and ADX, the article here does not even mention anything about Volatility?

http://www.forex.com/forex_trend_indicators.html

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The ADX is used to determine whether or not a market is trending (regardless if it's up or down), with a reading over 25 indicating a trending market and a reading below 20 indicating no trend. The ADX is also a measure of the strength of a trend--the higher the ADX, the stronger the trend. Using the ADX, traders can determine whether or not there is a trend and thus whether or not to use a trend following system.
UQ
:confused:
 
Quote from OddTrader:

Q
Volatility is also an indicator of movement. The paradox is that volatility is always accompanied by movement, but movement is not always accompanied by volatility.

A commodity can move up very slowly and be high on the Average Directional Movement Index Rating (ADRX) but still be low on the Volatility Index.
UQ
:confused:
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One thing i noticed is that sometimes high volatility does not equate to directional movement.

For example, days with long bars/candles that whipsaw up and down.
 
Quote from Remiraz:

One thing i noticed is that sometimes high volatility does not equate to directional movement.

For example, days with long bars/candles that whipsaw up and down.
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Thanks for the good point.

According to Wilder, "the most important index to use for a trend-following system is the ADXR; however, generally the most money is made in the shortest period of time when the stock or commodity is volatile."

Actually, he also suggestd to use his Commodity Selection Index (CSI = ADXR x ATR x K; K represents all the constants) to take both ADXR (Directional?) and ATR (Volatility?) into consideration at the same time. :confused:
 
Quote from Remiraz:

One thing i noticed is that sometimes high volatility does not equate to directional movement.

For example, days with long bars/candles that whipsaw up and down.
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It's posible that:

for daytraders, volatility and its movements would be good and important to make profits;

whereas, for longer term traders would be bad due to the additional risk. :confused:
 
Quote from OddTrader:

It's posible that:

for daytraders, volatility and its movements would be good and important to make profits;

whereas, for longer term traders would be bad due to the additional risk. :confused:
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IMHO, crux of volatility studies in trading systems is how to differentiate bad whipsaw volatility from good directional volatility.

Even daytraders have no use for whipsaw volatility.
Maybe tick scalpers have.

:confused:
 
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