Greetings
I am doing some research at the moment that I think the results of which could be very useful for the community; to find a reliable predictor for a near term ‘good’ period (above average Edge opportunity) to trend trade using a technical approach.
So I first need a robust way be classify the quality of a trend mathematically in-order to compare the ‘Edge Potential’ of trend trading in one period to another, before looking for predictors.
I am working with the premise that the market is always (constantly) trending; but ranges from periods of zero edge potential to very high quality edge potential in any given time frame. The two extremes are usually easy to observe in PA on the chart, but I need describers that can be coded.
This is what I have decided to look at so far:
[B]Price Correlations[/B]
The correlation in price movement from one period to the next over a large sample size is normally distributed with mean zero, but if you take a small subset of say the 5 previous candles, the price correlations tend to form somewhere in the range -1 and 1. So one characteristic describer of a trending period might be when the price correlation from one period to the next is closer to 1 and or the fight path of the correlations between the extremes.
[B]Directed[/B]
There might be some overlap with above but, if you take the highest of:
[ul]
[li]Previous High - Previous Open [B]or[/B]
[/li][li]Previous Open - Previous Low
[/li][/ul]
and divide it by by the Previous True Range, you should get a score between 0.5 and 1 to let you know how much of True Range in the previous time period was in one direction versus the other.
A graduation from an undecided 0.50 to a decided 1 in PA might give and indication of the aggressiveness of a trend if one is forming.
[I][B]Interesting note[/B]: on the day candle and even the smaller time frames, from any given open price the Distinctiveness score is
[ul]
[li]between 0.75 and 1.0 65% of the time [B]&[/B]
[/li][li]between 0.50 and 0.75 35 % of the time
[/li][/ul][/I]
[B]ATR/Volume [/B]
Low ATR High Volume might suggest a period of ranging or near offerer taker price equilibrium, in which case the onset of a trend might be a break away from those extreme values
[B]Crossing Times[/B]
Using a standard value for MA on PA, you might look at how long it takes compared to an average for the price to cross (Open to Close) the MA. Higher crossing time might signify a better quality trending period, also the True Range from one cross to another might be a describer too.
Those are some I was thinking about tell me your thoughts on the subject and scribble your ideas here.