2010 Aug 21 - Sat

The Once Very Valuable ARMS indicator

In 1989, Richard W. ARms, Jr. wrote a book called The ARMS Index (TRIN). In a nutshell, it makes use of various ratios of number of advancing and the number of declining issues. In some cases, it can (or could) be used as a leading indicator of equity market activity.

Oakshire Investment Research's Bourbon and Bayonets newsletter suggested that this may now need to be take with a grain of salt:

It could well be that the 'Hindenberg Omen' is a helpful indicator for those who compute it on a regular basis, but for our part, there are problems associated with it that make it vulnerable to an excessive number of false positives.

It's the same issue, in fact, that plagues the once very valuable ARMS indicator, and some of the McLellan indicators, both of which are reliant on a daily reading of advancing and declining issues in the market.

The problem is this: these systems were designed to work by making a computation of all the market's common stocks, but today there are so many securities that are anything but common stocks that are dressed up and packaged as such . and they comprise an ever increasing number of the total issues trading on exchanges today. That includes bond and money market ETFs, Closed End Funds (CEFs), sector ETFs and preferred shares, not to mention all the reverse ETFs and other derivative products masquerading as common stock.

So to maintain some semblance of usefulness, the calculations will need to be refactored:

In short, both high/low numbers and advance/decline figures are not what they used to be. Certainly, for those who are able to strip out the superfluous aspects and compute the indicators on the basis of common stocks alone, there's something valuable to be had. Otherwise, we wouldn't trust the data as a stand alone indicator.

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2010 Jul 18 - Sun

Gold Manipulation, Deficits, Money Theory

Gold Manipulation

I've been accumulating a number of open browser windows, and need to get them closed. The only way I can close them is to write about them. So here is a mish mash of things I've collected.

The first collection looks at gold price manipulation. Many commentaters are saying that gold is a safe investment for protection against today's faltering fiat money systems. They are also saying that gold could reach highs of $1500, $2000, or even $7000. Various conspiracy theories are indicating that JP MOrgan is acting on Government orders to keep the price of Gold and Silver down. This could be one indication of why the price of gold has been trading sideways for the last fews months in direct defiance of all the money being thrown gold's way through direct investment, futures, and ETFs.

ZeroHedge has a lateral reference to market manipulation via an article on the current Coco futures market sqeeze.

To profit from the market's manipulation of the gold market, some people have put together intraday average price charts which show some interesting entry and exit times.

• ShareLynx: IntraDay Gold Manipulation
• Gold Eagle: Intraday Charts
• Gold Eagle: Another similar article
• Price Anomalies in the Gold Market

In any case, it could be said that the bullion banks are manipulating the market technicals in order to obtain a market correction for getting rid of their disportionate shorts in the futures markets. The Market Oracle thinks that gold is going down, lots due to a broken wedge formation.

If gold is indeed going down, bullion bank's shorts could be cleared, and this could represent a buying opportunity for gold. It is unclear how far the correction could go. But in any case, most places I read indicate that getting into gold is a good thing. And to keep it for a while. Possibly a long while, as described by Dylan Grice Discusses When To Take Profits On Gold: Hint - Not For A Long While.

Even while gold is undergoing some weakness, the Wall St. Cheat Sheet figures that it has considerable upwards strength. Once the manipulation is taken away, the price of gold could quickly get out of hand.

Market Leading Indicator

ETF Daily News offers a possible leading indicator: Watch The 20+ Yr Treasury Bond ETF For Clues To Likely Stock Reversals? (TLT, SPY, IEF).

Hauser's Law

The government, any government, has an insatiable hunger for more and more money. On the US side of things, there is talk of instituting a value added tax (VAT). Will it do any good?

According to an article written by David Ranson called The Revenue Limits of Tax and Spend, there appears to be a limit to how much tax a government can collect through it's various mechanisms. Hauser's Law indicates that Federal tax receipts will always fall short of 20% of GDP. So... if the government ever became efficient, they would use the opportunity to close out other departments where taxes collected decrease.

The Canadian Government instituted their GST, which is a form of production pipeline tax. Both the GST and VAT could be seen as a form of consumption tax. If you don't consume anything, you don't pay taxes. I suppose that could be seen as the best of a bad situation.

Spending

As governments spend and spend like there is no tomorrow, they create larger and larger deficits. Deficits can be covered by printing more and more money. Because there is no physical basis on which money resides, it is called a fiat money. That is, governments can simply pay for things with money it prints electronically out of thing air. Because gold is a physical quantity, and can be traded, it's value should rise with the inflation of fiat money. But the markets are appearing to be manipulated. Big Money is holding things back. By inflating away the value of fiat money, governments have a slim chance of making good on the money they've spent. But with today's economy as slow as it is, some are warning we could go into a deflationary phase. Governments don't like that, as it makes it hard to cover their debts.

On the US side of things, it is said that The American Dream Is Quickly Becoming The American Nightmare. It is hard to cut back when so many expect so much for so little.

Keynesians would like to spend more and more to get out of the economic malaize currently existing. But that just doesn't make sense anymore. The tipping point has probably been reached. It would appear that even if there were to be a recovery, the recovery wouldn't be substantial enough to pay back even a small percentage of what is owed.

The blog Credit Writedowns has an article which provides some insight into Misunderstanding Modern Monetary Theory.

For a background on hyperinflation, Dylan Grice writes on Popular Delusions, Some useful things I've learned about Germany's hyperinflation.

[/Trading/MarketNotes] permanent link

2010 Jun 27 - Sun

The Reformed Broker

Joshua Brown, writes as the The Reformed Broker. He has a number of interesting entries:

• The Periodic Table of Finance Bloggers, which is a list of blogs defined by categories such as Rocket Science, Rogues Gallery, The Establishment, Stock Operators, Peanut Gallery, and Baby Buffets.

[/Trading/BlogsIFound] permanent link

2010 May 27 - Thu

Naked Market Orders and the Market Meltdown

At Security Industry News, Tom Steinert-Threlkeld suggests that naked market orders helped escalate the 'flash crash' and subsequent recovery on May 6. I gather the market-makers, who provide liquidity through limit orders couldn't handle the deluge. And I think that we still don't know what the hair trigger was that set off the deluge of sell orders.

I learned a new lesson today. The best way of submitting market orders, in order to get the trade, is to use limit orders to create 'collars' around the price of a stock to reduce risks in trades. To go along with this, use algorithms that expressly include risk controls.

Speculation is that the naked market orders were used by the less experienced: some smaller high-frequency traders and some semi- professional traders.

[/Trading/AutomatedTrading] permanent link

2010 May 26 - Wed

Value Investing

When it comes time start living off dividends, it will be good to have some good value equities in the portfolio. These equities generate good dividends year and year out.

Good candidates for these types of equities are companies which are what one writer calls 'World Dominators'. These are companies which dominate their industries globally, each is Number One in its industry. They earn consistent high returns on their capital, and generate excellent cash flows year after year, through thick and thin. It is said there is one company which has raised its dividend every year for 54 years, another every year for 36 years.

With the market reaching a low, it might be good to pick up some of these companies. Some are indicated to be trading at less than 10 times free cash flow.

I think I'll generate a query through my DTN IQ live feed and look at the dividend fields and income fields to see what I can see.

As one example, one writer is suggesting NLY as a buy. It's chart may be reaching a bottom. I don't know if it satisfy the other criteria mentioned above, but I'm recording for posterity. It's close today is $16.40.

[/Trading/TradingIdeas] permanent link

2010 Apr 03 - Sat

Market Notes - 2010/04/02

Cumberland Advisors Market Commentary indicates that there have been 8.4 million American jobs lost due to the recession, and that it may take upwards of four years to recover those jobs. That would be a recovery of about 175,000 jobs per month, every month.

The Federal Open Market Committee (FOMC) says that unemployment is going to stay at 9.5 to 9.7 percent for 2010. It may decrease by the end of 2011 to 8 percent and to around 7 percent at the end of 2012. This would tend to indicate that the majority of job recovery will not happen till 2013 at least.

Cumberland suggests that the Fed will be balancing job creation with inflation:

... there is a tradeoff between employment and prices, with inflation increasing when unemployment reaches a critical low rate. The Fed's job is to strike a balance so that sustainable economic growth that maintains full employment doesn't trigger an outbreak in inflation.

The Fed strikes this balance through something called the Phillips Curve Framework:

... as unemployment declines, labor markets become tight, employers bid up wages, capacity utilization decreases, and to maintain profits companies increase prices ... With the current substantial slack in the economy, a stagnant housing market with prices still not completely stabilized, few signs of impending inflation, and a continuing problem in the commercial real estate market, the FOMC can focus on jobs and keep interest rates low to support growth in the real economy as it gradually recovers.

Cumberland figures that

the continued weakness in the job market, no impending signs of inflation, and a fall election will keep policy interest rates at approximately their same level through this year.

This week's job report indicated payrolls rose by 162,000 jobs, which includes 48,000 temporary census workers. This could be a sign of recovery. Others say it is a recovery from February snow storm effects. However, previous months results have also been revised upwards, so it may not be so bad. Chart of the Day indicates a couple of things: job losses were more significant on this recession, and that job losses have probably bottomed out.

However, in a recent Gallup pOll finds that 20.3% of the US Workforce was underemployed in March. Gallup concludes with:

As unemployed Americans find part-time, temporary, and seasonal work, the official unemployment rate could decline. However, this does not necessarily mean more Americans are working at their desired capacity. It will continue to be important to track underemployment -- to shed light on the true state of the U.S. workforce.

Back in Nov 2, 2008, I reprinted an article regarding Why the Mortgage Crisis Happened. In Wednesday's Casey's Daily Dispatch, I read about the US Government's next big bit of legislation

would give the government unprecedented powers to split up firms considered too risky, and thus a threat to the economy, as well as put together a council of regulators to watch for risks in the financial system and create an independent consumer protection agency.

• It will end bailouts, ensuring that failing firms can be shut down without relying on taxpayer bailouts or threatening the stability of our economy.
• It will create an advance warning system in the economy, so that there is always someone responsible looking out for the next big problem.
• It will ensure that all financial practices are exposed to the sunlight of transparency, so the exotic instruments like hedge funds and derivatives don.t lurk in the shadows and businesses can compete on a level playing field.
• It will protect consumers from unsafe financial products, such as the subprime mortgages that led to the financial crisis.

It seems to me that if the government undid all the stuff they've implemented since 1933, we wouldn't be in this mess, and wouldn't need these fixes. The second item above is particularily ironic, what with one hand of the government creating the mess, and the other hand of the government attempting to police the action.

Casey's Report goes onto to say it much better than I:

I do take issue with creating yet another bureaucracy tasked with 'consumer protection'. It's my understanding that prior to the financial crisis no fewer than seven regulatory agencies were tasked with the exact kind of 'consumer protection' proposed by Dodd's new bill. And they didn't do a darn thing to help.

Other evidence of government's incapability of policing markets comes to light with a whistle blower's report of Gold Market Manipulation. It is said that the market manipulation was to:

The objective of this manipulation is to conceal the mismanagement of the U.S. dollar so that it might retain its function as the world's reserve currency. But to suppress the price of gold is to disable the barometer of the international financial system so that all markets may be more easily manipulated. This manipulation has been a primary cause of the catastrophic excesses in the markets that now threaten the whole world.

Additionally:

... the CFTC hearing revealed that there is 100-times more paper-gold outstanding than physical gold ... if we get a squeeze on the naked shorts, the sky is the limit for precious metal prices... Over the past ten years, the gold cartel has staged a controlled retreat. It has been fighting the advancing gold price with propaganda, paper short sales and the occasional dishoarding of physical metal from central bank vaults and more recently, the IMF. This retreat is I suspect about to turn into a rout, which means the upside potential for the precious metals is huge.

[/Trading/MarketNotes] permanent link

2010 Mar 29 - Mon

Market Notes

Dow Theorists have seen one of their key market indicators become positive over the last couple of weeks. During the end of March, the Dow Jones Industrials Average closed above its previous closing bull market high of 10,725. The Dow Jones Transportation Average has also closed above it's previous January high. This, according to the theorists, is an indicator of an ongoing bull market. Recent daily volumes have been below average of the last 12 months, so it is not necessarily a strong bull market.

But then again, with so many people out of work (10% who are seeking, but 17% when added in the non-seekers), there is probably less money to be put in to the markets, and thus fewer shares traded.

The new Dow levels also represent a 50% retracement level of the recent bear market. This, too, would indicate a Bull market.

With a struggling stock market and decreasing house prices it is hard to determine where to put one's money for best appreciation. Even the price of gold is declining. But according to Zero Hedge, it could be total manipulation. The article mentions that the amount implicitly meant to be delivery is 100 times the physical amount that can be delivered. If you have an unallocated account, change it to physical really really soon. If people start demanding delivery, prices will then start to reflect reality.

For the subject of house pricing, Joel Bowman at The Daily Reckoning, made the following remarks about house pricing:

There's nothing wrong with someone wanting more than they can afford...it's when they get it that the cracks begin to appear. All over America, banks made loans they couldn't afford to make to people who couldn't afford to repay them. The solution ... would be to allow the market enough space to establish real world price discovery. Prices must be permitted to fall to "affordable" levels, in other words; levels that would inspire some level of market clearing.

Alas, what is good for the economy and what is politically expedient is rarely one and the same thing. The voting public, by and large, won't tolerate a "leave alone" government. They want their elected leaders to "do something," to step in and relieve them from the financial pains of a generation worth of overconsumption. In short, they want their government to force someone else - anyone else! - to pick up the tab for them.

I gather that is what the Obama government is doing, redistributing wealth for all its worth, or not worth, considering how much national debt is being run up. The phrase -- racking up debt like there is no tomorrow -- takes on a whole new meaning. But then, possibly, so do life experiences affect governing abilities: The Obamas. Personal Debt vs. Obama's, Demand That Americans Cut Back.

If you view a chart of the Dow from the 1920's to the present, you see what could be defined as a classic head and shoulders pattern... a pattern with definite bear feeling to it. But considering the time line, it could happen in the next days or years.

At Chart of the Day - How does the current rally rank?, they show that the current Dow Rally has entered the low range of the "typical" rally and would currently be classified as both short in duration and below average in magnitude.

I guess we'll have to see what the upcoming week's job reports have to say, and what they say after factoring out the hiring bump due to the employment for termporary census workers.

With the heavy debt which the US government is taking on, it is beginning to resemble the affairs of Greece. There are some writers who are saying the end of the US Empire is near. They draw comparisons with the Roman Empire during its rise and fall. Empires on the Edge of Chaos by Niall Ferguson is an interesting take on the situation. He references a series of paintings entitled The Course of Empire by Thomas Cole. "It is notable in part for reflecting popular American sentiments of the times".

There is an interesting chart at Nathan's Economic Edge, which represents debt saturation. With all the new US Debt, the chart shows that the debt is no longer serviceable. So... I guess we enjoy the bull market while we can, and start to buy puts or go short to catch the ultimate market downturn. Which might start to happen in the few coming months as commercial real estate loan renewals and the ARMS resets start to occur.

In the upcoming week we have:

• Monday: Personal Income and Outlays report for February
• Tuesday: Case-Shiller House Price Index (are house prices still declining?)
• Wednesday: ADP March Employment Report (not distorted by the Census hiring), Chicago PMI Index, Census Bureau February Factory Orders
• Thursday: Initial Weekly Unemployment Claims, ISM Manufacturing Index, Census Report on Construction Spending, Personal Bankruptcy Filings for March
• Friday: BLS March Employment Report (distorted by Feb snow storms and Census hiring)

The Census Bureau has recently reported that new home sales is still on the decline.

The Architecture Billing Index is a leading indicator for Commercial Real Estate (CRE) investment, and is still quite low.

Historically, according to the AIA, there is an "approximate nine to twelve month lag time between architecture billings and construction spending" on non-residential construction. This suggests further significant declines in CRE investment through all of 2010, and probably longer.

According to Todd Harrison at MarketWatch, savvy investors continue to monitor corporate credit as a timing mechanism for an equity downturn. In the same article, he makes mention of "10 reasons why we're witnessing a cyclical bull market in the context of a prolonged and painful secular bear stretch. "

One of his indicators is the VIX (Volatility Index), which is at a comparative low. VIX is cyclical, sometimes it is a large value and sometimes it is a small value. with it being currently small, it means it could smaller, but at some point, it is going to get bigger. When it gets bigger, the market will be moving in one of two directions, up or down. Because it is already going up, albeit slowly and with great difficulty, we will most likely find some really bad news, and the market will drop again, quickly. Dropping quickly, or going up faster, means the VIX will expand, and is therefore a slightly trailing indicator. Be ready with shorts and puts when the VIX expands with a dropping market.

The market volatility could change in a big way or in a small way. It is hard to tell. John Mauldin, in one of his newsletters has this to say on Ubiquity, Complexity Theory, and Sandpiles:

Well, in 1987 three physicists, named Per Bak, Chao Tang, and Kurt Weisenfeld, began to play the sandpile game in their lab at Brookhaven National Laboratory in New York. Now, actually piling up one grain of sand at a time is a slow process, so they wrote a computer program to do it. Not as much fun, but a whole lot faster. Not that they really cared about sandpiles. They were more interested in what are called nonequilibrium systems.

"To find out why [such unpredictability] should show up in their sandpile game, Bak and colleagues next played a trick with their computer. Imagine peering down on the pile from above, and coloring it in according to its steepness. Where it is relatively flat and stable, color it green; where steep and, in avalanche terms, 'ready to go,' color it red. "

"What do you see? They found that at the outset the pile looked mostly green, but that, as the pile grew, the green became infiltrated with ever more red. With more grains, the scattering of red danger spots grew until a dense skeleton of instability ran through the pile. Here then was a clue to its peculiar behavior: a grain falling on a red spot can, by domino-like action, cause sliding at other nearby red spots. If the red network was sparse, and all trouble spots were well isolated one from the other, then a single grain could have only limited repercussions. "

"But when the red spots come to riddle the pile, the consequences of the next grain become fiendishly unpredictable. It might trigger only a few tumblings, or it might instead set off a cataclysmic chain reaction involving millions. The sandpile seemed to have configured itself into a hypersensitive and peculiarly unstable condition in which the next falling grain could trigger a response of any size whatsoever."

Something only a math nerd could love? Scientists refer to this as a critical state. The term critical state can mean the point at which water would go to ice or steam, or the moment that critical mass induces a nuclear reaction, etc. It is the point at which something triggers a change in the basic nature or character of the object or group. Thus, (and very casually for all you physicists) we refer to something being in a critical state (or use the term critical mass) when there is the opportunity for significant change.

Buchanan concludes in his opening chapter, "There are many subtleties and twists in the story ... but the basic message, roughly speaking, is simple: The peculiar and exceptionally unstable organization of the critical state does indeed seem to be ubiquitous in our world. "

So what happens in our game? "... after the pile evolves into a critical state, many grains rest just on the verge of tumbling, and these grains link up into .fingers of instability' of all possible lengths. While many are short, others slice through the pile from one end to the other. So the chain reaction triggered by a single grain might lead to an avalanche of any size whatsoever, depending on whether that grain fell on a short, intermediate or long finger of instability."

"In this simplified setting of the sandpile, the power law also points to something else: the surprising conclusion that even the greatest of events have no special or exceptional causes. After all, every avalanche large or small starts out the same way, when a single grain falls and makes the pile just slightly too steep at one point. What makes one avalanche much larger than another has nothing to do with its original cause, and nothing to do with some special situation in the pile just before it starts. Rather, it has to do with the perpetually unstable organization of the critical state, which makes it always possible for the next grain to trigger an avalanche of any size."

Relating this to our sandpile, the longer that a critical state builds up in an economy or, in other words, the more fingers of instability that are allowed to develop connections to other fingers of instability, the greater the potential for a serious "avalanche."

It's all connected. We built a very unstable sandpile and it came crashing down and now we have to dig out from the problem. And the problem was too much debt. It will take years, as banks write off home loans and commercial real estate and more, and we get down to a more reasonable level of debt as a country and as a world.

[/Trading/MarketNotes] permanent link

2010 Jan 17 - Sun

Option Trading Scenarios

Most option trading books discuss the mechanics and mathematics of option trading. Rarely do they offer up any sort of in-the-trenches useful guidelines for doing what when and how. Some recent reading has enlightened me on some useful option trading scenarios.

The first one provides the dual mechanism of obtaining income and optionally paying for protection on an underlying which is already in one's portfolio. The process involves selling a kind of straddle: selling an out of the money call and an out of the money put. For example, with TSL, as of Friday's close, is at $49.50. The Feb 55 Call is at $1.75 and the Feb 48 Put is at $3.25. Selling this results in $5.00 premium. If TSL stays within the range of $48 and $55 till Feb 19, the full premium is kept. If the price goes above $55, the underlying will probably be exercised to result in a $5.50 profit, which is the premium plus the amount the underlying goes to get to the strike price. If the price goes below $48, the Put will go into the money, most likely causing it to be exercised, and you'll end up buying the underlying at the Put strike price, which may be a good thing if you are expecting the price to rebound. On the protection side, the premium earned on the put and call sale could be use to purchase twice the number of puts at the next out-of-the money price, which in this case would be Feb 45 Put. This provides protection on the original underlying plus the shares gained when the buyer exercised the puts.

Another strategy requires maintenance of no underlying. For a stock that you think will go up due to some upcoming good news, such as an earnings announcement, one could sell an out of the money put and use the funds to buy and out of the money call. By careful selection of put and call strikes, the money gained by selling the put may fully cover the price of buying the call. The downside of this is if the price of the underlying goes below the put strike price. You may end up owning the underlying in this case, but at least it was obtained at a lower price.

[/Trading/Options] permanent link

They Who Have The Money

Sometime this last week, someone made the observation of the fact that there was a 'hidden buyer' buying a large amount of treasuries during the weekly US Treasury auctions. There was speculation it might be the Chinese operating through private proxy parties.

The US government has a problem with all the money they are spending. Some one has to loan it to them. Hence the regular treasury auctions.

A couple figures came to mind. I believe I recall seeing that the Chinese have over one trillion US dollars due to trade imbalance between the US and China. Another figure has to do do with the fact that the US government has added over a trillion dollars to their defict through recent spending.

If you put those two numbers together, and tie them together with the 'hidden buyer' observation, perhaps it could be said that the Chinese are converting their US dollar currency holdings into US Treasury holdings. That way, not only have they made money through their exports, but they make additional revenue through the yields on the treasuries purchased.

[/Trading/MarketNotes] permanent link

Short Interest, Solar, Lithium

Many commenters have been discussing Peak Oil, with Peak Oil being the fact that we've found all the easy supplies of oil, most of which has been pumped, and that our supplies, regardless of type, are dwindling... the peak has come and gone. To be more specific, the supply of oil, of which we only have a finite supply, is decreasing, while world demand for oil is increasing. The first day of Economics 100 teaches us the supply / demand curve and the effect on pricing. Oil prices can only go up, and up until the last dropped is supplied and consumed.

In the meantime, alternate sources of energy must be found to supply the world's unending requirement. For sourcing some fraction of our energy needs, some are turning to the nearly non-ending supply of sunlight. One way of converting sunlight into energy is through the utilization of solar panels. Solar panel technology has improved recently, and has resulted in it becoming economically viable to generate electricity via these sunlight receptors.

A number of companies are in the business of producing solar panels. In a sideways fashion, I came across TSL (Trinia Solar) yesterday. Someone had run a stock screener with the settings similar to:

• stocks with high put/call ratio
• minimum stock price of $10/share
• minimum put & call open interest of 10k contracts
• minimum average daily stock volume of 100k shares traded
• trading above its 20-day moving average
• near a 52 week high

TSL has risen briskly but has some pessimism from investors based upon puts easily outnumbering calls. If the negative sentiment unwinds, it could rise further. Another area of measuring pessimism is through monitoring short interest. The web size Short Squeeze offers up information so one can see how many shares are sold sort for a company. Short Interest can also be found within the Fundamental Record of the DTNIQ data stream.

In looking at TSL on Google today, Google shows that all similar solar stocks took a decline today. It turns out that the German government will cut its solar financial incentive schem by 16 to 17 percent.

With a price correction like this, it might be interesting to look to getting into solar at this level. But the real moral of the story is that a news service which tracks a portfolio's stock symbols is probably worth its weight in gold.

Moving along with the alternate energy theme, collected energy needs to be stored. Currently technology appears to be focussing on Lithium as the mineral of choice. A common play appears to be WLC (Western Lithium). An upcoming player as mentioned in Industrial Metals magazine might be GXY (Galaxy Resources).

[/Trading/MarketNotes] permanent link

2009 Oct 26 - Mon

Machine Readable News and Algorithmic Trading

A-Team Research has released a special report called: Machine Readable News and Algorithmic Trading.

I've writing some code to accept a news release feed from DTNIQ/IQFeed. This report comes in handy for supplying some ideas on how to analyze and make use of the news feed. Here are some examples:

• When generating trading signals for high frequency traders and other alpha-seekers, it can be used to build sentiment measurement applications, stock screening applications and back-testing systems for trading algorithms.
• It can be used in support of market surveillance systems.
• This translates into simple stock-screening applications for individual securities or lists of stocks.
• It can mean the analysis of macroeconomic data to identify trends, correlations and other relationships.
• It can involve scanning key parameters to measure market sentiment.
• It could predict potentially volatile trading days, indicating which stocks or types of stock may be most affected.
• It can also be used to quickly derive directional signals from the marketplace, and set in play appropriate trading algorithms.

[/Trading/AutomatedTrading] permanent link

2009 Oct 17 - Sat

Trader Urgency Indicator

In the LinkedIn Group Automated Trading Strategies, Alpesh Patel posted a Trader Urgency Indicator:

• Fix no. of ticks based on market traded( Let's say 100 ticks chart for S&P 500 Emini)
• Monitor the time taken to finish the bar
• You will notice that most successful breakout bars will finish in significatly less time showing trader urgency
• At trend exhaustion you will notice significantly more time taken to finish the bar

I think I wrote about Range Bars at one point in time. This is probably a variation on that theme.

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