McGinley MACD

This week we continue to look at the McGinley Dynamic.  Obviously the most common and immediate thing one would think of doing with a moving average is to look at how to trade with it. The easiest thing we can do is to create a MACD using the McGinley Dynamic. To make comparison easier we will create a MACD using two McGinley average averages with the Dynamic tracking factors similar to the conventional MACD which is 12 and 26.  The McGinley MACD clearly much smoother and is less prone to whipsaws. It keeps one in trade for long catching big trends nicely. Of course there is always a price to pay for this. The McGinley MACD is lagging by a few bars compared to the conventional MACD. Well, it may be better than being whipsawed and losing money. Also the peak draw down because of the lag is much better than being thrown out of trade much earlier in most cases. I did not run a back test on the McGinley MACD. If somebody does care to do the back test it please let us know the results.  I am posting it here as it looks worth trying out. AFL posted here for anyone who cares to try it out.

Download the AFL here

McGinley Dynamic

My latest experiment was on the Mcginley dynamic. The claim that it is one of the most reliable indicators attracted my attention.  The McGinley Dynamic technical  indicator aims to overcome the lag of the traditional simple and exponential moving averages, the indicator automatically adjusting itself relative to the speed of the market. The McGinley Dynamic looks like a moving average line yet it is supposed to be a smoothing mechanism for prices that turns out to track far better than any moving average. It is also supposed to minimizes price separation, price whipsaws and hugs prices much more closely. And it does this automatically as there is a factor of the formula. Because of the calculation, the Dynamic Line speeds up in down markets as it follows prices yet moves more slowly in up markets. One wants to be quick to sell in a down market, yet ride an up market as long as possible.

The Formula

MD = MD_-1 + (Price – MD_-1) / (N * (Price / MD_-1 ) ⁴)

MD – McGinley Dynamic

N   -  Dynamic Tracking factor

Here the difference between the Dynamic and the price is divided by N times the ratio of the two to the 4th power. The numerator difference gives us a sign, up or down, and the denominator keeps us percentage-wise within bounds defined by N. The 4th power gives the calculation an adjustment factor which increases more sharply the greater the difference between the Dynamic and the current data. 

The McGinley Dynamic (MD) is supposed to avoid whipsaws because the Dynamic Line automatically follows prices in any market fast or slow, it is supposed be like a steering mechanism that stays aligned to prices when markets speed up or slows down.

Personally I do not find this indicator very useful. Maybe it is better as a tool to gauge the market instead of a regular indicator. Of course the MD performs better compared to the regular EMS in terms of closely tracking the stock and in terms of whipsaws. I am enclosing a chart with the MD (Yellow line) and to compare I have plotted a 20 EMA (Red Line).

For those interested to experiment I am enclosing the afl. Please let me know if you find any interesting aspect of the MD.

Download the AFL……

K-Bars Variations in charting Bars...

Also under consideration is a dream is a project to help and educate retail investors so that they do not easily lose their hard earned money in the market. The idea is to equip the small trader with the technical tools and education to save them from the sharks of the stock market and the snake oil vendors. The project has been given a pet name “Marar Foundation”.  Well, the seeds have been sown and we will wait for project to sprout and grow in to healthy and successful organization. I will be sharing more information on the same as the time goes.

Today I will be sharing some of the charting tricks I use. As a VSA enthusiast I more interested in how much easily the Smart Money would move the stocks or in other words what is the effort and the corresponding result. So I am more interested in the where the current stock price ended compared to the last bar close. In a EOD perspective how is today’s close compared to yesterday’s close. So I have special bars which have the current open adjusted to previous bars close. As a result we have a smoother chart without the Gap ups and Gap downs. I call it the K-Bars charts

The other chart I use is more interesting and the one with bars that reflect the buying and selling pressure. This chart helps us the easily understand the underlying market sentiment 

in terms of supply and demand. Let us look at it with an example.

In the Above chart the bars are coloured red and green. The green part represents the buying pressure / demand and the red part represent the selling pressure / supply. In the up move and down move the demand and supply is clearly indicated by the corresponding colour  However the utility of these bars are can be appreciated during the turning points. Look at the green box. After the down trend the demand /buying coming is very visible by dominating green colour  So the impending up move was very evident. In the same way in the red box the selling/supply was dominant and was clearly visible and the down is easily forecast.

I am sharing the code piece for Amibroker for those interested to experiment. You can upend the same to any other strategy code. The same can be down loaded here. Download the AFL code.

RSI with Dynamic levels

I am posting after a gap. Got hold of some original Wyckoff stuff and has been spending some time on it. More about it in a later post. Today I am presenting a Regular Classical Indicator RSI with a variation, a RSI with dynamic levels. No I am not talking about the RSI with Bollinger bands around it.

In the Stocks & Commodities V15:7 Leo Zamansky and David Stendahl talked about dynamic zones. They said that oscillator driven systems lack the ability to evolve with the market because they use fixed buy and sell zones. Typically the set of buy and sell zones for a bull market will be substantially different zones for a bear market. We need to have a system automatically define its own buy and sell zones and thereby profitably trade in any market — bull or bear. Dynamic zones offer a solution to the problem of fixed buy and sell zones for any oscillator-driven system. The idea of their system was to create a distribution of the signals in the given look back period. Then we have to find the value which is equal to the desired probability.

First of all the assumption is the distribution is normal distribution is a little far fetched actually. On that assumption we need to do the laborious calculation of the making the distribution and calculating the probability. But I would like to keep things simple. Trading is art and not complicated science. Precise calculation will not immensely improve your trading system.  In order to simplify the matters we can just assume uniform distribution and calculate the probability accordingly. I knew people will find it difficult to accept this. However even this simplification will provide a adequately dynamic zones.  Here I am presenting the conventional RSI with Dynamic Levels. Also in order not to confuse with widely available Dynamic Zone indicator with Bollinger bands I will call this indicator RSI with Dynamic Levels.

Download the afl from here 

Volume Wave

Of late I have not been able to find much time for the experiments. My latest interest has been on the Weis Volume waves. Maybe it is a commercial not much material is available. I tried Davis weis’s book “Trades about to Happen”. Frankly not very impressed with the book.  In the chapter on tape reading he does talk about the volume waves.  Somehow the explanation is very much lacking. Either he is not good teacher or he prefers not to explain as he is selling the stuff. Frankly I have not been able to find much use for the volume wave and the reasons are as follows

1. The waves is based on based on percentage or pips which he calls as waves size or reversal and it is in terms of pips. If the reversal percentage is changed then it could present a different picture. What is the ideal wave size? The wave size could change from instrument to instrument. How do you arrive at the ideal wave size?
2.      I fail to see discernible pattern on the waves. I am still experimenting.
3.      I do not know how the commercial program works but I feel that the concept calls for use of the zig-zag like functions to work out the waves.  The zig-zag function obviously looks to the future and this could lend the effort unreliable.

I have implemented the Volume wave in Amibroker. Please share your ideas about the Volume waves as I continue to experiment with it.

Sharing the AFL to you to experiment …..

The Volume Wave AFL...

Effort Index AFL

Finally here it is ... the Effort Index AFL...

The afl provides many options which are selectable from the Parameter window.
First option is to plot either the Raw Effort Index or the the Effort Index.

The Raw effort index provides the effort and the result in the same chart. The Result is plotted above the zero line and the Effort is plotted below the zero line. This makes comparison of the Effort and the corresponding Result on a Bar by Bar basis.

The Effort index is the ratio of the Result to Effort which in effort the Result per unit effort..

Also there is an Option for calculating the effort index either the Bar to Bar  or the Spread..

Bar To Bar  Calculation

Spread Calculation

Download the AFL...

Video On "Effort Index"

My latest video on the latest Indicator "Effort Index"

Afl will be available soon.