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.

## Friday, December 13, 2013

## Saturday, November 30, 2013

### 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.

## Saturday, October 5, 2013

### 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.**## Sunday, August 11, 2013

### 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.*

## Friday, June 28, 2013

### 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

- 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?
- I fail to see discernible pattern on the waves. I am still experimenting.
- 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 …..

## Friday, June 14, 2013

### 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 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

## Thursday, June 6, 2013

### Video On "Effort Index"

My latest video on the latest Indicator "Effort Index"

Afl will be available soon.

## Friday, May 31, 2013

### Regularized Indicators - Part 2

Currently I am working on fine tuning my latest simple indicator
the “Effort Index”. I am also planning a video just like the video on the buy
and sell indicators. Making video is interesting and I realized that it is not
very easy as just recording. To make a proper video one has to plan properly
and prepare a lot in terms of a script and story board etc. Making the bits and
editing them all together is quite interesting. And there are many interesting software
available for each of these aspects. It has been a huge learning experience.
Currently I am just doing the story board and it is going to take some time to
complete and release the video and Indicator. Meanwhile we will continue with
our experiments with regularization of indicators.

The next indicator I took for Regularization was the RSI. The RRSI
is much more responsive and leading compared to the conventional RSI. Since
regularization tends to take values to extremes the chart a little more jagged
than the conventional one. So we can apply a small filter to smooth the signal.
I have applied a 5 bar Ehler Filer to keep the lag minimum.

Similarly a regularized stochastic Indicator is characteristically smoother and less proven to whipsaws.

Download the AFLs

## Saturday, May 25, 2013

### VSA - Identifying weakness with Effort and Result..

I am writing something about VSA after a long
time. The last time I posted the buying
and selling pressure indicator which is a good add on indicator for VSA. Now I am
going to talk about indentifying hidden weakness in the bars. Many times we see up bars closing near the
top with good volumes. Most would
naturally assume there is strength in those bars as it is an up bar, closing in
the top and has good volume, all traits of strength. However there could be
hidden weakness in these bars. Obviously the question is why and how we
identify these.

Let us take the nifty chart as example. In the
chart I have plotted the chart in one pane, the volume in another. The third
pane consists of a new indicator which I call as the Effort index. This chart plots the effort (in effect
volume) as bars below the middle line. The result is plotted above the middle
line as bars. Now let is look at the
charts and focus on the three bars marked 1, 2 and 3. In the Bar marked 1 we can see a wide spread “Effort
to Move up Bar” with good volume. In the pane three we can see that the effort
was high and the result was also equally high. In other words the effort
produced the required result. Now look at the bars marked 2 and 3. These are up
bars closing near the top and volume was high almost equal to the previous day’s
volume. So it is natural to consider that there is strength in these bars as
well. But when we look at the pane 3 we see that the effort was high but the
result was poor. So there is a mismatch
between the effort and the corresponding result which indicates weakness. The
reason could be that the smart money has been distributing without bothering
for higher prices. So these two bars (marked 2 and 3) really indicates weakness
rather than strength. As you can see the weakness manifested from the very next
bar the market came down. So looking at the effort and the results can tell us
more about the bars. This is helpful in bar to bar analysis.

I am planning to release the new indicator “Effort
Index” soon. More about is soon.

## Friday, May 24, 2013

### Regularized Indicators

In the volume 21:7 of the TASC Chris Satchwell presented the
concept of regularization in place of the conventional smoothing. The full
article is available on the net for those who are interested. In the article
Satchwell presents a regularized EMA. In conventional smoothing we have to deal
with two things wiggle, which is the high frequency oscillations especially in
short term smoothing and then the lag. We can reduce wiggle by increasing the
smoothing period but we will much larger lag.
So it would be whipsaws or lag and often it is a compromise between the
two. Regularization has a factor “Lamda”
by adjusting which we can control the wiggle. A Regularized EMA would be
exactly the same when the lamda is set to zero. The calculation of Regularized
EMA is as follows

Rp + alpha*(close - Rp) + lambda*(Rp +
(Rp-Rpp))

REMA =
---------------------------------------------

1 + lambda

alpha = N-day smoothing
per EMA

Rp = yesterday's REMA

Rpp = day before yesterday's REMA

Lambda is a factor controlling the amount of “regularization”.

Rp = yesterday's REMA

Rpp = day before yesterday's REMA

Lambda is a factor controlling the amount of “regularization”.

However Satchwell makes it very clear that the regularized
indicators may not be suitable for trading strategies with crossover. These are
more useful for strategies based on gradient or slope. Satchwell Says “Regularization has an
advantage in that it enables the gradients of regularized quantities to form
part of the trading logic. However, the position of a regularized indicator is dependent
on prior curvature; unlike conventional and exponential moving averages, there
is no guarantee it will never trespass beyond the maximum or minimum function
values on which it is based. This implies that conventional averages may be
better for standard trading logic involving crossovers or threshold
penetrations Regularization removes wiggle and associated gradient
oscillations, so to exploit it fully, the consequences of having
less-oscillatory gradients must be appreciated. This may not be as easy as it
sounds, since conventional averaging usually fails to provide sufficiently
consistent gradients, leaving a legacy of common trading logic (crossovers,
threshold penetrations, and so on) that for the most part ignore gradients. Our
expectations on how to use indicators tend to get in the way of appreciating
that many trading decisions can be reduced to whether a price gradient is
positive or negative. That is what regularization can do quite well.”

The regularization opens vast oppurtunities for fine tuning the
conventional indicators. So the first indicator we will look at a Regularized
MACD. So we will use two regularized moving averages instead of conventional
EMA. The Regularized MACD is quite similar to the KMACD introduced recently. It
is less prone to whipsaws and catches the big trends very well. However there
is always a lag in catching the turning points. The little delay in entry does
ensure more probable profitable trades. Drawdown can be reduced by proper trail
stops.

## Friday, May 17, 2013

### KMACD - A variation of MACD to catch big trends

Weekend again and time for my usual post. This week I want to
share a new variation of the popular MACD Indicator.

Last week we had a look at the adaptive MACD. The adaptive MACD
was built on the difference of two adaptive moving averages. This time I tested
with a variation of MAVD with the difference between a non adaptive moving
average and adaptive moving average. One was a conventional EMA of period 14. The
other was an adaptive moving average whose period is adapted to the dominant
cycle. Just to differentiate we shall christen the new indicator as KMACD. During
long trends the dominant cycle gets longer and the adaptive moving average
period also gets longer making it much smoother however at the expense of lag.
Because of this the KMACD catches the long term trends fully without the
whipsaws which the conventional MACD is prone too. However there is always a
price we have pay which is the lag. However with proper exit strategies one
should be able to catch the big trends fully without the usual peak draw downs.

## Saturday, May 11, 2013

### Adaptive Indicators 4 - Adaptive MACD

It is weekend and time for my
experiments…on Technical Analysis. I am still stuck on the topic of Adaptive
indicator. Of course I have been doing a little bit of reading on my favourite subject Volume. The little time I get during the week days have been spent on
the book “Investing with Volume Analysis” by Buff Dormeier. Now I am working on how the VPCI can help in
VSA studies.

More on VPCI later. Right now let
me continue with the current topic Adaptive Indicator. I have been
experimenting with making the simple moving average adaptive to the dominant
cycle. This adaptive moving average was used for smoothing in the ADX
calculation to make it adaptive which was explained in the last post. The next obvious move was to create a MACD of
the adaptive moving average. The MACD is basically the difference between two
moving averages one short and another long. However in case of the moving
average adapted to the dominant cycle the period itself is not fixed and is
varying. So I calculated the adaptive MACD with two adaptive moving averages,
one adaptive to the dominant cycle and the other adaptive to twice the dominant
cycle. As the basic behind the MACD is the difference
of two moving averages we cannot find much difference between the conventional
MACD (12, 26) and the adaptive MACD. However the adaptive MACD is less prone
for less whipsaws and the catch the trends very well at the same time the
catches the turning points in time. The Adaptive MACD is definite one notch
better than the conventional MACD.

## Saturday, May 4, 2013

### Adaptive Indicators 3 - ADX Adaptive

I am continuing with my experiments with adaptive Indicators. The possibilities are extensive and exciting. The next indicator I was looking was the ADX. It is one of my favourite indicators and I had done some work on it already like the Gaussian smoothed ADX and a Volume biased ADX.

If we look at the the calculation of the ADX, there are two places where we can make it adaptive. First in the calculation of MDI and PDI we have the smoothing of the UP move and down moves. Then we have the average true range. SO we can make the Smoothing period adaptive tot he Dominant cycle period. Also the averaging of the True Range would be based on the Dominant cycle period. Finally the smoothing in the calculation of the ADX itself will be made adaptive to the Dominant cycle. The images are provide below. We can notice that though the Adaptive ADX does not drastically change the ADX it is more pronounced and the moves are swifter and faster. The AFL is provided for those who are keen to experiment with this Indicator.

The AFL - KADX - Adaptive

If we look at the the calculation of the ADX, there are two places where we can make it adaptive. First in the calculation of MDI and PDI we have the smoothing of the UP move and down moves. Then we have the average true range. SO we can make the Smoothing period adaptive tot he Dominant cycle period. Also the averaging of the True Range would be based on the Dominant cycle period. Finally the smoothing in the calculation of the ADX itself will be made adaptive to the Dominant cycle. The images are provide below. We can notice that though the Adaptive ADX does not drastically change the ADX it is more pronounced and the moves are swifter and faster. The AFL is provided for those who are keen to experiment with this Indicator.

The AFL - KADX - Adaptive

## Friday, April 26, 2013

### Adaptive Indicators - 2 . Adaptive Stochastics

Last week we looked at an Adaptive CCI. Now let us look at extending our experiments in creating a adaptive stochastic. As you are aware the stochastic indicator calculates the difference between the current close and the lowest value in a range as a ratio of the entire range. This ratio is converted to a percentage and then a small smoothing is applied.

%K = (Current Close - Lowest Low)/(Highest High - Lowest Low) * 100

The Lowest low and Highest High is calculated over a specified look back period. Here we will calculate these values on the Dominant cycle (DC) period. The DC is again calculated using the Hilbert transform of John Ehler. The DC period is a varying parameter depending on the market condition and the Stochastic calculation is automatically adjusted as per the varying DC period making it adaptive to the Market condition.

You can see in the chart below that the adaptive Stochastic is giving less whipsaws and is smoother. The afl is also provided for you to experiment. Do share your finding and thoughts.

%K = (Current Close - Lowest Low)/(Highest High - Lowest Low) * 100

The Lowest low and Highest High is calculated over a specified look back period. Here we will calculate these values on the Dominant cycle (DC) period. The DC is again calculated using the Hilbert transform of John Ehler. The DC period is a varying parameter depending on the market condition and the Stochastic calculation is automatically adjusted as per the varying DC period making it adaptive to the Market condition.

You can see in the chart below that the adaptive Stochastic is giving less whipsaws and is smoother. The afl is also provided for you to experiment. Do share your finding and thoughts.

The KStochastic afl

## Saturday, April 20, 2013

### ADAPTIVE INDICATORS - 1 - Adaptive CCI

All of us who use technical analysis are used to Indicators
with fixed period of calculation. Also certain periods like 9 and 14 are taken
for granted. These indicators do not taken into account the market conditions. Sometimes
the market is volatile and not at other times. The velocity and acceleration
also differs at different times. The indicators are oblivious to all these are
mainly static. For example for CCI most people use 14 as the period whereas the
inventor of this indicator Donald Lambert has suggest one third of cycle
period.

I always have been a fan of John Ehlers. . Ehlers suggest that making the
indicators adaptive to the cycle period of the concerned market would be a
better solution. However he suggested using fraction of the cycle part in
adaptive formulas. One of my first trials on this concept was an adaptive CCI
which I called as KCCI. Of course many of you who had visited my web site (Now
almost defunct) would be aware of this. I am enclosing a image of the adaptive
CCI(KCCI) with the conventional CCI. You can notice that the whipsaws are
lesser in the KCCI compared to the conventional one. You can experiment with it
by optimizing the cycle part.

## Friday, April 12, 2013

### SUPER ADX !!

Finally we have the so called Super
ADX, I mean a clone. I could get the time to finalize it after a long time. It
is based on the MT4 super ADX indicator. First of all I wish to clarify that it
is not the Holy Grail. Of course we
should understand that if one had the Holy Grail Indicator we would never share
it any body at whatever price. Since he is not able to make enough money with
that system from the market he is trying to make money by selling it. The
newbie trader should first understand that there are always many people with
their eye on his purse. Everyone wants a few bucks from his purse. Some take it
legally by selling something and some steal it.

Coming back to the Indicator, Let
us see what this does. The indicator first
calculates the difference between the moving average of the average price and
the moving average of the close. This is
taken as a measure of the strength of the trend. The change of directions of
this strength measure is a reversal point. However the validity of the reversal
point is made when the ADX (Another measure of trend strength) is either above a
value of 35 (normally end of a trend) and below a value of 10 (for starting of
a Trend). It also looks at reversal of the MACD. Finally it also
looks at multiple reversals within the last 15 bars. Different signals are
generated for different type of reversal signals. The different signals are as follows.

1. A
red bar would indicate that a big move is imminent.

2. A
white bar would indicate that it is the end of the big move and hence exit.

3. A
yellow bar or a violet bar would indicate a possibility of a reversal of the
current trend.

4. A
magenta bar would indicate that multiple signals have occurred and possibility of
a reversal is very strong.

Also it should be noted that the
exit signals is not generated in all cases. Similarly the Big Move indication
is also not generated every time. But whenever it happens it will be a good opportunity.
Also reversal signals are not generated every time reversal is imminent.

The super ADX also uses a
indicator which they call Money line. This line is used as the exit point
though I did not find it correct. Normally a Linear weighted Moving average of
period 40 should be good enough as a money line.

So try out the indicator and
provide your feedback. I only hope that unscrupulous elements don’t take this and
commercialize this as they have down with other my other indicators.

## Friday, April 5, 2013

### The ADX Afls...

I have been experimenting a little on the volume biased ADX which I had propose in my last post. I found that volume spikes could drastically upset the the indicators. SO i had to use a little smoothing to overcome this. That is the reason for not releasing the afl. Now I am ready to release it for those who would like to experiment. I am also posting my earlier work, a Gaussian smoothed ADX called KADX which is more responsive ans smoother than the classical ADX. Please share your opinion about these indicators.

1. Volume Biased ADX

2. Gaussian Smoothed ADX - KADX

1. Volume Biased ADX

2. Gaussian Smoothed ADX - KADX

## Friday, March 15, 2013

### A Volume Biased ADX

I am returning to blogging after
a long hiatus. It is usual in life that
we face intervals of disturbing events and confused priorities. Now
that the dust is settling down I am slowly picking up the threads and I am
coming back to my passion, Technical Analysis.

I am sharing some thoughts on the ADX indicator.
ADX is one of the very popular indicators and widely used by technical analyst.
Dr. Charles Schaap’s book “ADXcellence”
deals with different strategies of trading with ADX. Then there a commercial
product called Super ADX which the sellers claim is a leading indicator though
the ADX by itself is a lagging indicator. Also I do not know how much of it is
based on real ADX other than they have an indicator called supporting ADX.
Anyway soon I will release a clone of the so called Super ADX. I also had released a Gaussian smoothed ADX
called KADX which was more sensitive and smoother than the conventional ADX. ADX
is a useful indicator to measure the strength of a trend. ADX by itself is a
non directional Indicator and does not indicate if the trend is up or down. We
use two other indicators called the +DI and -DI to reveal which trend
direction. I will not go into further details as most of you, readers of this
blog, will be familiar with the ADX indicator.

As many of you may be aware the
importance I provide for the volume in my analysis. Any move of a stock which
is not aided by volume will not last. Volume is the fuel for any trend. So
naturally any trend strength indicator without consideration of the volume
cannot provide the real picture. The ADX calculation totally ignores volume and
purely based on the price movement.
Price action combined with volume would be definitely provided a more
realistic picture. This thought has inspired to experiment with the ADX to
include the volume aspect. The basis for
the ADX calculation are the difference between the High of a day and the High
of the previous day and also the difference between the low of the day and low
of the previous day. In other words it uses the momentum of the Highs and Low.
This momentum is fuelled by volume. So we will add a volume factor to this
momentum. To calculate the volume factor we take the ratio of the current
volume and the average volume. We will bias the momentum of the Highs and Lows
with this volume factor. The remaining of the calculation will be based on
these biased values and the final ADX, +DI and –DI values will be biased by volume.
The result of this is quite evident from the chart below. The resultant +DI and
–DI are much more responsive to the volume and they clearly indicate which
moves are volume driven and which are not.
The ADX also quickly increase in values when the volume increases
indicating increased trend strength.

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