Ok, but how do you weight for the games played on the book and the fact/theory that the prices move toward the volume? In this case, the prices would go against the viscosity.. :eek:
One of the thoughts I had that this kind of an "exhaustion" indicator could be used as the EXIT signal. I think you are correct. This idea is still too weak to use is it as a stand alone trading tool but as an addition to other tools it could be a good, sharp "Get-Out" indicator. Thoughts?
My thoughts exactly. To use a single indicator in ones trading would be detrimental to their account. I think if you ask most people who *really* trade if it is harder to get into a trade or get out of one, most will say to get out. The other point is that most of the systems that i see for sale or otherwise gear all of there marketing and strategy toward the entry (i.e. you only loose if you close a loosing position ). Besides like i said before i don't look at this thread as trying and find a trade-able system...its more of an "isnt that nice" and if something better than that comes out of it, all the better.
In my opinion, there are two types of traders -- those who use statistics to predict entries and exits based on confidence levels, and those that utilize multiple signals and wait for confirmation. I have found that those who use the first method tend to be more successful, but only due to the fact that they take EVERY trade signaled (assuming a certain confidence level) and they know the risk level associated with the trade. Using multiple signals as a way of confirmation often leads to missed trades and hesitation ... hindsight is 20/20 and the confirmations look perfect -- but in real time, the trader just keeps saying, "I will wait until the next confirmation..." which never happens, and they miss the trade... or it does happen, and yet they are not confident enough... Which gets me to thinking about this indicator ... what does it actually tell us? Everything we are gathering as data, we are gathering in the past -- mass is the volume, velocity is the price movement ... by the time we read this info, it is already in the market. So what does applying it to our model tell us? Nothing, really -- it tells us the exact same thing the market is telling us, just in a different format. The only possible 'edge' you might gain out of this would be using the books to determine the level of 'viscosity' -- and use it to predict what any given input of energy would do. In this way, it might be possible to determine when the market under, or over, reacts. However ... at that point, do you 'reset' your model to the current market, or do you assume the market is out of sync? I suppose it comes down to the concept of reversion to the mean ... but most importantly, deciding how often you redefine where the mean is...
I have applied today this indicator to something that I had before. I am talking about a simple ratio between the sum of all the inside ask size changes over the sum of all the inside bid size changes (those sums are sliding window sums of variable length). For this experiment I used an arbitrary window length of 100 ticks. Using this ration as a directional indicator I then over plotted the Kinetic Energy indicator using the same bar duration (100t). It looks very interesting. You can actually see pretty nice entry/exit points on it. I will post the chart as soon as I can. Cheers.
Your logic escapes me. I want you to throw out all of the things you know about the stock market every tick of every day because that is in the past and has no relevance on any future trading. Furthermore I want you to rip out your monitor and install a single LED in your computer so you can watch the binary bits flash by because everything you need to know will be presented to you in the manor by which the system sees it and therefore that is all you need. Moving on, and as stated in my previous posts, i am not doing this for an edge or trading for that matter. I do binomial expansions out to my age in years every birthday for fun...i am sorry that you wasted your time trying to belittle something that proves nothing to you.
I love your LED idea! What a great physiological experiment. I shall try this. I could easily build an LED bid/ask tick indicator using green LEDs for bids and red for Asks. You can also add the sound with the different pitch. I will definitely try it.