Chop vs. Trend

Discussion in 'Automated Trading' started by Yag, May 1, 2005.

  1. Yag


    Hello all,

    I am doing my first newbie attempts as far as creating (I'd even say goofying with) my own trading systems.

    I have noticed that the principles that work during trending markets wont during the chop, and viceversa.

    How could I express in conceptual terms (as opossed to computing terms, I know nothing about that) so a trading platform could apply one set of rules during a trending market and another set of rules during the chop?

    The only idea I have come up with is requiring an initial filter, like price moving above over an EMA for a set number of periods in a row in order to apply the trend principles, otherwise apply the chop rule set. Any other ideas guys?

  2. kut2k2


    Use Perry Kaufman's efficiency ratio, the perfect trend indicator.

    Use the unsigned version.

    If it's greater than +1/3, you're in an uptrend. If it's less than -1/3, you're in a downtrend. If it's between +1/3 and -1/3, you're in the chop. :cool:
  3. Just like it is always happy hour SOMEWHERE, it is always trending in SOME timeframe. Chop is totally a matter of perspective. It is like beauty. If you get close enough to a fat girl, she doesn't look fat.
    xilb51x likes this.
  4. Bowgett


    Or develop two systems. One for trending market and one for choppy and trade them both. The trick is the system for trending market should not lose much in choppy market, same with the system for choppy market.
  5. John,

    do I detect a proclivity towards females of above average girthage?

  6. Equalizer. I get my best trading ideas from my sexual proclivities and fantasies. I rarely post sexual analogies to trading any more because I get hate mail from ET females, or at least ETers who write like women. Perhaps it is just a happy accident that I can approach trading sadistically and take visceral pleasure in winning at some one else's expense. But to your point, ever since I was ten, lo these fifty years ago, I have realized that the woman chooses. Like the market chooses. All you can do is be available and ready. Fat girls like me. What can I say? Scalps like me. In either case it's over quick and you move on to the next opportunity.
    yerpderpington likes this.
  7. Can you please talk a little more about the efficiency ratio? How is this calculated and can it be used intra-day?

  8. kut2k2


    Yes it can be used in any timeframe.

    Kaufman revealed his efficiency ratio in his book SMARTER TRADING, where he used it as the basis for his adaptive moving average. But it can be used independently of the ama as a trend-quality indicator."efficiency+ratio"&btnG=Google+Search

    The numerator is just the current price minus the oldest price in your chosen lookback period. The denominator is the sum of the absolute values of all the differences between adjacent prices in your lookback period. So it varies in value from +1 (pure uptrend) to -1 (pure downtrend). I chose +1/3 and -1/3 to divide the output into three equal parts. YMMV.

    Correction: In my original post, I said "use the unsigned version". I meant to say "use the signed version." Sorry for any confusion this caused.
  9. I use this ratio in some of my trading. Here is my EL code for the one I use:

    input: Price((H+L)/2), ERLen(21);
    var:  effratio(0), netchg(0), totchg(0);
    if CurrentBar = 1 then
    	effratio = Price
    		NetChg =  Price - Price[ ERLen ]  ;
    		TotChg = Summation( AbsValue( Price - Price[1] ), ERLen ) ;
    		if TotChg > 0 then
    			EffRatio = NetChg / TotChg -plot3
    			EffRatio = 0 ;
    plot1(effratio, "ER");
    if plot1 > plot3 then setplotcolor(1,green);
    if plot1 < plot3 then setplotcolor(1, red);
  10. Vince1


    #10     May 17, 2005