That's the million dollar question.... if somebody has an answer they won't be posting it here. rtharp
What time frame are you talking about? If you mean a year or something like that, call George Soros. If you mean intraday, there's a great indicator I found at www.clayburg.com. The author claims a high probability of success. I've used it and it seems to work for the short time span I've used it. Some other indicators you can use are MACD, ADX (it supposedly tells the strength of a trend), moving averages. Oscillators may help in range bound or non trending markets. And there's also your eyes. Just look at a chart.
liltradr I'm curious about this Directional Day Filter and if it works as advertised then it certainly would be a powerful tool in a Day Trader's arsenal. My questions for you are as follows... 1, I noticed from the chart provided in the material that the data used starts from 8:30 in the A.M. is this a typo error or is he using a futures contract or is it maybe not eastern time? 2, If he does use pre-market data what happens if the security that you want to find the trend is not at all active pre-market or is this filter just concerned with the overall market trend i.e. S&P, NASD Comp, Dow indexes. 3, Does the filter require that you have Tradestation available or can you figure it out without that specific software? 4, Finally, the author speaks of a certain Art needed to interpret the results of the Filter. Have you been able to master that Art and do you find that the filter has been overall a successful prognosticator of the general trend of the market as early as one hour into the trading day. In other words how confident are you of the filter. I know that no device is perfect and that sometimes there are failures but can you give me some estimate of the failure rate that you have noticed. Thanks so much for posting the link and for responding to my queries. Good trading Steve
While its certainly true that the high or low of the day is made in the first hour a lot of the time, to wait until then is to miss out on most of the action, imho.
Nicodemus, Yes that is true that waiting an hour would mean that you would miss a lot of opportunities. I can envision that fifteen minutes and then thirty minutes into the trading day you can see the direction of the move i.e. whether your trading above or below the five minute average and then use the one hour as confirmation of the trend. Besides, anytime you can get a handle on the direction of the market your trading has to improve if only to let you focus on whether to go long or short a stock. Today, for instance, I traded long all day and was quite profitable only in the last hour I decided that the market would fall and shorted a stock that had been up trending all day, KOPN. I know my mistake was to think I knew better than the market but with an indicator to ground my sense of the general trend I may not have made that short trade and just stood aside from it altogether. Good trading Steve
Yes it is possible to miss the morning action which is the best. It is really a technique of risk reduction. When I realized that I would have to miss the morning action, I considered not using the tool. But then, I realized that it might reduce my risk so better improving my reward/risk ratio. Sure it's not as exciting but it does give you a better feel for the market. The trade off is the chance of catching those awesome morning moves.
let me try and answer your q's. 1. He starts his calculation when the exchange opens. I would not use an earlier time unless you've got an electronic contract or a foreign one where all the buyers and sellers are IN PLACE already. It's like you're taking a vote of the buyers and sellers. You need to have majority present to get their sentiment for the day. CNBC and bloomberg also do a pre-market open analysis for what it's worth. If you used earlier data on the e-mini for example, you aren't getting the full picture because the floor isn't open till 8:30 (chicago time). And traders still work on a fairly normal schedule. Most don't start until 8 or so. 2. The art of the filter...I think Bruce Lee said it best in Enter the Dragon, "It is like a finger pointing to the moon, don't look at the finger or you'll miss all that heavenly glory." It's a discretionary indicator. It might push up your odds to 70 or 75 percent. The best way to use it might be to avoid clearly non trending markets. It's a good simple indicator but don't forget to look at the chart. The tape is where all the action is. Sorry to sound cliched. But I need to remind myself of this sometimes. 3. You don't need tradestation. Just read his article and that will tell you exactly what you need to do. But if you have tradestation, you can use his add-on. Good luck cocobop. Hope this helps
By missing the morning you can also miss the profit potential of a move and end up taking a reversal. I can predict the market. On Monday it will go up and , down and sideways and so will Tuesday, Wednesday, Thursday, Friday. Ok LOL..... but being now serious below . The key to trading is to control your risk, take high probability setups, have an edge and exploit opportunities. It means taking multiples of your Risk out of the market while losing a small % when wrong. Being right has nothing to do with it. If you can predict than sooner or later others will find out about how to predict with this indicator and when the majority are using something ---who is left to be on the other side??? It's what the minority are doing is what the market will flow to. If everyone is short than we will go higher. If the majority of the public is long we will go lower. rtharp