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Reading Trend Speed (With MACD) Like a Pro

Discussion in 'Technical Analysis' started by RangeTrader, Aug 12, 2012.

All indicators you develop should have math that is easily understandable that you can cross check to your chart to make sure everything is correct.

In a non cyclic market all that has to be done on my very bottom indicator to estimate the trend speed ten days forward in time is to take the current trend speed and add it to the acceleration rate. I set up all my periods in a easy to understand way.

Just read what I have what I have written on the chart and you should see how it works!

Note: I use custom formulas, filtering passes, and other things so this is not a normal MACD. You can developer your own study.

This is just to help those that are trying to wrap their head around projecting current/future trend speed and solving market price targets. The formula's are pretty simple really... Ever wonder how goldman sachs and other wall street firms give out price projections a year in advance of stocks hitting those levels? Simple velocity/acceleration extrapolation math like this.

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garyhanli likes this.

So, glancing at the current chart... What does this indicator tell us?

It tells us that the current trend speed is 14 points per 10 days. Current trend speed acceleration tells us that in ten days the trend speed is going to be 21.14. However, that is a low estimate because of the way I use EMA filters on the trend speed acceleration rate. Notice that the acceleration rate itself is accelerating. If we were to assume the trend acceleration rate were to keep accelerating at the same rate our estimate would be around a trend speed of 26 in ten days...

LoL... I am not going to argue with these numbers... But, now do you understand why the market is acting so complacent lately? All the pro's think were heading into a bull run. The alogo's and system traders always have this stuff calculated out to precision.

Just remember... It doesn't mean something unexpected wont happen like Greece/Spain leaving the EU... Those things can't be predicted. If nothing "unexpected" happens the market will go toward it's projections. The yearly highs being so close will also provide resistance and reduce momentum here

A trend speed of 20 isn't really that fast. That is only two points per day. If market range and volatility starts to pick up a bit more later this month toward September it will be shortable with good odds if you can time the market precisely.

My actual estimate of trend speed is closer to 15 points per ten days and the indicator is over-estimating because of the range decline. Price is no longer oscillating and instead pressing against the top of it's range. This indicates higher price strength but overestimates actual trend speed acceleration.

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