mav, why does fish use the same A and C values in stocks...but not in commodities? ive wondered this for the past year after reading, re-reading, and watching his vids (i cant figure it out)? when it comes to stocks i'll just use 25% of the ATR(30) (for both the A and C values): this is according to his website FAQ....why use the same value in stocks but not commodities? any ideas?
To be honest, I never understood why there were different A and C values. I personally use the same values for A and C. And it seems to work for me. I signed up once for a free 30 day trial of his website and I never could figure out how he was changing the A values. He obviously has his reasons. I understand how I use my A values so I just use what works. I think Fisher was never a stock guy so I think he may have felt that he had no particular understanding of why he should change the A and C values for stocks.
One other thing I want to point out. There are a lot of guys on ET that go apeshit over large moves up and down. The A values adjust to volatility so they bring a sense of normalcy to the market. They keep you grounded. When the VIX was at 15 we had 10 handle ranges every day in the ES. With the VIX over 30, we now have 20 to 25 handle ranges. So just take whatever move we get and cut it in half if you have to get an idea of price action. This is what makes ACD so effective is that it immediately adjusts to the new volatility and gives you a proper perspective of price action. The same is true when ranges get really tight and we have 6 to 8 handle ranges in the ES.
I'm still shocked. Bonds were 126 at the time of this post. Now 140'23. Challenging the highs from the 2008 crisis. Unreal.
Hey Maverick, Again, kudos on the Bond and Gold trades that you pegged in late July. I'm curious, was it the number-line that tipped you off to those moves, or was it just a time frame encompassing the month of August along with the fundamental decline in world financial markets? I hope my question isn't too intrusive, but I do appreciate all of your posts here! As always, many many thanks!
I haven't used the number line in a while but that really works. It allows one to see price action that is not obvious to everyone else. Having said that, I can pretty much tell you I know about what the number line is for any given product because I watch all the A levels like a hawk on every time frame. So on the bond trade, I kind of used all the tools. One, we had a monthly A up in July at 124'13. This was coming after a very tight range bound month in June where volatility was really tight. Now normally the monthly A up by itself would not have gotten me "that" excited. However, that combined with everyone saying bonds were going to tank and interest rates were going to explode to the upside, that got me interested. BTW, this is one of the reasons Fisher and me, read everything! Everything under the sun, CNBC, ET, blogs, etc to try to get a gauge where sentiment is and where everyone is leaning. Some of Fisher's favorite trades is when he sees an A up going opposite of what everyone is expecting. So what we had here was bonds are going to zero, interest rates are going to explode and we were all going to die. Then I see this monthly A up in July and it confirms. That made no sense to me. Then we had this debt ceiling fiasco. We had the rumors of our debt being downgraded. We had the cable news talking about this every night to no end. Yet bonds were being bid. Still made no sense to me. The following week after we got the monthly confirm, bonds went back into a tight range and actually failed three times at the weekly A up. Then a buddy of mine who runs a CTA told me he was putting on a big short position in the ten year saying that notes and bonds were going to crash because the government was going to shut down and our debt would be downgraded. This was the final straw. I said to myself, with all this going on, if we actually take out that weekly A up, then the whole world is wrong and these bonds are going to fly. Sure enough, going into the debt ceiling deadline, bonds broke above the weekly and confirmed! That's when I knew, the shorts were going to get crushed. Right after we took out that weekly at the 126 handle, it was over. We went up in a straight line for the next 2 weeks. As we went into August we confirmed yet another monthly A up at 130'11. Then we kept going all the way to 141. This is how you put everything together. You are watching price action, news, sentiment, A levels, everything. And all along the way you are looking for any signs that the move is over. So you are looking for weekly A downs. We got none. You are looking for intra-day A downs. There were none. In fact, day after day, we kept bouncing off every intra-day A down we touched. I have no idea what the number line count was, but it had to be through the roof. So that was the thought process throughout the whole trade.
Agreed. Maverick, thank you so much for walking us through the thought process here. Valuable stuff! It should be an interesting week then. I know we've got the monthly a up in gold/bonds, and a monthly a down in just about everything else. I just wonder, we've run way past our ATRs for the time periods, and will we start to see profit taking in winners and buying in the losers? We'll find out this week I suppose. Again, many thanks Maverick.
Hi everyone, I've read almost every post on this thread regarding ACD and understand that its use in trading. Regardless, I just want to confirm a few things - in particular when Maverick refers to the A and C levels for different time frames (intraday, weekly, monthly, yearly). You mentioned a good starting point is 20% - 25% of ATR(5) to ATR(10) calculation to determine ACD levels. However for intraday, would that be ATR of the last 5/10 days or ATR of the timeframe dictated by your Opening Range (say 15 minutes), then last 5, 15-minute bars Conversely for weekly ACD levels, if your opening range is 1 hour, would you be using ATR of the last 5/10 hourly, daily or weekly bars? IF you decide to use an opening range of 2 hours for the weekly ACD levels, would you be looking at ATR of the last 5/10 2-hour bars. I understand that the levels are set as a level of which you consider a move significant based on the volatility. I just have a bit of difficulty understanding when you guys refer to ATR(5), ATR(10), ATR(30) what time frames you are actually using corresponding to the time frame in question. Thanks, Felix
Hi Felix, While there really is no "wrong" way to use ACD, you have to think of the ATR as the average range of the time period you're evaluating. So for instance, while you might use a 15 minute opening range, that's not really the time period you're evaluating, rather, the time period you're evaluating there would be about a day, (I'm assuming you'd use that for a day's opening range, you may use some different time frame). Just think of the ATR as the range that the underlying can move over the period of time you wish to evaluate. I hope this is helpful.