Trendiness measurement

Discussion in 'Technical Analysis' started by bearmountain, Jan 28, 2008.

  1. I guess this is a basic question but I haven't been able to find a good answere. How would I go about measuring 'trendiness' of a market or stock.

    For example Apple vs Microsoft, what would be a good way to measure which of the two historically trends more intraday?

    Two things that come to mind are ADX and volatility.

    Thanks.
     
  2. MGJ

    MGJ

    You could restrict your definition of "trendiness" to mean "linearity".

    Then you could fit a linear regression best-fit line to prices. One result of the linear regression fit is "R squared", the coefficient of determination. The higher the R-squared, the better the fit. The more linear are prices. The more trendy are prices. (Fire up Microsoft Excel and read the Help article for "LINEST" to learn more)

    Or you might be interested in "Profitable Trendiness" rather than just trendiness. A strong trend up, with perhaps a bit of noise, might be preferable to a less strong trend with less noise.

    In this case you might be interested in (Linear Regression Slope) x (Coefficient of Determination R Squared).

    To compare one instrument against another, you may want to normalize "Slope" by the close, or by the volatility. Otherwise you'll always get the same answer: Berkshire Hathaway has got the steepest slope of all stocks. Which is true but not helpful. (Raw slope is measured in points per day. Berkshire Hathaway slopes more points per day than any other stock.)
     
  3. Wood474

    Wood474

    You don't need to be a scientist to look at a chart and see. Yes ADX is ok, but quite frankly, send me over the charts and I'll tell you in 5 seconds which has the best 'trendiness'! Granted, that would only be at one chart. Simple, look back over charts and you should be able to see at a glance. As for linear regression and slope etc - someone wake me up. Way to technical and unecessary in my opinion. But before I get slated, yes, that's just my opinion and I know everyone has their own methods.
     
  4. MGJ

    MGJ

    How about using a two step process: (1) Have the computer scan all 7000 stocks and pick out the top 200 that measure highest on your scale of "trendiness" using Wilder's ADX or Chande's RAVI or Linear Regression slope or Rsquared or some other algorithm that purports to measure trendiness; (2) Send those 200 stocks over to ET user Wood474 who will simply look at the charts and tell you in 5 seconds which has the best "trendiness".
     
  5. Wood474

    Wood474

    hahahahaha, yeah yeah, ok.

    The way I was looking at it was not to scan 7000 stocks, but if it was a case of comparing this against that, then the eye would be just as reliable. But, I take on board that it may just not be a 'couple' of stocks that are being compared.

    Point taken, I shall crawl back into my hole!!!!
     
  6. couple of methods which require a bit of work.

    % of days which had high (low) within X% of the open and the close within X% of the low (high). This is called a trend day. the % this happens should give you a good rule of thumb to work by.

    a quicker way may be close within X% of high/low.
     
  7. Thank you all for your comments, good food for thought.

    One interesting idea by MGJ "Or you might be interested in "Profitable Trendiness" rather than just trendiness"
     
  8. 1) Define trend.

    2) Define trendiness.

    3) Define good answere.
     
  9. The simpliest answer is the one that is most often overlooked (Define Trend). This is a simple answer but not one that is easy to determine. It takes a lot of work to accurately and consistently "define the trend on any chart". Ninety to 95% of traders and investors do not want to put in the effort to solve this problem and that is one of the reasons they fail. Once "trend" is definied then defining trendiness will be an effortless follow up.

    Traders want easy answers and they don't exist.
    Simple answers do exist but with a critical validation process that follows.
     
  10. PetaDollar

    PetaDollar Moderator

    It all comes back to the same thing: can you measure the effectiveness of your entries-- and if so-- does requiring a trend (defined however you wish) increase the effectiveness of your entries?

    That being said, I have never experimented with magnitude of trend, only existence of trend. My definition is a series of higher highs and higher lows on a particular timeframe (reverse for trend down). I identify it by eye. I have found it to enhance the effectiveness of entries dramatically.

    If anyone is going to try this for the first time, please note that measuring the P/L of a series of trades is not the same thing as measuring the effectiveness of entries.
     
    #10     Jan 30, 2008