Volatility-Based Technical Analysis bridges the advantage gap between resource rich institutions and individual traders. It is a no-calculus, plain-English text that reveals original, highly technical, mathematical-based volatility indicators, complete with MetaStock® and TradeStation® code. With this in hand, any trader can “trade the invisible” by seeing a hidden mathematical structure on the price chart. Author Kirk Northington reveals his proprietary volatility indicators that serve as a market early warning system. Northington extensively teaches you how to build your own indicators, test them, and incorporate your original components into your specific trading methods.
Introduction:
This book is intended for those who want technical analysis to adapt to the volatility forces at work in today’s markets. Most traders understand the importance of using methods that are largely unknown to the greater community. If you want to better understand the relatively simple arithmetic volatility measuring techniques, and how to incorporate them into indicators of your own adaptation or design, then you will benefit from this content. There are unobstructed processes, of which most people are capable, that enable today’s programmable technical analysis software to give them an advantage. This book explains the reasons why technical analysis should incorporate volatility measurement in virtually every indicator, component, and algorithm.
Part One gives you an understanding of the many obstacles that individual traders must overcome to level the playing field. It carefully lays out why the markets have changed since 2000, and thus produced the need for volatility measurement in all aspects of technical analysis. It also provides some important groundwork material to prepare you for understanding the purpose and usage of volatility analysis.
Part Two explores arithmetic measurements of volatility within exercises that create custom indicators. This is a calculus-free zone; only high school math is used. This section delves into specific techniques for creating indicators. It also focuses on retro-fitting classic technical indicators with volatility measurement. Also, the concept of Projected Implied Volatility (PIV) is introduced.
Part Three continues the process of developing volatility-based technical analysis components, with an emphasis on solving some classic technical analysis weaknesses, such as trend compensation. This section delves deeply into the importance and methods of forecasting the broad market’s short – and intermediate-term direction. Exact trade setups are the focus of Part Three. The concept of Volatility Shift in particular is introduced, along with specific ways to exploit it. Part Three culminates in the practice of using the scientific method to develop trading system components. A simple component testing routine, complete with code, is also explored.
Appendix A duplicates all of this book’s code as TradeStation EasyLanguage code, complete with charts. Appendix B explores in-depth methods for finding high probability option spread trades: Condors, Butterfl ies, Strangles, and Straddles. This is done using the MetaSwing system. Where feasible, care is taken to present statistically valid test results. Appendix C explains the resources available to you at this book’s companion web site, tradingtheinvisible.com. All of the indicator examples in the book are coded in MetaStock Function Language to show the simplicity of coding, and that most anyone can do it. Over 180 charts are also included in the text, designed to be large and descriptive.
This book also lays out how finding profitable exits, within a set time frame, should be a goal of every trader. Enhancing almost any technical analysis method or calculation with volatility measurement provides the highest probability exit signals. The activity of increasing each trade’s profit, or lessening its loss, has always seemed to be a universal desire of private traders.
Life as a private trader can be a solitary existence in the physical and the informational context. Understanding the broader market’s short-term bias using the volatility of market breadth is perhaps the most underused gift we all receive. And yet so many look right through it every day. In Chapter 13 you will find the algorithms and source code for the MetaSwing Correction Surge system released. It provides an early warning system for the short – and intermediate-term market direction and corrective events. This system kept Northington Trading profitable during the fall market crash of 2008, and for that matter throughout all of 2008. It is a calculation and methodology that any trader can implement and use effectively.
Ultimately, the business of trading depends on your ability to make well-balanced decisions at times when the act of decision making is hardest. In Chapter 6 , a methodology called the Framework is presented. When the Framework is adapted to the specifi cs of your trading methods, great clarity is gained, in that it more clearly identifies the pieces of a method that work or show weakness. Its strength is garnered by the proper use of component cross-verification. The net result is better trading decisions.
Contents:
- The Challenges
- The Opportunities
- The Foundation: Preparations for Exploring Volatility-Based Technical Analysis
- New Volatility Indicator Design
- Integrated Volatility Indicator Design
- The Framework: A Structural Approach for Cross-Verification
- Traditional Technical Analysis: What Works, What Doesn’t, and Why
- Bull Bear Phase Prediction: The Intermediateand Short-Term Market Swing
- Trading the Short-Term Reversal with Volatility-Based Technical Analysis—The Adeo
- Trading the Trend with the 1-2-3
- Hidden Momentum with Adeo High Slope
- Designing the Exit
- Correction and Surge: An Early Warning System
- Trading System Design: Detecting the Invisible
Volatility-Based Technical Analysis: Strategies for Trading the Invisible By Kirk Northington pdf
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