finding trading range

Hello ,

I need any mathematical ideas to detect a trading range by using a filter ...

In fact I need mathematics education applied to investment .Any good books in this domain ?

What kind of mathematic tools to do this ? Volatility ?
How to detect a horizontal moving average ?How to calculate a horizontal slope or a weak horizontal slope ?


NB : If I can do this with mathematics then I will be able to code the same thing in AFL ...

Run an exploration to find if 20 period moving average is running between the highs and lows for a considerable period. For example, if you are interested in finding a 30-sessions long trading range, run an exploration to check if 20 DMA was running between the highs and lows of the daily bars for atleast 23 (75%) sessions. This helps in finding a horizontal moving average as well. The same principle can be applied for longer/shorter period moving averages but then one needs to increase/decrease the number of days for the trading range.

Mathematically, you can use the slope of the line of best fit to find out the slope of price movement for a paricular period of time.

A fun book on the topic is "A Mathematician Plays the Stock Market - John Allen Polus". It's a good book to start with.

Hardcore books are:-

1. Mathematics for ffinance (Intro to Financial Engineering)-Springer.
2. Mathematics of Financial Modelling and Investment Management - Frank J. Fabozzi

Google "The Laws of the Chart". May find some interesting ideas to detect sideways markets using a measuring bar. I am not remembering the link now. 4shared may also be helpful.

Good idea never think too that !

I understand for short period but for long period i have a doubt ...

Example :
to detect trading range in 260 sessions by using the MA 150 sessions .
I haven't verify but I think that I will never have 75 % sessions between the highs and lows of the daily bars nevertheless my MA150 can be nearly horizontale ...

For long period I doubt that I can use the daily bars even not monthly bars .
Rather than bars I should use HHV - LLV period , I think . This is probably what you meant with Would you be able to give the same example but for a period wich is almost one year,moneygurukul !

Trading range is nothing but the recently held high and low.For example 3250 to 2500 was the range for 5 months and now the range has broken on upside.

And I will add a condition on that ; the difference beetween the fisrt price and the last price is not over +/-5 % .

Otherwise it can be too a channel with a strong slope !

True for short period like MA 20 only ...

Well, that condition will check only tight trading ranges though some times stocks trade in wide horizontal channels. Plz check the charts of Hind Unilever, ITC, Chambal, etc.

Thanks moneygurukul !