Designing a profitable strategy for any kind of time

[oxusmorouz]

As I said I don't predict I just know the volatility when there is volatility. For my trades, I am yet to need to speculate tomorrow's market

May be you can always assume I don't know how to predict

And I believe there will be volatility on the days where the market participants agree with the price and do trading, my knowledge is this little.

I presume you meant "was", unless proven so otherwise.

 

[AW10]

In a very volatile day, the lagging indicator like MACD often gives false signal as they are the lagging and have effect after the price change happens. SAR combined with Stochastic helps to identify the reversals and then we can decide to buy at the next pivot.

I am not an expert in this and i also want the opinion of seniors.

MACD gives false signal in sideway market. Not so much in volatile market.
We can have quiet sideway market as well as volatile sideway market.

Sameway, we can have quiet trending market and volatile trending market.
MACD will work perfectly fine in trending volatile mkt. It is derived from Moving averages and average is average.

Indiactors like Bollinger band will change thier shape depending on volatility because they use Standard Deviation in the calculation and Std Dev goes up during volatile mkt.

 

[AW10]

So tell me, in the days leading upto January, which ones do you expect to be volatile?

(Let's define volatility here as a range of 150 nifty point movement in a day for simplicity)

Identifying volatile period looks difficult till the time we don't know how to identify it. Once we know the approach then it is not rocket science. Any charting package can help us. Not many TA books talk about volatility in depth so we are mislead by CNBC experts who always make a news when VIX goes up but same people go silent when VIX is coming down. They are just encashing on Fear Index and fear always make popular news story

Typically people use width of Bollinger band to identify the volatile period and calm period in the market. Band is narrow during calm mkt and wide during volatile. So if we observe the BBand, chart will tell us quite clearly.

Another method used is ATR. If we find 20 bar ATR = 80 points, and we calculate the ATR of current bar then by comparision we know whether mkt is showing us wider range of narrower range. We can also use 3 bar ATR (or any other number) and compare current average range with slightly longer range to interpret it.

If we apply above two methods on NIFTY, then NIFTY we know volatility is coming down. BBands are narrowing, ATRs are coming down. Also VIX values are coming down. And so is the time value charged on Option premiums.

Hope this helps..

 

[oxusmorouz]

Typically people use width of Bollinger band to identify the volatile period and calm period in the market. Band is narrow during calm mkt and wide during volatile. So if we observe the BBand, chart will tell us quite clearly.

If by width of a BB, you mean higher band - low, wouldn't a simpler way of arriving at it be = 6Stdev (or 4, depending on how many stdev apart they are)? Now, considering time series data to be perfectly scalable, there wouldn't be any difference if we use "6 stdev" or "1 stdev", would there? Essentially, one is going back to use of "historical" volatility via standard deviation. It does "not" predict volatility but merely measures volatility of past.

Another method used is ATR. If we find 20 bar ATR = 80 points, and we calculate the ATR of current bar then by comparision we know whether mkt is showing us wider range of narrower range. We can also use 3 bar ATR (or any other number) and compare current average range with slightly longer range to interpret it.

The same interpretation applies. The problem with these measures of volatility is that they measure how volatility behaved in past, not how it will behave in future, which is of essence to one's trading. ATR/Stdev to estimate the course of volatility is very similar to using moving averages to determine if the market is bullish or not.

 

[vanram]

If we apply above two methods on NIFTY, then NIFTY we know volatility is coming down. BBands are narrowing, ATRs are coming down. Also VIX values are coming down. And so is the time value charged on Option premiums.

Hope this helps..

Well said AW10. but, the BB will not stay in a narrow band for a long period. so, I don't think BB can be used to gauge volatility in intra day. but, the combination of ATR & BB may help us in determining the intraday Volatility .

Another thing, an intraday trader, will know and feel the volatility as it unfolds. he doesn't any indicator to say that the market is volatile. for me the indicator is hitting stop losses a couple of times.

Thank you very much your inputs.