Identify Price Volatility As Early As Possible With Moving Averages

[Nagappan]

Hi all,

This may be useful for some intraday traders. I'm not the better day trader.

This is to identify price volatility as early as possible by using EMA

Concept :

If price increase, then slope of the average line should also increase. If price decrease, then slope of the average line should also decrease.

If price moves in sideways, then slope of the average line should be zero

See this picture :

Method :

Plot these two EMA : 15 Period EMA & 3 Period EMA of 15 Period EMA

If there is no difference between these two lines, then market is in indecision phase. If there is enough difference, then market is trending in one of the direction.

I use this in one hour time frame to identify market volatility then I trade in 15 mins / 3 mins timeframe

This gives me early signal than using Bollinger Band / ADX

Check these pics too :

Reagrds,
Nagappan

 

[Happy_Singh]

Hi

Do you know what is MACD?

Its nothing but the difference between two moving averages and
the signal line is the moving average of this difference

r1 = Param( "Fast avg", 3, 2, 200, 1 );
r2 = Param( "Slow avg",15, 2, 200, 1 );
r3 = Param( "Signal avg", 5, 2, 200, 1 );
Plot( ml = MACD(r1, r2), StrFormat(_SECTION_NAME()+"(%g,%g)", r1, r2), ParamColor("MACD color", colorRed ), ParamStyle("MACD style") );
Plot( sl = Signal(r1,r2,r3), "Signal" + _PARAM_VALUES(), ParamColor("Signal color", colorBlue ), ParamStyle("Signal style") );
Plot( ml-sl, "MACD Histogram", ParamColor("Histogram color", colorDefault ), styleNoTitle | ParamStyle("Histogram style", styleHistogram | styleNoLabel, maskHistogram ) );

Happy

 

[Nagappan]

Hi

Do you know what is MACD?

Its nothing but the difference between two moving averages and
the signal line is the moving average of this difference

MACD works with difference between two different period EMA then signal line of the final EMA.

I too use similar concept but directly with 15 Period EMA and 3 Period Signal line.

There are some differences in the end result.

Reagrds,
Nagappan

 

[Happy_Singh]

MACD works with difference between two different period EMA then signal line of the final EMA.

I too use similar concept but directly with 15 Period EMA and 3 Period Signal line.

There are some differences in the end result.

Reagrds,
Nagappan

These is no difference except the way they are plotted . . .
MACD as a Histogram, and two MA directly on the price chart . . .

but use whatever gives you better results :thumb:


Happy

 

[Nagappan]

These is no difference except the way they are plotted . . .
MACD as a Histogram, and two MA directly on the price chart . . .

but use whatever gives you better results :thumb:


Happy

There is difference in calculation parts and graph will be plotted accordingly.

But this gives me some good result and also I can compare with price directly in the same graphical area.

With help of MACD, it is possible to identify the decreased volatility at the exact point or with some delay. But with EMAs plotted in the graph, it is possible to identify it in early stage.

Anyway, this works better for me.

Regards,
Nagappan

 

[wisp]

There is difference in calculation parts and graph will be plotted accordingly.

But this gives me some good result and also I can compare with price directly in the same graphical area.

With help of MACD, it is possible to identify the decreased volatility at the exact point or with some delay. But with EMAs plotted in the graph, it is possible to identify it in early stage.

Anyway, this works better for me.

Regards,
Nagappan

Thanks, do you use Close for plotting EMA?

 

[Nagappan]

Thanks, do you use Close for plotting EMA?

Yes. 15 EMA of open, is giving more or less same result but I use close.

 

[Happy_Singh]

Yes. 15 EMA of open, is giving more or less same result but I use close.

On a specific Time frame with Price

Open is a trailing indicator, where as Close is a leading indicator . . .

So when you are using 2 MAs (of any kind) there will be a small advantage
if you use Open on bigger Period / slower MA and close with faster / smaller period MA

But in the Op's case as the difference between the two MA's is big (5X)
the smaller MA can be treated as a proxy to the price . . .

For anyone wants to try it out can check plotting . . .

P = Param("Period",30,2,99,1);
Plot(EMA(Close,P),"MA-Close", colorBlue);  	
Plot(EMA(Open,P*1.2),"MA-Open", colorRed);

Happy

 

[wisp]

With Price, on a specific Time frame

Open is a trailing indicator, where as Close is a leading indicator . . .

So when you are using 2 MAs (of any kind) there will be a small advantage
if you use Open on higher Period / slower MA and close with faster / smaller period MA

But in this case as the difference between the MA's is 5X (big)
the smaller MA can be treated as a proxy of price . . .

For anyone wants to try out can check plotting . . .

P = Param("Period",30,2,99,1);
Plot(EMA(Close,P),"MA-Close", colorBlue);  	
Plot(EMA(Open,P*1.2),"MA-Open", colorRed);

Happy

Hi, thanks, what does P*1.2 do? I am assuming it is period multiplied by 1.2? not sure...

Nagappan's system is 15EMA (C) and 3EMA of 15EMA(C)

 

[Nagappan]

Open is a trailing indicator, where as Close is a leading indicator . . .

Yes. If open price is used to plot EMA then increased volatility is visible one or two candles later than close price EMA.

Close price is leading when compare to open price

It is better to choose one based on trial and error method