© Andrew Coles       Terms & Conditions | Privacy

MIDAS MARKET ANALYSIS
Modified VWAP Methodologies
Share on Facebook
Share on Twitter
Share via e-mail
Share on Stumble Upon
Share on Reddit
Share on Newsvine
Share on LiveJournal
Share on Google Bookmarks
Share on Digg
Share on Delicious

Essay one continued

Introduction to MIDAS continued

The philosophical basis of the MIDAS system can be reduced to five key tenets:


  1. The underlying order of price behaviour is a fractal hierarchy of support and resistance levels.
  2. This interplay between support and resistance is a coaction between accumulation and distribution.
  3. This coaction, when considered quantitatively from raw price and volume data, reveals a mathematical symmetry between support and resistance.
  4. This mathematical symmetry can be used to predict market tops and bottoms in advance (a priori).
  5. Price and volume data - the volume-weighted average price - subsequent to a reversal in trend, and thus to a major change in market (trader) sentiment, is key to this process of chart prediction.



Exploring MIDAS more deeply

1. Fractal hierarchies of support and resistance


Let’s take these five tenets one at a time and expand on them a little more, starting with the idea that price behaviour is a fractal hierarchy of support and resistance levels. This is quite a simple idea which can be illuminated with the help of a daily chart (Figure 1) upon which the MIDAS system was initially conceived.






In the above chart, we see MIDAS S/R curves launched from various portions of the trend, some larger, some smaller. After launch, the subsequent areas supported or resisted by the curves are the hierarchies of support and resistance.


The basic definition of a fractal is a pattern self-similar at all degrees of scale. Advocates of the idea that the financial markets are fractal include the mathematician Benoit Mandelbrot who describes the markets alongside natural phenomena such as cloud formations and coastlines as chaotic (complex) systems characterised by irregularity (or “roughness”) and scale independence.

Elliott Wave theory generally relies on the same idea, though its expression is far more pronounced. Thus, the basic principle of fractal market analysis as related to the MIDAS approach is that MIDAS launch points and the subsequent hierarchies of support and resistance the S/R curves highlight apply at all degrees of trend.


Initially this notion was applied to different segments of the trend on the daily charts. Andrew Coles analysed this further in Technical Analysis of STOCKS & COMMODITIES by applying it to intraday timeframes in his article “The MIDAS Touch, part 1”. In “The MIDAS Touch, part 2” I drew attention to several new approaches which need to be considered when applying S/R curves intraday. A far more comprehensive and detailed look at MIDAS for day trading can be found in Andrew Coles’ Chapter 3 of the book.  


2. Support and resistance represent phases of accumulation and distribution

This idea is purely theoretical in spirit and we cannot illuminate it any further by recourse to another chart. The point is that both the launch points of S/R curves and the subsequent areas of support and resistance they identify represent new periods of accumulation and distribution.


3. This accumulation and distribution is mathematically symmetrical as between support and resistance

Again this is a very simple idea because it reduces to the notion that MIDAS S/R curves can be applied in uptrends and downtrends without having to change the underlying mathematics of the formula. Again this is a purely theoretical idea and can be illustrated in Figure 1 where we see MIDAS Support curves and a Resistance curve which are formulaically identical.

      

The mathematical detail of the ideas we are discussing is expressed in the following equation. This equation underlies all coding representations of the algorithm.

Figure 1 previous page next page Formula 1