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Modified VWAP Methodologies

New Research: Essay Three (continued)

Introducing the MIDAS/AC Normal Deviation Bands

© Andrew Coles

Comparing the new indicator with the MIDAS/AC Displacement Bands in Chapter 14 of the book

It would be pointless to develop this new indicator if its plotting is identical to the MIDAS/AC Displacement Bands. This is not the case, however, for two reasons:

  1. The two indicators obviously have different formulas.

  1. The MIDAS/AC Displacement Bands were developed primarily for sideways moving markets, although it was subsequently realised that they could also be applied in very light trending conditions. By contrast, the new indicator won’t work to the same effectiveness in sideways markets and has been designed to plot in more pronounced trends.

In Figure 8 below I’ll illustrate the two indicators in sideways moving markets where we’ll see the immediate superiority of the MIDAS/AC Displacement Channel over the MIDAS/AC Normal Deviation Bands. In Figure 9 I’ll compare the two indicators in lightly trending conditions.

In Figure 8 immediately below, the first chart in the sequence is the MIDAS/AC Displacement Bands which handle the price action perfectly. The second chart is the MIDAS/AC Normal Deviation Bands which aren’t as good in a sideways market. The third chart is an overlay of both indicators. As usual, the green arrows highlight the fixing points of the bands.

Figure 8: Comparing the MIDAS/AC Displacement Channel and MIDAS/AC Normal Deviation Band in a sideways market In the Nikkei 225 cash index

In Figure 9 below I’ll briefly compare the two indicators in a trending market. Here we’ll see that this time the MIDAS/AC Normal Deviation Bands are superior, which again is exactly what we want to avoid duplicating indicators. In the first chart we see the MIDAS/AC Displacement Channel. The second chart illustrates the MIDAS/AC Normal Deviation Bands. Again the green arrows highlight the launch points. The red and green arrows highlight successfully predicted areas of support and resistance.

Figure 9: Comparing the two indicators in a naturally sloping uptrend in the Nasdaq 100 cash index in 2009-2010

I’ll now round off this essay with a brief conclusion overleaf.

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