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MIDAS MARKET ANALYSIS
Modified VWAP Methodologies

New Research: Essay Three (continued)


Introducing the MIDAS/AC Normal Deviation Bands


© Andrew Coles


Conclusion


As noted in the introduction, the MIDAS/AC Standard Deviation Bands fan out too quickly and too excessively for them to be used extensively. Instead they must be restricted either to Broadening Formations or to sudden, very sharply directional moves, usually out of sideways moving markets or part of large zigzags. It is also imperative when using the MIDAS/AC Standard Deviation Bands that they are fitted immediately to very modest pullbacks. Usually this means fitting the Bands to the first two or three price bars after the launch point. If this advice isn’t followed, the fanning problem is unworkable.


The new MIDAS/AC Normal Deviation Bands avoid the fanning problem (speed and excess), so they are very well suited to moderately trending markets. Readers should bear in mind that if price is trending more steeply than moderately it is likely to be an Accelerated Trend, in which case the MIDAS user should always use the MIDAS Topfinder/Bottomfinder indicator.


Another feature of the new indicator that must be stressed is that because it fans out much more slowly and far less excessively it can be fitted to much wider swing highs and lows. Which swing high and low the indicator is fitted to is partly an arbitrary choice: the wider the swing highs and lows, the wider the subsequent areas of support and resistance being forecast.


A third, and related, feature of the new indicator is that it does not displace from the trend so quickly, even when the standard MIDAS curve does. This is why the new indicator is much better suited to genuinely trending conditions than the Displacement Channel. As noted, the latter does work on very mild trends but doesn’t fan at all, which means that it displaces from the trend at the same time as a standard MIDAS curve. The modest fanning of the new indicator is what ensures its capacity to stay with trending markets for far longer than the Displacement Channel while avoiding the fanning excesses of the MIDAS Standard Deviation Bands.  


A fourth feature of the new indicator is that like all the other MIDAS indicators it can be be constructed from all of the generations of MIDAS curves. This means that it can be fitted to:


  1. Gen-2 curves for the volumeless FX markets (Chapter 10), imbalanced volume trends (Chapter 11), and volume substitutes such as intraday FX tick data and Open Interest (Chapter 12).
  2. Gen-3 curves, that is, Calibrated Curves (Chapter 9).
  3. Gen-4 curves, that is, curves that apply to other technical analysis indicators, such as On Balance Volume (Chapter 16 of the MIDAS book), and economic indicators such as the Baltic Dry Index (see my Active Trader articles after the book’s publication).
  4. Gen-5 curves, that is, Bob English’s Delta curves (Chapter 17 of the book).


A fifth feature of the new indicator is that it has a two-part formula. This results in two bands either side of the central curve. The outer bands, which I’ve coloured red in this essay, obviously capture the wider swing highs and lows without fanning out excessively. The inner bands, which I’ve coloured blue in this essay, capture narrower swing highs and lows as the trend develops.


Finally, as noted in the previous section, there is no duplication between this indicator and my MIDAS/AC Displacement Channel. Both are complementary in their applications to different price formations.


This essay is not presently being published outside this website. The indicator, like several other indicators and curves in the MIDAS canon, is the intellectual property of Andrew Coles and no unauthorized duplication is permitted without prior permission.
























































































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