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Modified VWAP Methodologies

Summary Essay: Essay Seven

Catalogue of All Six MIDAS Indicators with Flash Charts

© Andrew Coles - no unauthorized reproduction


The purpose of this catalogue is to provide a quick reference guide to MIDAS indicators that were presented in the book and developed since the book’s publication. All indicators in this catalogue will be accompanied by Flash galleries.

This catalogue is an extension of Essay Two, which also discusses basic MIDAS curves and the Topfinder/Bottomfinder indicator. Very new readers are therefore also recommended to consult that essay. Essay Two can be found on the main MIDAS essays page.

The present essay also complements Essay Five, which catalogues all five generations of MIDAS curves. Essay Five can also be found on the main essays page on this site.

Quick Overview of MIDAS Indicators

In the second part of this essay I’ll cover the variety of indicators that now comprise the MIDAS system. At the present time – writing in February 2014 – the list of MIDAS indicators include the following:

  1. Topfinder/Bottomfinder (TB-F)

  1. MIDAS/AC Displacement Channel

  1. MIDAS Standard Deviation Bands

  1. MIDAS/AC Normal Deviation Bands

  1. MIDAS/AC Quadrating Price Levels

  1. MIDAS/BE Detrended Curves Oscillator

The Topfinder/Bottomfinder (TB-F)

The most detailed discussion of this indicator, including its implementation over various timeframes, can be found in my Chapter 4 and Hawkins’ Chapter 5 in Part II of the MIDAS book. On this site there’ss an effective introduction to the indicator in Essay One here. Accordingly my remarks in this essay will be brief.

The TB-F curve applies to a segment of price movement known as an Accelerated Trend. The MIDAS analyst arrives at an objective identification of an Accelerated Trend (AT) during his use of standard MIDAS curves.

Put simply, if a standard MIDAS curve is anchored to a pullback and then fails subsequently to support or resist the next pullback of the trend, it’s highly likely that the trend has accelerated from the point of the initial launch. This justifies the use of the TB-F indicator, which is then “fit” to the trend pullback in question. The “fitting” procedure itself requires a degree of skill and experience, and is a key part of the indicator’s correct functioning in relation to the amount of cumulative volume (D, the “duration”) required to “fit” the indicator and arrive at a forecast.

Theoretically, when a MIDAS curve does not support the pullback in question, the implication is that the standard curve is failing to keep up with the AT because there is too much cumulative volume being processed in its formula. The TB-F curve dispenses with this problem by allowing a user-adjusted amount of cumulative volume to be artificially inputted into its algorithm. Critically, this user-adjusted amount of cumulative volume can be inputted very precisely by the MIDAS user in virtue of the the TB-F curve being “fitted” to the pullback. This procedure is usually iterative, meaning that the MIDAS user will over a very short time period add or subtract the required amount of cumulative volume until the “fit” to the pullback is precise.

The upshot of the above procedure is that, unlike standard MIDAS curves, TB-F curves are able fully to support and resist ATs from their start to their completion. If during the AT price suddenly breaks through the TB-F curve then to all intents and purposes the trend has ended and the MIDAS analyst can expect price to be supported or resisted on standard MIDAS curves launched earlier in the trend.

However, another important feature of the TB-F is that it is parabolic, and this combined with the fact that the amount of cumulative volume  (D, the “duration”) inputted in the manner described above is finite means that the TB-F curve has a characteristic that sets it apart from all other MIDAS indicators. For when D expires the TB-F curve uniquely among technical analysis indicators comes to a complete stop on the chart.

When the TB-F curve expires on the chart, the expectation is that the AT will simultaneously end. However, the ending of an AT is consistent with a number of things happening subsequently. For example, there might be a full trend reversal or alternatively price may go into a resting phrase before continuing to accelerate or trending less aggressively. In the latter case, the MIDAS analyst will resume his application of standard MIDAS curves.

The gallery in Figure 1 below illustrates the TB-F curve in uptrends and downtrends. In each case, the reader will notice how the standard MIDAS curve launched from the same pullback as the TB-F curve fails to support/resist the pullback to which the TB-F curve is “fitted”.

Figure 1: The Topfinder/Bottomfinder in uptrends and downtrends

Importantly, it must be noted that the TB-F indicator can also be constructed from Gen-2 curves. It can now therefore be applied in the cash forex markets as well in contexts where volume substitutes are being used such as intraday FX tick data and open interest.

With Gen-2 curves, the indicator also performs stably where volume trends are unreliable or excessive.

The MIDAS/AC Displacement Channel

This indicator was first developed by Andrew Coles in 2009 when it was then called the Anchored VWAP Channel. Work containing the indicator was first published in 2010. See “An Anchored VWAP Channel for Congested Markets,” Technical Analysis of STOCKS & COMMODITIES, volume 28: July, 2010. As the MIDAS book was being written, it was felt that the name of the indicator was inappropriate and it was changed to the MIDAS/AC Displacement Channel to accord with progress being made in the MIDAS project.

The term “displacement” derives from the plotting methodology of the indicator. On a percent scale, the two outer bands of the Channel are displaced from the central standard MIDAS curve until they “fit” the first two pullbacks that extend beyond the MIDAS curve. While there is a superficial resemblance to the “fitting” methodology of Topfinder/Bottomfinder curves, the theory is quite different, since the “fitting” in the case of the TB-F is determined by adding or subtracting cumulative volume to the curve’s parabolic formula. By contrast, volume is not a determinant in the “fitting” of the Displacement Channel.

Because standard MIDAS curves cannot be applied to sideways price movements, the Channel was developed for sideways markets in line with the aim of creating a set of MIDAS indicators that could be applied to every type of chart environment. While the Displacement Channel excels in sideways markets, it was quickly seen that the indicator also works well in mildly trending environments, albeit the Channel moves away from the price trend when the standard MIDAS curve does, making the application of the Displacement Channel to trending markets a shorter-term support/resistance tool only.

Figure 2 below is a gallery of charts illustrating the main role of the Displacement Channel in sideways market but also applying over the shorter term to mild uptrends and mild downtrends.

Figure 2: the MIDAS/AC Displacement Channel applied primarily to sideways markets but also to mild uptrends and downtrends

This survey of MIDAS indicators continues overleaf.







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