Summary Essay: Essay Seven (continued)
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MIDAS/AC Quadrating Price Levels (continued)
Variable #4: Adaptation to the intraday timeframe chosen
Let’s now turn to the final way the levels adapt, that is, according to the intraday timeframe chosen.
I noted that Figure 6 above is a 30m chart over two trading days. Figure 7 below is the same two day period but this time with a 5m chart. The reader will see that the levels have narrowed considerably as a result of the reduction of the timeframe.
I’d recommend that the day trader adjust his or her timeframe according to the initial range expansion during the first hour of trading. If the range is narrow, a 5m to 10m timeframe can be selected so that the Quadrating Levels are “fixed” to the high and low of the first hour. If the range is much wider, the trader can choose a 30m or 60m timeframe. Some days have exceptionally wide ranges and in such cases the trader can choose a 120m, 180m, or 240m timeframe.
Figure 4: Narrower adaptation of the levels to a 5m DAX futures chart
Readers familiar with my approach to the MIDAS project will know that a recurrent feature of my indicators is the “fixing” methodology. In my MIDAS/AC Displacement Channel, the fixing is created by means of a percentage displacement. In my MIDAS/AC Normal Deviation Bands, the fixing is achieved by means of deviation calculations. Here in the Quadrate Price Levels the fixing is created through chart timeframe changes.
Approach: Combining the Outer Levels and Inner Levels on a 30m Chart
First, as noted earlier, a day trader will select the daily timeframe and project onto today’s chart the five levels, Q5 to Q1, for his or her “outer levels”. If weekly or monthly levels are very near to the price action, these levels will also be noted.
Next, the day trader can observe the first hour’s trading and select an intraday timeframe to create the “inner levels”. The timeframe might be as low as 5m or even less, or it might be 60m or higher. Timeframes can obviously be adjusted further as the trading day continues.
Figure 5 below is the second of the two trading days already selected in Figure 3. First, the three horizontal blue lines are Q4, Q3, and Q2. Levels Q5 and Q1 are too far away to be noteworthy. As can be seen, Q3 – always the middle curve of the five – is a clear support for a large portion of the day while Q2 accurately forecasts the low of the day. Second, the 30m “inner levels” capture all of the remaining price action, including the high of the day.
Figure 5: Combining the “outer levels” and “inner levels” on a 30m DAX chart
Motivation for new indicator
MIDAS curves are based on Paul Levine’s Inflection Point Philosophy which, simply put, states that the volume-weighted average price (VWAP) must be moored to the point of change in the trend if it is to identify subsequent areas of support and resistance.
In Chapter 16 of the MIDAS book and subsequently in two Active Trader articles I extended this idea to out-of-reach inflection points in Fourth Generation (Gen 4) curves on an extensive range of financial datasets. This has now resulted in a large number of Gen 4 curves applied to volume, momentum, sentiment, intermarket RS lines, spread analysis, and economic time series.
The new indicator extends the Inflection Point Philosophy further by applying it to potential inflection points.
Conclusion and Summary
As the name implies, the fundamental feature of Quadrating Price Levels is their relative adjustment. As well as adjusting to daily, weekly, and higher timeframes like standard Pivot Points, Quadrating Price Levels also adjust according to:
Because of the volume input and other formula features, Quadrate Price Levels are not coextensive with standard Pivot Points. Sometimes there is an overlap between the indicators but this is usually an overlap between unlike levels – for example, Q3 overlapping with R1 or S1.
Quadrate Price Levels are based on an extension of Paul Levine’s Inflection Point Philosophy, this time by extending it to the idea of potential inflection points rather than out-of-reach inflection points in my Fourth Generation (Gen-4) curves. This means that the indicator can be used as a standalone indicator or in relation to other technical analysis indicators or other MIDAS indicators.
Finally, this indicator can also be constructed from Gen-2 curves, thus extending it to the cash forex market, as well as Gen-4 curves, thus increasing its application to other financial datasets possessing fractal trend characteristics.
MIDAS/BE Detrended Curves Oscillator
Developed by Bob English and discussed in the final chapter of the MIDAS book, the basis of this indicator is the percentage price deviation from a given MIDAS curve. Like other oscillators, trend lines and horizontal support and resistance lines can be applied to the indicator, resulting in additional inflection points. I’ve highlighted the importance of hidden or out-of-reach inflection points elsewhere, especially in relation to Gen-4 curves and the Quadrating Price Levels.
Figure 6 below is a long-term secular cash chart of the Dow Jones Industrial Average from the 1932 low. It’s notable that the two lowermost horizontal support lines served as support in 1933, 1938, 1942, 1974, and again most recently in 2008.
Here the indicator is plotted on a secular degree timeframe but it can be applied to any timeframe to provide timely insight into support and resistance levels and indicator-based trend line analysis.
Figure 6: Secular cash chart of the DJIA with the MIDAS/BE Detrended MIDAS curve oscillator
Again this is to remind visitors that this essay and several indicators in it are the intellectual property of Andrew Coles and that no unaccredited use of any of this material is permitted. - © Andrew Coles
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