Wednesday, January 13, 2010

ALSI daily range – PART II

In my post from 26. October 2009 I’ve posted chart with ALSI daily range. Today we will take a look at what the changes are and how daily range compares to gap size (on 5min chart) over last 14 months.

As one can see from first chart, daily range dropped even further and now is seating bellow 500 points, but this can be due to December effect with low volatility. It is interesting to see that from around Jun 2009 daily range is bellow mean value and it was only once above 1 standard deviation. Most of the time daily range spent bellow mean, very close to -1 standard deviation.

Our systems are not working as they should because we have 2-3 days in one direction with 450 points move, instead of 2-3 days in one direction with 800 points move in a day. We need about 300-400 points for system to stop us out and give new signal, so we use already 600-800 points on both sides and all in all we are left with 400 points in the middle of the trend.

On the second chart gap size is plotted in both directions. So, gaps down are plotted bellow 0 line and gaps up are plotted above 0 line. Mean value for gaps is around 0, with relatively symmetrical distribution. Gap size dropped in line with daily range even though there were two or three massive gaps on downside.

Also, I find this interesting as there were few gaps in the range of 700-900 points late in year 2008.

Trade with trend!


Anonymous said...

Excellent commentary.
Thank you Igor and keep them coming.

Alsi Trader said...

Thank you Anonymous!

Anonymous said...

Igor, have you ever traded your system in such a low daily range? If so, what were the results like then?

Alsi Trader said...


We don’t lack daily follow through, but there is a problem with daily range which is causing stop-loss level to be breached before market turns into original direction once again. If we have some bigger gaps (consistently and in direction of the trade) in this low daily range environment, all would look better.

I don’t have enough data on performance of this system in very quiet environment. My assumption is that system will not lose points, but will not make much either, until we get some volatility with follow-through remaining intact.

Thank you for the question.

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