MIDAS Technical Analysis: A VWAP Approach to Trading and Investing in Today's Markets

442 Pages·2012·12.3 MB·English

by  Andrew Coles

MIDAS
TECHNICAL
ANALYSIS
MIDAS
TECHNICAL
ANALYSIS
AVWAPApproachtoTradingandInvesting
inToday’sMarkets
Andrew Coles and David G. Hawkins
Copyright(cid:2)C 2011byAndrewColesandDavidG.Hawkins.Allrightsreserved.
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LibraryofCongressCataloging-in-PublicationData:
Coles,Andrew.
Midastechnicalanalysis:aVWAPapproachtotradingandinvestingintoday’smarkets/AndrewColes,David
Hawkins.
p.cm.
Includesindex.
ISBN978-1-57660-372-7(hardback)
1.Investments–Mathematics I.Hawkins,David(DavidG.) II.Title.
HG4515.3.C652011
(cid:3)
332.632042–dc22
2010047237
PrintedintheUnitedStatesofAmerica
10 9 8 7 6 5 4 3 2 1
Tomymother andthememoryofmy grandmother
—AndrewColes
Contents
Introduction xiii
AndrewColes
BiographicalSketch,PaulH.Levine xix
DavidG.Hawkins
Acknowledgments xxi
PARTI:STANDARDMIDASSUPPORTAND
RESISTANCECURVES
CHAPTER1
MIDASandItsCoreConstituents:TheVolumeWeighted
AveragePrice(VWAP)andFractalMarketAnalysis 3
AndrewColes
MIDASandItsTwoKeyBackdrops:VWAPandFractalMarketAnalysis 4
TheMIDASApproachasaGenuineStandaloneTradingSystem 20
Summary 26
CHAPTER2
ApplyingStandardMIDASCurvestotheInvestorTimeframes 29
DavidG.Hawkins
DefinitionsofTimeframes—TheTripleScreenTradingMethodology 29
MIDASCurveswithintheTripleScreenSystem 31
TheBasicBehavioroftheMIDASSupport/ResistanceCurves 31
EquivolumeCharting 32
WhatPriceShouldBeUsed? 35
Support/ResistanceBecomesResistance/Support 35
DistinguishinganUptrendfromaTradingRange 39
TheFoothillPattern 40
ATradingRangeTurningintoaDowntrend 41
TrackingaTrendwithaHierarchyofMIDASCurves 43
MIDASS/RCurvesforEntrySetupsandTriggers 46
SameLaunchPoint,DifferentTimeframes 48
SpecialStartPoints—TheLeftSide 50
SpecialStartPoints—TheInitialPublicOffering(IPO) 53
SpecialStartingPoints—TheDownGapandItsDeadCatBounce 55
SpecialStartingPoints—TheHighestRandtheLowestS 57
Summary 59
vii
viii Contents
CHAPTER3
MIDASSupportandResistance(S/R)CurvesandDayTrading 61
AndrewColes
MultipleTrendandTimeframeAnalysis 62
PartOne:TheMIDASSystemasaStandaloneDayTradingSystem 68
PartTwo:UsingtheMIDASSystemalongsideOtherTechnicalIndicators 82
CapturingToday’sHighandLowwithStandardMIDASS/RCurves 119
Summary 120
PARTII:THEMIDASTOPFINDER/BOTTOMFINDER
CHAPTER4
TheMIDASTopfinder/BottomfinderonIntradayCharts 125
AndrewColes
Levine’sTwoInsightsGoverningtheMIDASMethodology 126
PartOne:TheQuantitativeFeaturesoftheTB-FAlgorithm 126
PartTwo:TheEngineeringAspectofTB-FCurves 135
Summary 159
CHAPTER5
ApplyingtheTopfinder/Bottomfindertothe
InvestorTimeframes 161
DavidG.Hawkins
AMostUnusualIndicator 161
TheBasicProgramoftheTB-F 162
WhatisanAcceleratedTrend? 162
DiscoveringtheTopfinder/Bottomfinder 163
UsingtheTB-F 165
AnInterestingMathematicalObservation 166
FittingtheTB-FCurveinChartViewsOtherthanEquivolume 167
FittingtoMorethanOnePullback 170
NestedTB-Fs:TheFractalNatureoftheMarket 178
TB-FCurvesonDifferentTimeframes 180
BottomfindersAreSometimesProblematic 185
WhatComesafteraTB-FEnds? 187
Summary 188
PARTIII:THELONGER-TERMHORIZON,OTHERVOLUME
INDICATORS,ANDBROADERPERSPECTIVES
CHAPTER6
ApplyingMIDAStoMarketAverages,ETFs,andVery
Long-TermTimeframes 193
DavidG.Hawkins
UsingMIDASwiththeIndices—TheS/RCurves 195
TheValidityofVolumeData 198
UsingMIDASwiththeIndices—TheTB-F 201
Contents ix
UsingExchange-TradedFundsInsteadofMarketIndices 202
MIDASAppliedtoLong-andVeryLong-TermTimeframes 205
Backto1871 209
InflationAdjustment 209
ACloserLookattheVeryLong-Term 211
TheVeryLong-TermHorizontalS/RLevels 213
TheBavarianDeerHerd 214
WhatCanBeSaidabouttheVeryLong-TermFuture? 215
Summary 218
CHAPTER7
EquiVolume,MIDASandFloatAnalysis 219
DavidG.Hawkins
TheBasicPrinciple—“VolumeLeadstoVolume” 219
WhyDoesPriceProjectionWork? 221
TheConnectionbetweenPriceProjectionandtheTopfinder/Bottomfinder 223
UsingPriceProjection 224
SteveWoods’FloatAnalysis 227
VolumePeriodicity 230
Summary 237
CHAPTER8
PuttingItAllTogether 239
DavidG.Hawkins
TrendFollowing 239
CallingBottoms 249
BaseBreakouts 251
Summary 254
PARTIV:NEWDEPARTURES
CHAPTER9
StandardandCalibratedCurves 257
DavidG.Hawkins
DiscoveringtheCalibratedCurves 257
Examples 258
Summary 267
CHAPTER10
ApplyingtheMIDASMethodtoPriceChartswithout
Volume:AStudyintheCashForeignExchangeMarkets 269
AndrewColes
MIDASandCashForeignExchangeMarkets 269
AComparisonoftheMIDASS/RCurvesUsingCashFXIntradayTickDataand
IntradayFuturesVolumeData 270
AComparisonoftheMIDASTopfinder/BottomfinderCurvesUsingCashFX
IntradayTickDataandIntradayFuturesVolumeData 273
OptionsintheCashForeignExchangeMarketsforHigherTimeframeCharts 275
x Contents
Options1and3—ReplacingCashForexMarketswithFuturesMarketsor
CurrencyETFs/ETNs 276
UsingMIDASS/RCurvesinMarketswithoutVolume:TheDailyandWeekly
CashFXCharts 277
UsingMIDASTopfinder/BottomfinderCurvesinMarketswithoutVolume:The
DailyandWeeklyCashFXCharts 280
Summary 283
CHAPTER11
FourRelationshipsbetweenPriceandVolumeandTheir
ImpactonthePlottingofMIDASCurves 285
AndrewColes
RelationshipsbetweenPriceandVolumeTrendsandtheFourRulesAffectingthe
PlottingofMIDASCurves 286
ApplyingtheRulestoApplicationsofStandardandNominalMIDASS/RCurves 290
UsingRelativeStrengthorRatioAnalysis 294
Summary 296
CHAPTER12
MIDASandtheCFTCCommitmentsofTradersReport:
UsingMIDASwithOpenInterestData 297
AndrewColes
AnOverviewofOpenInterestandOpenInterestDataOptions 298
TheOrthodoxInterpretationofChangesinOpenInterest 299
AFirstLookatStandardMIDASSupport/ResistanceCurveswithOpenInterest 300
PursuingMIDASandOpenInterestMoreDeeply 302
ConciseOverviewoftheCommitmentofTraders(COT)Report 302
UnderstandingtheMainPlayersintheLegacyReport 303
IdentifyingtheKeyPlayersintheCOTReport 304
ChoosingtheAppropriateCategoryofOpenInterest 307
MIDASandTotalOpenInterest 308
ChoosingbetweenCommercialandNoncommercialPositioningData 312
MeasuringtheMarketwithCommercialNetPositioningData 315
MIDASandCOTReportTiming 318
ComparingtheCommercialNetPositioningIndicatorswithMIDASusing
NoncommercialNetPositioningData 319
AdditionalReading 327
Summary 328
CHAPTER13
PricePorosityandPriceSuspension:TheCausesofthese
PhenomenaandSeveralPartialSolutions 331
AndrewColes
PorosityandSuspensionIllustrated 332
IdentifyingtheCauseoftheTwoPhenomena 333
SolvingtheProblemoftheTwoPhenomena 334
Summary 342
Contents xi
CHAPTER14
AMIDASDisplacementChannelforCongestedMarkets 345
AndrewColes
TheProblem:MeanReversioninSidewaysMarkets 346
TheSolution:ApplyingaDisplacementChanneltoSidewaysMarkets 348
MIDASDisplacementChannelMethodology 349
TradingImplicationsoftheMDC 349
AdditionalForecastingImplications 349
AdditionalBenefit:ApplyingtheMDCtoTrendingMarketstoCaptureSwing
HighsinUptrendsandSwingLowsinDowntrends 350
SecondBenefit:ApplyingtheMDCtotheProblemofPricePorosity 353
ComparingtheMDCwiththeMovingAverageEnvelope 355
TheMDCinRelationtoTopfinder/Bottomfinder(TB-F)Curves 356
TheMDCinRelationtotheMIDASStandardDeviationBands 356
FeaturesoftheMDCinRelationtootherBoundaryIndicators 356
Summary 357
CHAPTER15
MIDASandStandardDeviationBands 359
AndrewColes
TheMIDASStandardDeviationBandsinSidewaysMarkets 360
TheMIDASStandardDeviationBandsinUptrendsandDowntrends 361
BandAdjustmentforShorterTimeframeAnalysis 363
TheMSDBsandNarrowingVolatility 363
ComparingtheMSDwiththeMIDASDisplacementChannel 364
AlternativestoStandardDeviation 365
TradingwiththeMIDASStandardDeviationBands 368
Summary 370
CHAPTER16
Nominal–OnBalanceVolumeCurves(N-OBVs)and
Volume–OnBalanceCurves(V-OBVs) 371
AndrewColes
OnBalanceVolumefortheUninitiated 371
Nominal–OnBalanceVolumeCurves 373
TheDipperSetup 377
Volume–OnBalanceVolumeCurves 377
FurtherChartIllustrations 378
Summary 381
CHAPTER17
Extensions,Insights,andNewDeparturesinMIDASStudies 383
AndrewColes
MIDASCurvesandVolume-BasedOscillators 384
CorrelationAnalysisasanEffectiveOverbought/OversoldOscillator 389
TheContributionsofBobEnglish 391
Summary 400
xii Contents
APPENDIXA
ProgrammingtheTB-F 403
DavidG.Hawkins
APPENDIXB
MetaStockCodefortheStandardMIDASS/RCurves 411
AndrewColes
APPENDIXC
TradeStationCodefortheMIDASTopfinder/Bottomfinder
Curves 413
BobEnglish
Notes 417
AbouttheAuthors 433
Index 435