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

442 Pages·2012·12.299 MB·English

by  Andrew Coles, David Hawkins

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