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StockFetcher Forums · Filter Exchange · Elder's Market Thermometer<< 1 2 3 4 >>Post Follow-up
TheRumpledOne
6,362 posts
msg #66563
Ignore TheRumpledOne
8/22/2008 1:58:12 PM

MARKET THERMOMETER

A beginner needs to learn a battery of standard technical indicators and
start tweaking their parameters. Some traders create their own indicators
to gauge different aspects of crowd behavior and identify market
moves. Let us walk through the process of creating a new technical indicator
and see how to go about building your own private indicators.

All good indicators reflect some aspect of market reality. Market
Thermometer helps differentiate between sleepy, quiet periods and hot
episodes when market crowds become excited. It can help you adapt
your trading to the current environment.

Quiet markets typically have narrow bars that tend to overlap one
another. Hot, boiling markets tend to have wide bars whose highs and
lows extend far outside the previous day’s range. Beginners jump into
trades during those wide bars, afraid to miss a runaway move. If you
enter when the markets are quiet, your slippage is likely to be lower.
Hot markets are good for taking profits because then slippage may
work in your favor.

When gold recently ran up $40 in one week, a journalist asked a
famous investor whether it was a good buy. Gold was good, he said,
but the time to get on this bus was when it stood in front of the station,
and not rolling down the highway at 40 miles an hour. Market
Thermometer helps you recognize when the bus slows down in front
of the station, picks up speed, or roars down the highway.
Market Thermometer measures how far the most extreme point of
today, either high or low, protrudes outside of yesterday’s range. The
greater the extension of today’s bar outside of yesterday’s, the higher
the market temperature. Here’s the formula of Market Thermometer:

Temperature = the greater of either (Hightoday − Highyesterday)
or (Lowyesterday − Lowtoday)

To program Market Thermometer into Windows on WallStreet software,
use the following formula:

if (hiref(lo,−1), 0, if ((hi − ref(hi,−1)) >
(ref(lo,−1) − lo), hi − ref(hi,−1), ref(lo,−1) − lo)).

It is easy to adapt this formula to other software packages.
Market temperature is always a positive number, reflecting the absolute
value of either the upward or the downward extension of yesterday’s
range, whichever is greater. Plot temperature as a histogram
above zero. Calculate a moving average of market temperature, and
plot it as a line on the same chart. I use a 22-day EMA because there
are 22 trading days in a month, but feel free to experiment with shorter
EMA values if you want to make this indicator more sensitive to shortterm
swings.

When markets are quiet, the adjacent bars tend to overlap. The consensus
of value is well established, and the crowd does little buying
or selling outside of yesterday’s range. When highs and lows exceed
their previous day’s values, they do so only by small margins. Market
Thermometer falls and its EMA slants down, indicating a sleepy market.
When a market begins to run, either up or down, its daily bars start
pushing outside of the previous ranges. The histogram of Market Thermometer
grows taller and crosses above its EMA, which soon turns up,
confirming the new trend.

Market Thermometer gives four trading signals, based on the relationship
between its histogram and its moving average:
The best time to enter new positions is when Market Thermometer
falls below its moving average. When Market Thermometer falls below
its EMA, it indicates that the market is quiet. If your system flashes an
entry signal, try to enter when the market is cooler than usual. When
Market Thermometer rises above its moving average, it warns that the
market is hot and slippage more likely.

Exit positions when Market Thermometer rises to triple the height
of its moving average. A spike of Market Thermometer indicates a
runaway move. When the crowd feels jarred by a sudden piece of
news and surges, it is a good time to take profits. Panics tend to be
short-lived, offering a brief opportunity to cash in. If the EMA of
Market Thermometer stands at 5 cents, but the Thermometer itself
shoots up to 15 cents, take profits. Test these values for the market
you are trading.

Get ready for an explosive move if the Thermometer stays below its
moving average for five to seven trading days. Quiet markets put amateurs
to sleep. They become careless and stop watching prices. Volatility
and volume fall, and professionals get a chance to run away with the
market. Explosive moves often erupt from periods of inactivity.
Market Thermometer can help you set a profit target for the next
trading day. If you are a short-term trader and are long, add the value
of today’s Thermometer EMA to yesterday’s high and place a sell order
there. If you are short, subtract the value of the Thermometer’s EMA
from yesterday’s low and place an order to cover at that level.
I had two purposes in presenting the Market Thermometer. I wanted
to give you a new indicator, but even more I wanted to show you how
to use your understanding of the markets to design your own analytic
tools. Once you understand the principles of market analysis, you can
create your own indicators. Use your knowledge, understanding, and
discipline to get on the right side of the markets.
__________________

alf44
2,025 posts
msg #66564
Ignore alf44
modified
8/22/2008 2:14:59 PM

hmmmmm...

...sounds like Elder knows a bit about the importance of Range Contraction and Range Expansion in Chart Analysis !

Imagine that !


Love the first line too...

"A beginner needs to learn a battery of standard technical indicators and
start tweaking their parameters"


Too funny !!!

Sounds like sumpin' I might say (or, said) !!! LOL


Regards,

alf44


chetron
2,817 posts
msg #66569
Ignore chetron
modified
8/22/2008 6:30:42 PM

work in progress.....



/*
Temperature = the greater of either (Hightoday − Highyesterday)
or (Lowyesterday − Lowtoday)

*/

Fetcher[

set{TEMP_HI,HIGH - HIGH 1 DAY AGO}
SET{TEMP_LO,LOW 1 DAY AGO - LOW}
SET{EQUITY_TEMP,MAX(TEMP_HI,TEMP_LO)}

ADD COLUMN TEMP_HI
ADD COLUMN TEMP_LO
ADD COLUMN EQUITY_TEMP

DRAW EQUITY_TEMP ON PLOT TEMP_HI
DRAW TEMP_LO ON PLOT TEMP_HI

CLOSE ABOVE 1

SORT COLUMN 7 DESCENDING

]



chetron
2,817 posts
msg #66570
Ignore chetron
modified
8/22/2008 6:47:09 PM

A LITTLE BETTER.....
IE: TEMP ALWAYS POSITIVE, 22 DAY EMA

Fetcher[


set{TEMP_HI,HIGH - HIGH 1 DAY AGO}
SET{TEMP_LO,LOW 1 DAY AGO - LOW}
SET{VAR1,MAX(TEMP_HI,TEMP_LO)}
SET{EQUITY_TEMP,ABS(VAR1)}
SET{TEMP_EMA22,CEMA(EQUITY_TEMP,22)}

ADD COLUMN TEMP_EMA22

ADD COLUMN TEMP_HI
ADD COLUMN TEMP_LO
ADD COLUMN EQUITY_TEMP

DRAW TEMP_LO ON PLOT TEMP_HI
DRAW TEMP_EMA22
DRAW EQUITY_TEMP

CLOSE ABOVE 1

SORT COLUMN 8 DESCENDING


]



chetron
2,817 posts
msg #66571
Ignore chetron
8/22/2008 7:07:38 PM

AND FINALLY....


Fetcher[

set{TEMP_HI,HIGH - HIGH 1 DAY AGO}
SET{TEMP_LO,LOW 1 DAY AGO - LOW}
SET{VAR1,MAX(TEMP_HI,TEMP_LO)}
SET{EQUITY_TEMP,ABS(VAR1)}
SET{TEMP_EMA22,CEMA(EQUITY_TEMP,22)}
SET{TEMP_DIFF,EQUITY_TEMP - TEMP_EMA22}

ADD COLUMN TEMP_DIFF
ADD COLUMN TEMP_EMA22

ADD COLUMN TEMP_HI
ADD COLUMN TEMP_LO
ADD COLUMN EQUITY_TEMP

DRAW TEMP_LO ON PLOT TEMP_HI
DRAW TEMP_EMA22
DRAW EQUITY_TEMP
DRAW TEMP_DIFF

CLOSE ABOVE 1
TEMP_DIFF ABOVE 0

SORT COLUMN 8 DESCENDING

]



FuriousThug
256 posts
msg #66573
Ignore FuriousThug
8/22/2008 8:19:41 PM

How would you code the "explosive move if the Thermometer stays below its moving average for five to seven trading days?" The lines I put in came back with a recommendation to upgrade SF...

FuriousThug
256 posts
msg #66574
Ignore FuriousThug
8/22/2008 8:20:58 PM

Additionally, how is this more useful than, say, Bollinger differential?

FuriousThug
256 posts
msg #66575
Ignore FuriousThug
modified
8/22/2008 8:22:38 PM

Oh...and if you have TEMP_DIFF above 0, aren't you going to miss all the stocks that he recommends temp below the temp MA?

For example, MA (Mastercard) has spent the past 15 days or so in this state that Elder describes (temp below the EMA temp), but it shows up only if you lift the TEMP_DIFF above 0 restriction.

TheRumpledOne
6,362 posts
msg #66577
Ignore TheRumpledOne
modified
8/22/2008 8:56:06 PM

See how you are Chetron, didn't even me a chance to code it....LOL!

Nice work and thanks for sharing.

Fetcher[
/* Elder's Market Thermometer - Chetron Version */

set{TEMP_HI,HIGH - HIGH 1 DAY AGO}
SET{TEMP_LO,LOW 1 DAY AGO - LOW}
SET{VAR1,MAX(TEMP_HI,TEMP_LO)}
SET{EQUITY_TEMP,ABS(VAR1)}
SET{TEMP_EMA22,CEMA(EQUITY_TEMP,22)}
SET{TEMP_DIFF,EQUITY_TEMP - TEMP_EMA22}

ADD COLUMN TEMP_DIFF
ADD COLUMN TEMP_EMA22

ADD COLUMN TEMP_HI
ADD COLUMN TEMP_LO
ADD COLUMN EQUITY_TEMP

DRAW TEMP_LO ON PLOT TEMP_HI
DRAW TEMP_EMA22
DRAW EQUITY_TEMP
DRAW TEMP_DIFF


/* TRO STAT 10 PERCENT POPS PER WEEK DISPLAY */

set{xRange, high - low}
set{AvgRng, cma(xRange,5) }
set{HiOp, high - open}
set{Long_Profit, HiOp/open }

set{B10A, count(Long_Profit > .10 , 100)}

set{A10A, count(Long_Profit > .10 , 1)}
set{chg, sum( A10A - A10A 1 day ago ,5)}

and add column B10A {GT10%}
and add column AvgRng

add column chg{(wk)}
add column chg 1 week ago{(-1wk)}
add column chg 2 weeks ago{(-2wk)}
add column chg 3 weeks ago{(-3wk)}
add column chg 4 weeks ago{(-4wk)}
add column chg 5 weeks ago{(-5wk)}
add column chg 6 weeks ago{(-6wk)}
add column chg 7 weeks ago{(-7wk)}
add column chg 8 weeks ago{(-8wk)}
and add column separator
add column industry
add column sector
and add column separator


/* SELECTION CRITERIA */

CLOSE ABOVE 1
TEMP_DIFF ABOVE 0
average volume(90) above 500000

SORT COLUMN 8 DESCENDING

]





chetron
2,817 posts
msg #66578
Ignore chetron
8/22/2008 8:58:06 PM

what i did with finally, is that it shows the move, can anyone find an entry point bettter than when temp goes below 0?

StockFetcher Forums · Filter Exchange · Elder's Market Thermometer<< 1 2 3 4 >>Post Follow-up

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