Saturday, 27 November 2021

Some TV Indicators I like

 TL Enhanced volume

TraderLion’s Enhanced Volume has the following features highlighted below.

  1. High Relative Volume Bars: Clearly highlight high relative volume bars with a high closing range lime green for the best interpretation of volume on your Daily & Weekly Charts.
  2. Low Relative Volume Bars: Clearly labels low relative volume days with a down arrow to interpret constructive price & volume action on your Daily & Weekly Charts.
  3. Volume Labels: High volume days are labeled to show 2 things: Total shares traded and Percent above average
  4. Highest Volume in Over a Year: Look for the letters HV on top of the volume bar to identify this powerful characteristic.
  5. Simple Moving Average: SMA overlay on your volume without taking up limited indicator slots.
  6. High Relative Volume Alerts: Set alerts that trigger when the volume surpasses the High Relative Volume Threshold.

TL Relative Strength

  1. Pink Dot symbolizes the RS Line reaching new highs before price. RS New Highs Before Price (RSNHBP) is often indicative of a break out emerging.
  2. Direction-Based Relative Strength . When the line moves up it will be blue, and on the way down pink. Easily glance and see phases of relative strength on the chart.
  3. Raw RS Rating - The RS Line Script features an RS Rating from 1-99 with 99 being the strongest rating. The measures the stock’s performance relative to the Index you input.

Curvature of Meniscus 

is a hybrid indicator comprised of three parts:

  1. The first part is a heavily modified Demarker RSI which is represented as the histogram and is the main trend indicator C1.
  2. The second part is the 0 line which is replaced by the Waddah Attar Explosion V2 indicator C2.
  3. The third part is the background color which is borrowed from the Klinger Safety Zones volume indicator Vol.

It is smooth and has almost zero lag. The signals can be used as per nnfx C1-C2-Vol algorithm.

  • The DeMarker indicator is relatively unknown to trading beginners but enjoys huge support from the more experienced traders. 
  • The indicator measures the strength of a trend and thus can give you a warning when a change in the trend direction might occur. 
  • This can not only help you to find new trade entries but also prevent you from entering into losing trades or letting your open trades  run and ultimately result in a loss.

The line of the indicator is calculated as follows: First the indicator finds the minimal and the maximal value of the specified period. 

Afterwards those values are used to calculate the moving average of these values which then is displayed in the chart. Just like most oscillators the DeMarker indicator uses oversold and overbought zones at 0.3 and 0.7 to define good entry opportunities.

The "Curvature of Meniscus" indicator has the DeMarker indicator/ RSI modified in three different ways:

  1. Smoothed and almost no-lagged;
  2. Colored histogram to determine the trend and the divergences;
  3. An early signal line for those who like to take counter-trend trades/reversal entries.

TraderLion Reversal Bars 

  • Oops Up - Price opens below prior day’s close and closes above. Concept by Larry Williams
  • Kicker - When the prior day closes down and the current day gaps above the entirety of yesterday’s action signaling a clear momentum change.
  • Three Bar Break - Price breaks above prior 3 closes and closes above on above-average volume .
  • Upside Reversal - Today’s price undercuts the prior day’s low but closes the day on a >= 50% closing range
  • Power of 3 - Power of 3 shows the strength and demand of stock to get through the 3 widely followed moving averages (10, 21, 50 daily moving averages)
  • Outside Bullish / Bearish Day - Price closes above/below the prior day’s high/low.
  • Up/Down volume ratio. IBD defines U/D ration as "A 50-day ratio that is derived by dividing total volume on up days by the total volume on down days. A ratio greater than 1.0 implies positive demand for a stock"

Consolidation - Squeeze Indicator


LizardIndicators’ Squeeze Indicator:

The Squeeze indicator identifies one of the following scenarios:

  • Low volatility squeeze: Occurs when the standard deviation reaches a period of low volatility, compared to the 120 bar lookback period.
  • Consolidation squeeze: Occurs when the Bollinger Bands narrow in width, moving inside the Keltner channels (range bound market).
  • Full squeeze: Occurs when both of the above scenarios apply at the same time, i.e. low volatility as indicated by standard deviation for the lookback period, and low true range volatility.

For the Bollinger Squeeze, we want low volatility (but not minimum) when compared to the 120 bar lookback period. By default, the threshold is set to 1.2. By increasing this value, the low volatility definition will become more stringent, effectively delivering fewer low volatility setups.

All of the above squeeze indicator breakouts must be aligned by two momentum periods, 10 and 25 bars. Also, in order to eliminate distortions from the lookback period (and reduce noise signals), the Balanced Momentum calculation is used

Finally, the squeeze indicator breakouts have to confirmed by price action, i.e. Thrust Bars. For long signals, the signal bar has to close above the high of the previous bar. For short signals, the signal bar has to close below the low of the previous bar.

Source:  https://www.lizardindicators.com/squeeze-indicator/


Conditions for a robust strategy

 I had read this somewhere and noted but do not remember the source. When backtesting any strategies on TradingView, we need to compile various parameters that arise for a strategy. 

  • Minimum of 100 trades (prefer multiple hundreds)
  • At least 10 years of data (use all the data you can find)
  • A statistical significance factor  [ Profit Factor * sqr ( number of trades ) >= 30 ]
  • 20% or more Out-of-Sample data used
  • Out-of-Sample Profit Factor divided by In-Sample Profit Factor > 70
  • Net Profit divided by Max Drawdown > 10
  • Over all Profit Factor >= 2

Score = Profit Factor * sqr ( Number of Trades )  * ( Net Profit / Max Drawdown ) * ( Out-of-Sample Profit Factor / In-Sample Profit Factor )

  • Any strategy that scores above 400 is worth trading.
  • Score should be preferably above 30

Saturday, 6 November 2021

Delta of an ATM option and more

 According to most books the ATM option is the option with a delta of 0.50. However, this is only the case when the distribution is normal. The more positively skewed the distribution, the further the 0.50 delta option is out-of-the-money (for calls). 

The formula to calculate the 0.50 delta option strike is equal to: S . e^(σ^2/2)


Interesting Observations About Options

  • Even in a continuous distribution, the higher the volatility, the more positively skewed the distribution, the further OTM the 50d call strike lives.
  • The cheapest straddle will occur at the median outcome or the ATM strike. 
  • The most expensive butterfly will have its “body” near the theoretical mode. This makes sense since a butterfly which is just a spread of 2 vertical spreads is a pure bet on the distribution. If you chart the price of all the butterflies equidistantly across strikes you will have drawn the probability density function implied by the options market!
In Black Scholes:
  • The term for delta is N(d1).
  • The term for the probability of finishing in the money is N(d2).

What’s the relationship between d2 and d1?

  • d2 = d1 – σ√t

The math defines the relationship we figured out intuitively:

The higher the volatility the more delta and probability will diverge!

Delta and probability are only similar when an option is near expiration or when it’s vol is “low”.


For more read: 

https://moontowermeta.com/lessons-from-the-50-delta-option/