MC240. Trend & Market Conditions all-in-one

[zentauro67]

This thread is intended to be a small lab to adjust 240 LWMA differently, adding six levels to the main signal.

240 is a great tool to determine the direction of the trend, but can also give clues about market conditions, warning us if we are in a trend scenario, medium trend, range, dead range, or even showing disturbances of a nervous market (whiplash, Porcupine, etc) where it would be best not take any trade and wait outside.

My expertise on moving averages is superficial and the reason for opening this thread is to benefit from the wisdom and knowledge from others.

I've practiced a little with this 6 levels 240, and I could get some first conclusions, which could be true or erroneous and that I hope can be discussed here.

I call it MC240 provisionally, since its purpose is to show the Market Conditions as well as the trend.

First of all, let's see how to build it.

The center line should be of a bright color that stand out. I chose the magenta. Its thickness is the maximum.

set1.jpg

Add six levels. 25, 50, 75 and -25 -50 -75. The color should be darker (I have chosen purple) and also the maximum thickness.

set2.jpg

Okay, now let's see how MC240 reads a strong trend, like the recent AUDUSD.

healthy trend audusd.jpg

We see that the dark lines are tightened so much that we can´t see the magenta line. This seems to be the best sign of a strong trend. The less we see magenta line the healthier will be the trend.


Now let´s apply it to a pair that could be considered among the 'wide range' or limited trend: EURUD.

almost range.jpg

We can see the magenta line, but the dark lines are reasonably compact, so there is some background health and trading is absolutely advisable under a trend following system as 10.4.


Ranging pairs is another history. This is EURGBP.

erizo y range eurgbp.jpg

Dark lines open indicating small range movements. Here a trend following system is undesirable as 240 crosses happen all the time. If you want to trade a pair like this, delete 240, pivots, etc. and draw boxes, channels... You can apply a template specialized in ranges. (Stoch, Slipshod´s SR indi, and BB)

Whiplash markets (were you´ll be killed) show a similar shape.


Now let's see how MC240 reads a dead range situation, as occurred some months ago in EURCHF.

nasty range eurchf.jpg

Dark lines open, forming a kind of fence. These are the worst conditions imaginable for a trend following system.


Summarizing the initial findings: to enter with confidence into a trend, we must first know whether bullish or bearish but also if the market conditions are favorable or it should be advisable to wait. This MC240 could be used as a tool to determine both.

Surely, there are better levels settings and colors choices. These are just a first proposal.

Greetings.

[garyfritz]

Creative idea! One warning, though: relying on line spacing to show different conditions is problematic. Zoom your chart in and out, or change the size of your chart, and you'll change the spacing. You want something that will display the same no matter how you display it.

[zentauro67]

Creative idea! One warning, though: relying on line spacing to show different conditions is problematic. Zoom your chart in and out, or change the size of your chart, and you'll change the spacing. You want something that will display the same no matter how you display it.

Hi, Gary.

The two levels of zoom I use show the same shapes. Even a extreme zoom out show clearly if dark lines are tigtht or separete from magenta. As far as I can see, zoom is not a problem. But I´ll keep it in mind and check different charts.

[garyfritz]

Here's the same 8-12 Apr period in AUDCHF. Zoom out and it's a solid line; zoom in and it's widely spaced. You can get the same change by stretching the chart vertically.

[SteveHopwood]

Creative idea! One warning, though: relying on line spacing to show different conditions is problematic. Zoom your chart in and out, or change the size of your chart, and you'll change the spacing. You want something that will display the same no matter how you display it.

Hi, Gary.

The two levels of zoom I use show the same shapes. Even a extreme zoom out show clearly if dark lines are tigtht or separete from magenta. As far as I can see, zoom is not a problem. But I´ll keep it in mind and check different charts.

A word to the wise, my friend, and no threat intended I promise.

Fact is, Gary is one of the brightest contributors here - and that is out of a group of seriously brilliant and talented individuals.

When Gary speaks, just listen, ok? I have yet to catch him out not knowing what he is talking about.

[garyfritz]

Oh trust me, Steve, there are plenty of times when I have no idea what I'm talking about. I just try to avoid doing it where you can catch me at it.

[zentauro67]

What impresses me about Gary is that I spent several days testing this MC240 and he has been able to find its weak point (zoom) just a minute or two after I opened this thread (!). I´ve reading his CSS slope stuff and no doubt he is first class.

About the zoom, it is true that if the graph is highly compressed lines are so melted that is not easy to read. Judging by the graphics posted here, most of users have two favorite zoom levels. I always use also these two levels and it is very rare I go further away. Only use extreme zoom to see very long-term trends. In these two most used levels (medium zoom) is quite easy to see the opening of the level lines and the melting effect on the center signal.

The idea of ​​using the maximum thickness is to create this overlapping effect of the center line, but this is not so important. Just a visual trick. The essential factor to consider is if the level lines are thight (healthy trend) or separated (range or sick market).

Maybe we can quit the overlap effect of the center line and focus in the spread of the level lines. In this situation, it would be interesting to use the minimum thickness with 8 or 10 levels.

Keep trying over the next few days to find the setting that best suits the zoom levels.

So far, in the practical side, MC240 is being very helpful to take or not some trades. Last night, I avoided a USDCAD (that should failed), because of the spreading of level lines.

[garyfritz]

To be honest I'm not quite sure what the +25 +50 +75 etc levels DO. I don't know how the MA indicator is calculating them. (Do you?) With indicators like RSI, adding levels of 80 and 20 draws lines at those values. But what does +25 mean when you're plotting values like 0.8935 or 115.46 ?

If we can figure out what the indi is doing, or better yet decide what you WANT it to show, then we can create a different indicator that shows the relevant values independent of zoom level. It may not even be necessary to write a new indi, if what you're trying to show is basically ATR or something like that.

[zentauro67]

Hi, Gary

To be honest I have not a clue of the theoretical basis behind the levels applied to a moving average. I confess my ignorance. I was just playing with the settings for a boring weekend... I've been testing the effects without understanding the causes. It is always dangerous to use an indicator without understanding in depth how it works, that's why I have opened this thread, with the hope of learning.

I've been watching how MC240 acts in different pairs under different conditions, and I´m surprised how well it works reading the different markets. For example, level lines spread in EURGBP for several weeks of ranging and as soon as a trend starts the level lines converge very quickly and the 240 suddenly looks compact, giving you a green light to enter the market. How is this working? I have no idea.

[garyfritz]

I wonder if it's just a scaling artifact. When the market is flat, you have a narrow high-to-low range, and you're effectively zoomed in. When the trend starts, you have a larger H-L range, so you zoom out.

Try scaling or zooming your chart so you cover the same H-L range during a trend that you cover during the ranging period...