Is there a way to determine the average daily market range as expressed in Diagnostic Deviation?
Deviation Range?
darrell
#2
Great question!
The range is defined in the deviations themselves. i.e. 0 to +1 etc… i.e. 13.50 on the S&P 500 Emini Futures (ES)
The average deviation level could easily be calculated by simple doing a SMA of 1 deviation over say the past 14 days
i.e. totally the last .5 or 1 diagnostic deviations for the last 20 days and averaging them and plotting them each day moving forward
This would of course only work on daily bars as they are built on an implied deviation move in a 24 hour time period - so they could not be used on say 10 minute bars etc… like an ATR (average true range)
Average true range developed by Welles Wilder is the following: -current high less the current low. -the absolute value of the current high less the previous close. -the absolute value of the current low less the previous close. The average true range is a moving average (generally 14-days) of the true ranges.’
However the inherent flaw in the ATR is it is based upon past information and has nothing to do with future market expectations (only the thought that the past will determine the future) - unlike our deviation levels that use implied volatility (future market expectations of movement built into option pricing known as implied volatility) to obtain accurate market expectations of future volatility
To average out the deviation levels would not be useful for future price projection as the purpose of the price targets themselves is future price projection therefore there is no need for an average. There is no need for an average as you don’t need historical information as this is truly a leading indicator.
That being said…soon we will have the levels plotting on charts and will develop multiple tools based on them…the average itself could be used simply to see that the expectation of movement is higher/lower than “normal”…but it will be fun to have them in the platform on NinjaTrader as we develop and even remake a lot of current indicators using them in the calculations (similar to how we built the choppy market warning indicator as a remake of the volatile trend line using the CBOE volatility indices as part of the calculation)…
As you have ideas and want indicators developed for this tools let us know…we will put them in the pipe and keep producing more tools to help you in your trading…as you know all the tools we have were developed from my own need for them in trading and at the request of other traders here at apex…
If i have misunderstood your question and you need further clarification let me know…
If you have further questions on this or any other topics please let me know…