No posting yesterday — I was fishing. Had a great time!
I was thinking yesterday about the fact that different markets have different behavioural characteristics — some mess about, some move quickly from place to place, some are volatile, some are quiet, and so on. The thing is, one learns these characteristics over a short time frame, but they do change over a period of years. This means that the lessons one learns about certain markets this year might not be applicable next year.
I have therefore started putting together a “market personality” (term, and some ideas, from Brett Steenbarger) page. It presently has the following four indicators (all breakouts are 20-day new highs/lows on greater than 10-day moving average volume and true range greater than 10-day moving average true range):
- Breakout success rate, as measured by whether the market has moved in the direction of the breakout 10 days later (120-day moving average of this is shown on the chart).
- Volatility, measured by the average true range over 20 days.
- Breakout momentum — the probability that a breakout is followed by a move in the same direction the following day (120-day moving average of this is shown on the chart).
- 2-day momentum — the probability that an up-day is followed by an up-day or a down-day is followed by a down-day.
The indicators for upward moves are green, and those for downward moves are red. Momentum and success rate calculations are done over a rolling 12-month period. I have played with different breakout lengths and different smoothing averages, but they seem to give pretty much the same picture as the ones I have used.
Can anyone think of any other indicators to add?
Here is a screenshot for the S&P 500: