A framework for creating volatility-based technical analysis and trading it for profit
Volatility-Based Technical Analysis bridges the advantage gap between resource rich institutions and individual traders. It is a no-calculus, plain-English text that reveals original, highly technical, mathematical-based volatility indicators, complete with MetaStock® and TradeStation® code. With this in hand, any trader can "trade the invisible" by seeing a hidden mathematical structure on the price chart. Author Kirk Northington reveals his proprietary volatility indicators that serve as a market early warning system. Northington extensively teaches you how to build your own indicators, test them, and incorporate your original components into your specific trading methods.
- Walks traders through the mathematical techniques needed to create indicators that fit their own style
- Illustrates volatility-based entries and exits with over 170 descriptive chart examples
- Introduces two new concepts in technical analysis: Volatility Shift and PIV
Written with the serious trader in mind, Volatility-Based Technical Analysis has what you need to successfully trade today's institutionally dominated markets.
Table of Contents:
Preface xiii
Intended Audience xiv
What’s Inside? xiv
Acknowledgments xvii
PART ONE Are You Prepared? 1
CHAPTER 1 The Challenges 3
The Brain Power 4
The Horse Power 6
Options and VaR Ascendancy 7
Rain Clouds or Urine? 10
News Folly 12
Eyes on the Goal 13
CHAPTER 2 The Opportunities 15
Choose Your Battles 16
Take the Offensive 17
Prepare and Perform 26
Quiet the Noise 29
Opportunities Outnumber Challenges 30
CHAPTER 3 The Foundation: Preparations for Exploring Volatility-Based Technical Analysis 31
The Preparations Needed 32
Trading the Invisible Indicators: Original Development 33
Tenets of Volatility-Based Technical Analysis 34
Component Testing 40
MetaSwing QuickStart 40
Discover by Doing 51
PART TWO Seeing the Invisible 53
CHAPTER 4 New Volatility Indicator Design 55
Volatility Unmasked 56
Standard Deviation 57
Example: Volatility-Based Support and Resistance 61
Average True Range 66
Molding a Volatility-Based Indicator 69
The Whole Picture 83
Building Blocks 86
CHAPTER 5 Integrated Volatility Indicator Design 87
Volatility Pointed Forward 87
Projected Implied Volatility 90
More from the Math Toolbox 101
Using Tools to Leverage TTI ATR Extreme 107
Development Efficiency 114
Inventing Wheels: You’re Not Alone 115
Onward 126
CHAPTER 6 The Framework: A Structural Approach for Cross-Verification 127
Adopting a Structure 128
Think and See Volatility 129
The Framework Components 141
Constructing a Compound Derivative 146
The Framework 156
Going Forward 161
CHAPTER 7 Traditional Technical Analysis: What Works, What Doesn’t, and Why 162
Line Studies 163
Chart Patterns 173
Oscillators 185
Choose the Best 198
PART THREE Trading the Invisible 199
CHAPTER 8 Bull Bear Phase Prediction: The Intermediate and Short-Term Market Swing 201
Why Swing with the Market? 202
Intermediate-Term Market Direction 204
Short-Term Market Swing 211
Seek the Advantage 223
CHAPTER 9 Trading the Short-Term Reversal with Volatility-Based Technical Analysis—The Adeo 224
The Adeo Point 225
The Adeo Trend Rally 232
The Meandering Adeo 236
The Adeo Short 240
Adeo and FOREX 245
The Fractal Adeo 246
Open Your Can of Spinach 249
CHAPTER 10 Trading the Trend with the 1-2-3 250
Rectangles Everywhere 251
The Traditional Approach 253
The 1-2-3 Construct 254
The Daily 1-2-3 259
The Weekly 1-2-3 263
The 1-2-3: Inside and Outside 269
As Simple as 1-2-3 279
CHAPTER 11 Hidden Momentum with Adeo High Slope 280
We Are Experiencing Technical Difficulties; Please Stand By 281
Momentum Hide and Go Seek 283
Momentum Found 289
The Quick and the Broke 303
CHAPTER 12 Designing the Exit 305
The Objective: Optimize the Profit Target 306
Using Time Slicing to Understand Your Time Frame 310
Fifth-Grade Arithmetic 312
Exit Tactics 315
Achieving the Objective 331
CHAPTER 13 Correction and Surge: An Early Warning System 333
Market Breadth 334
The Correction Event 338
The Surge Event 348
The Best Free Advice 355
CHAPTER 14 Trading System Design: Detecting the Invisible 356
Seeing through the Fog of War 357
Nail It Down: Recognize the Specifics 358
The Importance of Believing 359
System Design Structure 360
System Design Tactics 365
Ask the Questions and Use the Advantages 382
APPENDIX A TradeStation Examples and Easy Language Code 384
Average True Range 384
The TTI ATR Extreme 386
The TTI Stochastic Extreme 393
The TTI Fabric LR 399
The TTI Trend Strength 403
The TTI RSIV 405
The TTI Composite 409
The Relative Exit 412
Correction and Surge 420
MetaSwing for TradeStation 423
APPENDIX B The PIV Options Advantage: Using Projected Implied Volatility to Trade the Butterfly,Condor, Strangle, and Straddle 427
PIV for the Butterfly and Condor 427
PIV for the Strangle and Straddle 436
PIV for Option Spreads 440
APPENDIX C About the Companion Web Site 441
Notes 443
About the Author 447
A Special Offer from MetaStock 449
Index 451
About the Author :
KIRK NORTHINGTON is the President of Northington Trading, LLC, a developer of technical analysis systems based on adaptive volatility for swing trading. The company's flagship software product, MetaSwing, is an add-on toolkit for users of MetaStock technical analysis software. In addition to system design, Northington Trading trades stocks on the NYSE and NASDAQ exchanges. Kirk has previously held positions in several Fortune 500 companies, with experience in engineering, digital control system design, and project management.
Review :
"While the book is written in an easy to understand style, Northington realizes that not every trader is a programmer. For that reason, he includes the MetaStock® and TradeStation® code for the original, volatility-based indicators that he presents in the book. With these examples in hand, any trader can apply the concepts which are explained in rich detail. Northington’s goal seems to be to teach the reader how to build indicators based upon unique market insights; test the indicators on a stand-alone basis; and incorporate meaningful indicators into trading methods that suit a trader’s personality. In doing so, he also provides a ready-to-go trading system that can be applied with days of beginning the book." (Market Technicians Association Technically Speaking, September 2009) "Northington presents a credible framework for trading volatile markets. His creativity and advocacy merit attention. New and advanced traders alike will benefit from grasping these concepts."
—SFO Magazine
