Measuring Trend and Trendiness

Measuring Trend and Trendiness - Measuring Trend and...

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Measuring Trend and Trendiness Brett N. Steenbarger, Ph.D. www.brettsteenbarger.com One of the challenges of short-term trading is that markets alternate between periods of directional trade (trending) and periods of non-directional trade (bracketing). Similarly, markets shift between episodes of relative volatility and non-volatility. These ever-changing cycles can play havoc with trading strategies, rewarding buying and holding at certain junctures and quick taking of profits/losses at others. For a considerable time, I have worked on the issue of identifying trending/non- trending markets as they are occurring—and particularly as they are shifting from one to the other. My longstanding and best effort in this vein was something I dubbed the “Power Measure”, which seemed to capture “trendiness”: the degree to which a market was tending to trade directionally. During my research, I became convinced that thinking of trend as a noun was an error. Rather, we should think of a market’s trendiness, as the tendency for direction to persist waxes and wanes. This allows us to focus on buying
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This note was uploaded on 10/21/2010 for the course BUSINESS 19450 taught by Professor Goldberg during the Fall '10 term at Saddleback.

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Measuring Trend and Trendiness - Measuring Trend and...

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