A wide movement.

Traders like a term “volatility”, it characterizes level of variability of the market. The word “range” (diapason) is also used; it means average change of the price rate within certain time period. For example, such phrase as “a day’s range of futures of the RTS index was 2500 points within recent week” has a right to exist. АТR or «Average True Range» is more exact definition of the price rate change within specified time. It is calculated for N periods of time and in each of them the largest value from all possible is defined:

difference between minimum (Low) and maximum (High);

difference between maximum (H) and previous close (C);

difference between minimum (L) and previous close.

Minimum and maximum (L and H) of previous period don’t take part in its calculation exclusion only if one of them doesn’t concur with the close level. It is made to appreciate width of the movement which takes part during the last time period starting with a price of previous closing.

It would seem why additional term “wide movement” is needed? To my opinion the fact is that the criterion of the price rate movement value is needed as a sign of the fact that prices got required amplitude, the period of the market vagueness is over and trend indicators ceased to give false signals. It is also necessary to note for validity that I’m speaking about liquid market (stock or futures) with considerable volumes.

Using such tools, marketmakers as players with big funds, build a saw in any case of market confusion. For sure you have been observing not once as a price which was unpredictably moving with dashes up and down builds straight horizontal halls. Nothing of the kind of technical analysis!

I’d take a risk to suppose that behind of each saw is a robot of  a marketmaker and dispatchers, who are firmly following levels or trading halls defined by leaders during vagueness of market mood. They look after the robots also. Their limits of the value and range are also approximately the same for robotic systems while main staff eats a lunch or drinks beverages in the quite of the evening session. A range like that or saw price limits may be defined quite exactly both empirical and calculating way using statistical data for many months. It is possible due to traders are conservative being the children of the nature. After all if the method works what’s the sense to change something in adjustments? Thus these levels are memorized by other market participants, and they put down all possible trends, support and resistance lines.

It happens sometimes that Marketmaker makes mistakes. He bears loss. He stands against a market as he must do it under the contract to keep bilateral quotes. But market doesn’t pay any attention to it and keeps indifferently flowing further. Moments like that are rather uncommon than a rule. And after such a recoilless asphalt work, we should expect three times longer periods of MM-robots’ bumpy activity accompanying by picking the pockets of small players and optionists. Marketmakers who own enough money for futures hedging and have a privilege, are endlessly formulating private rules of etiquette and respect each other forcedly. They return market to the chosen levels and there sell options, which other market participants like to buy. They absorb temporary bonus having threatening with sudden price subductions to both sides sometimes. They bear temporary loss and pick up fourfold harvest during expiration. For high stakes.

According to the rule of recursiveness we can observe the same processes in miniature inside a day. Scalpers and spreaders are already fighting not for pieces but for crumbs but with the same passion. Therefore size of wide movement is different for different time periods and different tools.

How to define them? Statistically it is possible to calculate a basement for making a decision only to use them practically in your favorite timeframes you should daily-weekly-monthly correct them including use of forecast methods (see my article “Forecast and its place in the trading system”)

To cut off false signals, that means to define low limit of wide movement in my trend indicators such as Piano and Sum, I use the option “saw level” which can be specified by user. It makes trader’s tasks easier, and lets to automatize trading process in present conditions for lets a trader not to keep watching marketmaker’s jumps up to crazy eyes.