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"The $50 Trade" The Hudson Pv indicator is not part of The $50 Trade eBook, which is itself a powerful set of statistical SPY trading strategies. SPY Synthetics quarterly forecast video |
Hudson Pv Indicator Free to you. Our way of saying thanks for supporting the site over the years. |
Tues. Feb. 21
Hudson Pv snapshot below (for Wed. trading) |
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A
free service of orangequant.com please read disclaimer About the Pv If you randomly traded the SPX for a long period based on the idea that "sometime" tomorrow there would be a price greater than today's close, you would be right only about 66% of the time. If you did the same but believing there would be a lower price "sometime" tomorrow, you'd also be right about 66% of the time. But about 33% of the time prices are ALL either above OR below the close of the previous day. An advantage of Pv is knowing whether there will be a price above or below the previous day’s close, which Pv forecasts with 89.7% accuracy, a great improvement over your random 66% accuracy. Remember, it only takes one serious loss to wipe out weeks of careful trading... [more below] |
Important Pv refinements see below Updated Video 12/2/11 Watch 10-min Pv instruction video below A technical Pv definition below |
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Updated Pv Training Video at left- 10 mins |
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At left: Video analysis of Pv-based trade
on SPY made Wed. 10/26/11 using SSO puts |
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...charts are now posted only occasionally... view many earlier charts below and in archive... what's important to most users is the forecast at right... Clockwise rotation means a price should occur tomorrow GREATER THAN today's close. Counterclockwise rotation means a price should occur tomorrow LESS THAN today's close. |
Tuesday at close. No Bet. Green and Warn disagree. |
The Pv forecast is sometimes
posted before and sometimes after the close, partly depending on my
availability. Also, if the outcome is clear enough, I try to post
awhile before the close; if unclear, I have to wait. Anyway, the best
strategy is to wait until next day to place a trade. |
Friday at close. No Bet. Green and Warn disagree. |
Thursday at close. No Bet. Green and Warn disagree. Wednesday's call for today was correct. |
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Wednesday at close. Green and Warn agree. Counterclockwise rotation. Tuesday's call for today was correct. |
Feb 14, 2012 Tuesday at close. Green and Warn agree. Clockwise rotation. Monday's call for today was wrong. |
Feb 13, 2012 Monday at close. Green and Warn agree. Clockwise rotation. Friday's call for today was wrong. |
Feb 10, 2012 Friday at close. Green and Warn agree. Counterclockwise rotation. |
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Thursday at close. No Bet. Green and Warn disagree. |
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Wednesday at close. No Bet. Green and Warn disagree. |
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Tuesday at close. No Bet. Green and Warn disagree. |
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Monday at close. No Bet. Green and Warn disagree. Unofficial opinion: based on a different algo we're developing, the ridiculous rally continues. |
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Friday at close. No Bet. Green and Warn disagree. |
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Thursday at close. No Bet. Green and Warn disagree. Yesterday's forecast for today was correct. |
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Wednesday after close. Green and Warn agree. Clockwise rotation. Yesterday's forecast for today was wrong. |
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Tuesday after close. Green and Warn agree. Counterclockwise rotation. |
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Monday after close. No Bet. Green and Warn disagree. |
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Friday near close. No Bet. Green and Warn disagree. Yesterday's forecast for today was correct. |
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Thursday after close. Green and Warn agree. Anticlockwise rotation. |
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Wednesday after close. No Bet. Green and Warn disagree. Yesterday's forecast for today was correct. |
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Tuesday after close. Green and Warn agree. Clockwise rotation. |
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Monday after close. No Bet. Green and Warn disagree. |
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Friday after close. No Bet. Green and Warn disagree. This has been a busy week for me and i've posted after the fact a few times, but it's always a true post. Will try to get these up more timely next week. |
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Thursday after close. No Bet. Green and Warn disagree. Yesterday's forecast for today was correct. |
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Wednesday after close. Green and Warn agree. Clockwise rotation. Yesterday's forecast for today was correct. |
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Tuesday after close. Green and Warn agree. Clockwise rotation. ...chart to follow |
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Friday after close. No Bet. Green and Warn disagree. |
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Thursday after close. No Bet. Green and Warn disagree. |
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Wednesday after close. No Bet. Green and Warn disagree. |
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Tuesday after close. No Bet. Green and Warn disagree. Yesterday's forecast for today was correct. |
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Monday after close. Green and Warn agree. Clockwise rotation. |
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Friday after close. No Bet. Green and Warn disagree. |
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Thursday after close. No Bet. Green and Warn disagree. Yesterday's forecast for today was correct. |
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Wednesday after close. Green and Warn agree. Clockwise rotation. Yesterday's forecast for today was correct. |
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Tuesday after close. Green and Warn agree. Anticlockwise rotation. |
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Friday after close. No Bet. Green and Warn disagree, though the anticlockwise rotation of Warn is very difficult to see. |
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Thursday after close. No Bet. Green and Warn disagree. Yesterday's forecast for today was correct. |
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Wednesday after close. Green and Warn agree. Anticlockwise rotation. Yesterday's forecast for today was correct. |
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Tuesday after close. Green and Warn agree. Anticlockwise rotation. |
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Friday after close. No Bet. Green and Warn disagree. |
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Thursday after close. No Bet. Green and Warn disagree. |
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Wednesday after close. No Bet. Green and Warn disagree. |
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Tuesday after close. No Bet. Green and Warn disagree. Yesterday's forecast for today was wrong. |
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Monday after close. Green and Warn agree. Anticlockwise rotation. |
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Friday after close. No Bet. Green and Warn disagree. Might be difficult to see but Warn is bending clockwise from previous day. Yesterday's forecast for today was correct. |
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Thursday after close. Green and Warn agree. Clockwise rotation. Yesterday's forecast for today was correct. |
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Wednesday after close. Green and Warn agree. Clockwise rotation. Yesterday's forecast for today was correct. |
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Tuesday after close... Warn and
Green agree. Anticlockwise rotation.
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Monday after close... No Bet. Warn and
Green disagree.
Friday's forecast for today was wrong. |
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Friday after close... Warn and
Green agree. Clockwise rotation.
Yesterday's forecast for today was wrong. |
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Thursday after close... Warn and
Green agree. Anticlockwise rotation.
Yesterday's forecast for today was correct. |
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Wednesday after close... Warn and
Green agree. Anticlockwise rotation.
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Tuesday after close... No bet. Warn and
Green disagree.
Patience. More patience. But that's what capital conservation is about- patience. The reward is modest profits, minimal losses. Right now, we've hit an unusually long string of No Bets. One year of backtest data shows: Total Days Assessed = 246 Total No Bets = 120 (47% of total days) Total Bettable Signals = 126 (53% of total days) Total Right = 113 (89.7% of Bettable days) Total Wrong = 13 (10.3% of Bettable days) |
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Monday after close... No bet. Warn and
Green disagree.
Patience. Patience. |
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Friday after close... No bet. Warn and
Green disagree.
But of note is that Warn just moved into bearish territory, though our research on this is limited and somewhat ambiguous. |
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Thursday after close... No bet. Warn and
Green disagree.
We may soon be able to get more bettable days, but it's still under review. Meanwhile, one of the main ideas of Pv is safety and conservation of capital. As long as the No Bets keep me safe, I can maintain my capital for winning trades, even though I get to trade less often. I've just backtested about one year of Pv trades. The data shows: Total Days Assessed = 246 Total No Bets = 120 (47% of total days) Total Bettable Signals = 126 (53% of total days) Total Right = 113 (89.7% of Bettable days) Total Wrong = 13 (10.3% of Bettable days) These figures are fairly consistent with our current scoreboard numbers, except that we're running a bit ahead on No Bets (52%), behind on Right days (80%), and ahead on Wrong days (20%). This makes sense because stats should soon give us more Bettable days and thereby increase our Right days faster than our wrong days. |
This view is helpful not only for longer-term trades, but also for understanding Pv behavior short-term
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General Principles and Rules MAIN RULE: By entering a trade near the
close, long or short, according to the rules below, a profitable exit
can be had at some point the next day.
1. In general, Pv below the moneymaker is bullish; Pv above the moneymaker is bearish- both phenomena can be seen at left. 2. Whether above or below the moneymaker, Pv trending up is bearish; Pv trending down is bullish. Note distinct change of SPY trend from [6] to [7]. 3. When Pv trends flat (sideways), it indicates continuation of the SPY trend which immediately preceded the flattening of Pv. This is shown clearly at [A] and [B]. 4. At the time the slowest Pv indicator (in this case Red) reaches the moneymaker, there is a temporary halt in the sharp bullish or bearish trend that was indicated by Green and Blu crossing the moneymaker. SPY fluctuations may continue, but the end of each one is typically signaled by Red meeting Blu/Green, as shown between [2]-[3], between [6]-[7] and between [7]-[8]. Note that Red is now moving strongly towards moneymaker. 5. Almost always, when the fastest (short-term) indicator bends upward from its previous direction it indicates an exit at a lower price than one day's close will be available next day. If it bends downward from its previous direction it indicates an exit at a higher price than one day's close will be available next day. IMPORTANT: see also Warn line info below. Note how this Rule 5 completely ignores whether the next day will have a higher or lower close. The only issue is that, by entering according to this rule, a profit will "be available" sometime the next day. 6. There are now two moneymaker lines. Whenever Green (short-term) is above or goes above the upper (purple) moneymaker, its signals should be ignored. Explanation below. |
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Price violence (Pv) is a measure of impulse in a market. Without
getting too technical, the notion derives from physics, where impulse is defined as force divided
by time, or the difference in momentum between two points in time.
This is wholly different from volatility
or momentum.
Suppose you shake a can of soda with a certain force with each up and
down stroke...
Case 1: You shake very fast, which increases the force of each stroke. That force increase becomes briefly stored in the soda; if you then open the can, you can see the effect of this increased violence as soda spurts to the ceiling. The spurting is very brief but very harsh. Case 2: You shake very slowly; even if for a long time, you add very little energy to the soda; opening the can results in soda fizzing out to the floor; again, very brief but (in a negative sense) very harsh. In the first example, if you use short strokes, you increase stored energy (Pv) but not volatility; if you use long strokes, you increase both. In the second example, whether you use short or long strokes, you neither increase stored energy nor volatility (as strokes/time ratio approaches zero, so does volatility). Pv measures all of the foregoing cases; it is high (positive values) in the first case (paradoxically indicating price decline), low in the second case (negative values, paradoxically indicating price increase). But volatility cannot efficiently measure both cases simultaneously. So it is evident that Pv is something quite different from volatility, though it registers apsects of volatility, i.e., as in Case 1. Pv also differs from momentum measurements, such as RSI (relative strength indicator). While RSI is certainly a useful tool, it has the limitation of paired thresholds (volatility indicators also have this limitation). In other words, RSI reads bullish near 30 and bearish near 70, while volatility (VIX, for example) uses 20 and 30 thresholds. This leaves a lot of room for trader interpretation in the ranges between these thresholds. Pv, on the other hand, uses a single threshold (2.0 for SPY daily charts, variable values for other period lengths or other issues) to indicate longer trends, and a simple up or down movement to forecast immediate local direction, though in doing so it also registers aspects of momentum. So, in a sense, Pv measures what some might call "chaos", though I find that term unsatisfactory because "chaos" doesn't really exist. But it comes nearest to a description of the phenomenon of differences in can-shaking. It measures strength, trend durability, and direction. Price violence is more time-dependent than simple volatility. Pv can also be quite high while volatility is quite low [see chart popup here]. Time-dependence is represented in a chart by the sharpness of ups and downs, as well as by their amplitude, or height. The bigger Pv is in absolute value, i.e., positive or negative, the more violent but shorter the resulting trend is. The weaker Pv is in absolute value, the less violent but longer the resulting trend is. ~DS Hudson |
 Vulnerable to Manipulation?
How vulnerable is Pv to
manipulation by the market's 'dark spirits'? That is, someday, after
the Hudson Pv gets very popular, can it be as easily manipulated as
other indicators? Well, anything
can be manipulated. But Pv presents dark spirits with a special
challenge. A very expensive and very high-risk challenge.
I won't go into the underlying details of the Pv algorithm, except to say that manipulating it would require the simultaneous manipulation of thousands of securities, costing the dark spirits many billions of dollars. And if they failed, they could lose, in a single day, an estimated $1 trillion. If they got it right, their gain would be a tiny fraction of that amount. It simply is not worth the risk. Surprisingly, a successful manipulation would not involve simply moving the S&P 500 close up or down from its realistic value. The Pv algorithm makes that value alone irrelevant. Nor would inducing extreme intraday volatility have any effect, or fast big moves from open to close or high to low. Just by studying a Pv chart you can see that monkeybusiness like that is all irrelevant to Pv performance. Pv mocks such dark spirit interference by including the Warn line and the purple 'out of sample' line. When such manipulation might be in play, Pv just says, "No Bet". And "No Bet" is only part of the risk the dark spirits run, catching them with their pants down expecting a wave of trades that never happen. The other, much larger consequence of a failed coup de main is how Pv is related to futures and options markets. The price action necessary to create a false but bettable Pv creates instant huge liability in those markets, which can only be overcome by massive- and I mean massive- hedging. That level of hedging would itself defeat the dark spirits' coup de main because Pv is inextricably linked to those markets as well. The attempt would leave those bets twisting in the wind. Bottom line, manipulating Pv is not a task of an impossible nature, but its success is of the nature of a nearly impossible outcome. |
| Earlier
Pv Refinements The horizontal line
(purple) was added Oct. 21, 2011. Short-term (Green) signals occurring
above Purple should be regarded as "unreliable".
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The
WARN Line I continue to refine Pv for
your trading safety and profit. The lower (turquoise) plot is the WARN
line. It guards against bad data feed and other anomalies of Green.
When Warn and Green both flex the same direction, either clockwise or counter-clockwise together, this is a sign of reliability and strength of move. You will miss some decent moves, as you can see at left. But the value of the Warn line can be seen in what happened the last two days of the chart shown, when Green indicated that the last day would be an Up day, i.e., that a long entry on 10/31 would be profitable sometime on 11/1. When they disagree, do not trust either one unless you can confirm it with some other indicators you use. Warn crosses over its own moneymaker are also of interest, above being bearish and below being bullish. Note that Pv is not concerned with the bearish or bullish nature of any candle; it's only concerned with whether you will find a profitable exit "sometime" on a given day, long or short, based on entry at the close the preceding day. |
In addition- not yet featured on this page- the Dow and its ETFs such as DIA, DDM, and UDOW may be traded with the Pv, using certain modifications.
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Background of Pv, cont'd from top... Each day, the Hudson Pv gives one of three signals: tomorrow there'll be a price above today's close; tomorrow there'll be a price below today's close; or no bet (which generally keeps you out of trouble). The Pv began as I finished writing The $50 Trade. I'd been puzzled for years by a phenomenon we've all seen- the sudden violence of price movement, and how to forecast it. It isn't exactly volatility. It isn't exactly momentum or rate of change. It's something quite unique and YOU know what it is but you almost can't put it into words, let alone a chartable mathematical expression, right? You're just sitting there and one day the market goes nuts for a few days, then stops... So my quest was to figure that out. The answers turned out to be very simple (after many complicated attempts over the years). Plus, Pv is a very robust indicator, highly durable, even during extreme volatility. Bottom line, I'll try and put snapshots here for you as often as I can, sometimes (but not always) with my own interpretations. So please watch the short video above so you won't need me to interpret for you. Also read the refinements above. With all the debugging, we now have a POWERFUL, first-tier tool that you will enjoy using. I've been trading on it and doing well. No, I don't sell or disclose Pv indicator details at this time- maybe later. Thanks. DS Hudson |
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Disclaimer- Please Read
Information
on this site, or elsewhere as related to this site, and in any
materials offered free or for sale as related to this site, is offered
'as is' and no guarantee of accuracy is made or implied. None of said
information shall be construed as an inducement to engage in trading of
securities of any kind. If unsure about any aspect of trading, consult
an investment professional. No person(s) affiliated with this site or
with creation of said information is an investment professional. Trade
at your own risk. Proposed outcomes may vary. No party(-ies) affiliated
with this site shall be held liable for any loss incurred by you, or
for any failure to gain on your part. Trading of any securities carries
risk, and there is enhanced risk associated with options trading. Never
risk more than you can comfortably accept losing.copyright 2011 dennis hudson, orangequant.com