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1998issue C061-8

Regime filters for mutated indicators

Indicator and system inputs can lose or gain timing value when market structure changes. Signals are meant to be applied only after the current structural phase, and the mutation of those inputs, has been quantified.

  • Indicator and system inputs can lose or gain timing value when market structure changes. That shift in usefulness is variable mutation.
  • The new market paradigm sequences contraction, expansion, and transition, and a phase is treated as correct only when it follows the expected predecessor.
  • System and indicator signals are meant to be applied only after the current structural phase, and therefore the mutation of their inputs, has been quantified.
  • Orders placed without regard to mutated incremental volatility can coincide with the noisiest intervals of the structure.
Entries in this reading3 entries
Current trackAverage Directional Index71 readingsBollinger Bands84 readingsTrend filter137 readings

Variable mutation when structure changes

Indicator and system inputs can lose or gain timing value when market structure changes. That change in how useful an input remains is variable mutation.

Trending structure is a primary-trend market in which smaller retracements are treated as pullbacks inside the larger move. Nontrending structure is a sideways market that oscillates between support and resistance.

A three-phase structural envelope

The proposed structural envelope is a new market paradigm with three sequential phases: contraction, expansion, and transition.

Contraction phase is quieter congestive action with decreasing momentum. Expansion phase is extreme directional action with rising momentum. Transition phase is a momentum reversal with price reversal or retracement.

A phase is treated as correct when it follows the expected predecessor: contraction after transition, expansion after contraction, and transition after expansion.

Quantify the phase before a signal

System and indicator signals are meant to be applied only after the current structural phase, and therefore the mutation of their inputs, has been quantified.

Standard deviation measures price variance around a mean and is commonly scaled in multiples of one, two, or three deviations. Incremental volatility is a volatility measure treated as a mutable input rather than a fixed constant.

Swiss franc account return with and without a phase filter

A trader should see that filtering Swiss franc futures by the contraction-expansion-transition envelope lifted 1975-1996 return on account from 297 percent on a plain moving-average crossover to 445 percent on the bow-tie rules, while a later 11-trade 1996-1997 test still returned 189 percent. The three bars are the printed TradeStation performance summaries in the article, not a reading of the daily price bars.
A trader should see that filtering Swiss franc futures by the contraction-expansion-transition envelope lifted 1975-1996 return on account from 297 percent on a plain moving-average crossover to 445 percent on the bow-tie rules, while a later 11-trade 1996-1997 test still returned 189 percent. The three bars are the printed TradeStation performance summaries in the article, not a reading of the daily price bars.Swiss franc futures · Daily · 1975-02-13T00:00:00.000Z to 1997-12-04T00:00:00.000Z

The 1996-1997 bow-tie sample is only 11 trades on the December 1997 contract and is not the same horizon as the 21-year tests. On the long sample the profit factors were 1.34 for the crossover and 1.30 for the bow-tie; the return gap comes mainly from a smaller required account (19640 versus 26300 dollars).

How the phases were marked

Paintbar and phase-indicator examples on copper, coffee, IBM, Iomega, Swiss franc, and Treasury bond charts were used to mark expansion, contraction, and transition.

Educational research material, not investment advice. Historical source context does not establish present-day performance.
16 of 56 in the Average Directional Index track
19991-8 pp.Next on Average Directional IndexBuilding the average directional index from range extension and true rangeEach bar receives exactly one net directional movement: upward extension, downward extension, or none, after the current high-low range is compared with the prior bar.
All readings on this track · 56 readings
  1. 1986Cycle-aligned directional trend indicator
  2. 1987What crossover and directional entry rules actually compare
  3. 1988A directional-line cross needs a trend filter, an extreme-point rule, and a dollar stop
  4. 1988Constructing true range by offset addressing
  5. 1988Constructing directional movement from bar range
  6. 1988Average directional index construction: recursive smoothing and lookback offset
  7. 1988Staged Average Directional Index construction with Relative Strength Index confirmation and stop alerts
  8. 1988Average Directional Index construction with frozen true range and directional rules
  9. 1991Constructing the average directional index from range expansion and true range
  10. 1991Constructing five-session forecasts from stochastic, ADX, and MACD inputs
  11. 1993Constructing the average directional index from directional movement and true range
  12. 1993Confirming n-bar breakouts with ADX and DX filters
  13. 1994Constructing a Bollinger band-width trend filter
  14. 1994A pre-trade checklist that can refuse a long three ways
  15. 1997An ADX threshold and a moving average as a trend filter
  16. 1998Regime filters for mutated indicators
  17. 1999Building the average directional index from range extension and true range
  18. 2000Evaluating ADX, RSI, and moving averages in a multi-stock warehouse
  19. 2000Stochastic pop as a filtered continuation setup
  20. 2000Onset and exit from one average directional index
  21. 2002Joint ADX and MACD readout for trend strength and direction
  22. 2003Adaptive Donchian breakout with implied volatility and volume
  23. 2004The average directional index as a regime gate for the relative strength index and the stochastic oscillator
  24. 2004Constructing true-range-specified volume as a directional filter
  25. 2005Constructing a multi-filter penny stock breakout procedure
  26. 2005Construct one playbook that flips with session regime
  27. 2005Combining Bollinger Bands, the average directional index, and Fibonacci retracement on currency pairs
  28. 2006Assembling an adaptive price zone from double-smoothed averages
  29. 2006An ADX strength gate for MACD and the stochastic oscillator
  30. 2007Directional movement as a filter plus trigger
  31. 2007Constructing a veto-first trend permission stack
  32. 2007ADX gates for trend end, range, and reversal
  33. 2008Constructing a nine-cell directional-ratio grid
  34. 2008Average directional index and directional trend indicator lookbacks as trend-filter parameters
  35. 2008A holding-matched market lens from averages and directional-line crosses
  36. 2008A nine-cell directional scoreboard for multi-horizon entries
  37. 2010Building a Vortex Indicator from high-low distances
  38. 2010Constructing ADX, RSI, and MACD price filters
  39. 2011Constructing a volume zone oscillator with a moving-average and Average Directional Index regime filter
  40. 2011A volume zone oscillator conditioned by an Average Directional Index filter
  41. 2011Candlestick names need volume-price, ADX, and moving-average checks
  42. 2012Clustered average-directional-index traces as a trend-start filter
  43. 2012Average Directional Index cluster filters for trend-start signals
  44. 2012Confirming a trend start or turn with a triple ADX cluster
  45. 2013Constructing a late-entry stack from a signed DMI oscillator
  46. 2013A directional oscillator and its stochastic as a stacked timing filter
  47. 2013ADX cluster lookbacks are a locked specification, not a chart label
  48. 2013Combining moving averages, stochastics, and ADX in a daily scan
  49. 2015Assembling the Average Directional Index from directional movement
  50. 2016How an Average Directional Index filter and a breakout entry form one procedure
  51. 2016Score RSI and stochastic crossings only when ADX confirms the trend
  52. 2018Constructing an ADX filter for intraday breakouts
  53. 2018An ADX volatility gate for prior-day breakouts
  54. 2019Exponential deviation bands with a moving average, RSI and ADX
  55. 2020A normalized-slope trend filter from linear regression
  56. 2020Gating volatility-momentum divergences with a Trend filter
By fieldIndicators and filters682 readingsBy year199853 readings
All 71 readings tagged Average Directional Index
Also on Average Directional Index5 readings
1994Constructing a Bollinger band-width trend filter2005Combining Bollinger Bands, the average directional index, and Fibonacci retracement on currency pairs1993Confirming n-bar breakouts with ADX and DX filters1997An ADX threshold and a moving average as a trend filter2007Constructing a veto-first trend permission stack