2006issue C031-6
Classify the regime before the bar read
Markets differ by instrument type, liquidity, participant mix, and how participants process information, so a method should run only where its logic matches the structure. A four-cell map of directionality and volatility decides which system may fire before volume-price and money-flow bars are read as a hypothesis.
- A method should be run only in structures that match its logic, because instrument type, liquidity, participant mix, and how participants process information change market behavior.
- Directionality and volatility combine into four market states that decide which system logic is allowed to fire.
- A squat bar is money-flow falling while volume rises, an unfinished fight whose breakout can serve as a swing-trade trigger.
- Identify trend versus congestion and expansion versus contraction, then use average daily range and open-high-low-close maps to see whether conditions suit the chosen toolkit.
Match the method to the structure
Markets differ in behavior because of instrument type, liquidity, participant mix, and how those participants process information. A method should be run only in structures that match its logic.
Four states from directionality and volatility
Price movement can be decomposed into directionality and volatility. Directionality is how persistently price travels along a defined path rather than oscillating without a net trend. Volatility is how large recent up-and-down price travel has been over a chosen lookback. Combining those two measures yields four market states.
Market-regime classification is a four-cell map of that price behavior. It is used to decide which system logic is allowed to fire.
High directionality with low volatility is described as a stable trend with short pullbacks. That setting is presented as favorable for trend-following and unfavorable for countertrend oscillator tactics.
High directionality with high volatility is described as a defined trend with deep, volatile corrections. Those corrections can stop out trend-followers while remaining usable for short-term breakout or swing approaches.
Low directionality with high volatility is described as a range that swings deeply between support and resistance. That setting is presented as favorable for swing, countertrend, and oscillator systems and hostile to trend-following.
Low directionality with low volatility is described as little net direction and only moderate volatility.
Decide whether conditions suit the toolkit
The prescribed planning sequence is to identify trend versus congestion and expansion versus contraction. Average daily range and open-high-low-close maps are then used to decide whether conditions suit the chosen system or discretionary toolkit.
Volume-price and money-flow bar reads
Volume-price analysis reads successive bars by how range, close location, and volume change together to judge whether buyers or sellers still control the move.
The money-flow index is a volume-weighted bar comparison that flags effort versus result. A squat is a bar where money-flow falls while volume rises. It marks an unfinished buyer-seller fight whose breakout can serve as a swing-trade trigger and can precede a sharp reversal or breakout.
A fade bar is defined as both the money-flow index and volume declining. It is interpreted as slowing activity with little information about which side is in control.
Volume-price and money-flow bar combinations can be applied across time frames and scored to estimate trend force.
All readings on this track · 13 readings
- 1988Constructing tick-weighted money flow and price divergences
- 1989Four-state money-flow-index as permission for a next-bar breakout-system
- 1989Constructing a suggest-then-confirm Money Flow Index
- 1993Five-rung money flow from signed print volume
- 1993Physics analogies for building cycle and money flow indicators
- 1994Keep a wave count as a draft until money flow and a trendline agree
- 1999Take the rectangular-base breakout from money-flow confirmation, not from a late strength average
- 2004Constructing a volume-flow rule from money flow
- 2006Classify the regime before the bar read
- 2015Constructing a bounded money-flow oscillator from range and volume
- 2016Combining RSI, moving averages, and money flow
- 2018Five-rule technical rating as a rotation filter
- 2020Combining money-flow, RSI, and breadth for dynamic pressure zones