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Thread: Alligator indicator

#Alligator #Indicators #Definedge

 Alligator indicator is created by Bill Williams. He was a popular trader and author.

Before we discuss the indicator, let us understand an important concept.
Here is a chart showing 10 day moving average at bar A. Price of the stock is 100, Moving average price is 90.
What if we shift this moving average to 5 bars further? See the chart below.

Moving average at bar B is moving average price of bar A (5 candles behind). This is shifting of moving average price. What does it mean?
Simple explanation is – shifting the moving average can help one compare current price with past period moving average easily. It results in smoothening instead of increasing the moving average parameter. This is also known as Forward Displaced moving average.
Displacing the average could be an interesting experiment. This concept is also used in many other indicators including Ichimoku cloud. Here is the link that explains Ichimoku indicator.

https://t.co/WkNxKU9n8u

Let us discuss the Alligator indicator.
First step is to plot three simple moving averages or the Triple moving average.

Williams suggested Fib numbers 13, 8 and 5 period averages.

The averages are calculated on median price.

Median price = (High + low) / 2.

So, there are three lines plotted on the chart.
Next step is to shift all these moving averages to future bars.

13-period MA is shifted by 8 bars
8-period MA is shifted by 5 bars
5-period MA is shifted by 3 bars

So, default parameters of Alligator indicator are 13,8,5 and 8,5,3.
Williams called it Alligator. He used the following terminology to describe these averages:

The 13-period MA to 8 (13,8) is called as Alligator’s Jaws.
8-period MA to 5, the Teeth and
5-period MA to 3, the Lips.
Behavior of the indicator:

When three lines are close to each other, the Alligator is sleeping.

If the Lips crosses the Teeth and Jaws upward or downward, the Alligator is waking up.

If Price crosses above or below the three lines, the Alligator is eating.
Basically it means:

When three lines are close to each other, there is no clear trend.

When short-term average crosses other two upward or downward, the trend might emerge.

When three lines are trending, and price is above them, then it indicates strong uptrend.
When the three lines are trending, and price is below them then it indicates strong downtrend.

Over a period, market trends roughly 20% – 30% times, it remains in a range rest of the time.
We should not be trading markets when Alligator is sleeping, monitor when it is waking up and trade when it is eating.

If Alligator sleeps more (long consolidation), it will become hungrier and eat more (Strong trend).
So, basically Alligator indicator is forward displaced triple-moving average. It smoothens the averages, but it also increases the lag in the indicator.

There are two important observations on this indicator which I found useful:
1 – Three averages close to each other: there is a possibility of strong trend to emerge. Trade breakouts.

2 – Price low is above three averages and all averages are rising = Strong up trend. Price high is below averages and all averages are falling = strong downtrend.
Ignore other bars. With this approach, you will trade mostly clear trends.

These readings are also possible using other indicators and charts. Idea was to talk about the concept.
It can be compared with triple moving average, Alligator shifts the moving averages.

My best take from the indicator is concept of shifting the moving average to explore further, and that we can divide price in to bullish, bearish, and neutral phase using averages.
Understanding of the concept and principles behind the techniques helps a lot in the long run. We cannot use all the indicators, but we can learn the logic behind those methods that can give us more ideas or improving on what we are doing currently.

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Prashant Shah
Prashant Shah
@Prashantshah267
Thread: Darvas Box Theory

#Darvas #knowledgesharing #Definedge


Nicolas Darvas (1920 – 1977) was a professional dancer and he travelled around the world. He founded a Dance company in 1950s. Someone offered him shares against his Dance programme and that is how he came across stock market and the business of trading.

He reportedly turned thousand dollars into millions in the late 1950s.

He wrote a popular book during 1960 “How I made $2000000 in Stock Market” in which he explained his Box theory. It is a must read.

He used a combination fundamental and technical approach for investing.

He believed in investing in only growth stocks. I think he did not explain a few things in his book, and I found some difference in interpretation of box-theory at various places because of that. This post is my interpretation of his theory.

Darvas was tracking stocks only making new high. I do not think he really talked about 52-week high. He mentioned about stocks breaking 2-3 year high. But 52-week high is mostly tracked for this theory so let us keep it that way to begin with for the sake of objectivity.
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Prashant Shah
Prashant Shah
@Prashantshah267
Thread: P&F Super Pattern

An effective price pattern defined using properties of P&F charts.

#Superpattern #Pointandfigure #Definedge


Point & Figure is an oldest charting method where price is plotted vertically, and the chart moves only when price moves. It is a different way of looking at the price, the objective box-value and reversal value offers advantage of identifying objective price patterns.

When price is moving up, it is plotted in a column of 'X'. When it is going down, it is plotted in a column of ‘O’. Normally, three-box reversal criteria is used to define the trend & reversal. Unlike a bar or candle, the P&F column can have multiple sessions in it.


Link to know more about the subject:
https://t.co/2xtLAVPBvm

See below chart. Price is in a strong uptrend, P&F chart would produce a long of column of 'X' with more number of boxes in it.


If such a trend is followed by some time bars without meaningful price correct, P&F chart would not move, and it will remain in column of 'X' in such a scenario.
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Prashant Shah
Prashant Shah
@Prashantshah267
@rachitagrawal97 Hammer at bottom = bullish
Same pattern is Hanging man when appears at top = bearish
Inverted hammer at bottom = bullish
Same pattern is shooting star when appears at top = bearish.

I have tested bullish & bearish brrakout of these patterns.
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Prashant Shah
Prashant Shah
@Prashantshah267
Thread: Camarilla Levels

Continuing our discussion on pivot levels, we look at the Camarilla levels which is another widely followed tool.

Word ‘Camarilla’ is borrowed from Spanish. It translates to a group of confidential & private advisers of the King or person in authority.


The Camarilla equation was first developed by a bond trader named Nick Scott in 1989. It is said that he didn't disclose the equation, but people studied the levels & reverse engineered it to find the formula. There r different versions of this formula.

We discussed about ‘Range’ in the earlier thread. The range is basically the difference between High & Low of the session.

High – Low = Range of the session
Continuing with the same levels as an example, If High of the day is 105 and Low is 95, Range of the session is 10 points.


Range shows us activity during the session irrespective of the trend.
Narrow range = Not much movement
Wide Range = Strong activity

Camarilla calculation depends on the Range of the session.

Let’s expand the range to 110%. If Current range is 10, let us make it 11.


Let’s now divide this Range in four parts.

9.17%, 18.33%, 27.50% and 55% of the range.

So, if Range is 10 points:
10 x 9.17% = 0.92
10 x 18.33% = 1.83
10 x 27.50% = 2.75
10 x 55% = 5.50
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Prashant Shah
Prashant Shah
@Prashantshah267
Thread: Pivot levels

Trading based on Pivot levels is one of the popular approaches. Both short-term and intraday traders track Pivot levels to identify support and resistance levels in any instrument.

Let’s discuss how these levels are calculated.


The pivot calculation method considers the previous day prices to calculate the support and resistance levels.

There are seven levels marked on the chart when we plot Pivot as a tool.

There is a Pivot level, 3 support levels (S1, S2 & S3) & 3 resistance levels (R1, R2 & R3).


We have four prices for any trading session - Open, High, Low, Close.

They give us the important information about what happened during that session. Levels is calculated using the High, Low & Closing price of the previous day. Let’s understand Pivot calculation with an example


The difference between high and low is a range of the day.

High – Low = Range
In our example, range of the session is 10 points.

105 – 95 = 10

Mid-price of the session is average of high and low price.

The Mid-price in this case would be 100.
(105 + 95) / 2.


Mid-price is average of range of the session. How about including the closing price to this calculation?

If we calculate the average of High, Low and Closing price - we get the Pivot point.

(105 + 95 + 103) = 101 is the Pivot level in our example.
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In such a case, H&S can be either a continuation pattern or compound fulcrum.
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• if right shoulder is smaller than left, most likely a continuation H&S
• if right is same or higher than left, and the price is not coming to neckline, most likely CF
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It's the weekend!

Grab a cup of coffee, in this thread I will explain

1. Peter Lynch's Six Categories of Stocks
2. How to identify the type of stock you own?
3. How to think and decide about the runway for growth of a company?

Lets dive right in.


For those who do not know (I doubt there will be many), Peter Lynch is one of the most successful fund managers of all time.

He managed a fund called Magellan at US Investment Giant Fidelity Investments and during his 13 yr tenure, he delivered an average CAGR of 29.2%.


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Understanding HIGH & LOW VIX

VIX at 16: If you check today's IV behaviour, they were not spiking much even with decent delta move in BNF. The movement was subtle, giving some time to adjust. So someone having good adjustment mechanism can stay in the game longer.

1/

VIX at 20: The same delta move will be more fierce, coupled with rise in premiums. When premiums rise with movement, then the adjustment cost increases exponentially. The premiums can fall back at EOD, but the damage is done if caught in the spike.

2/

After talking to few traders, their backtest result was in favor of high VIX of 2020, rather than 2017-19. The key flaw in the backtest were the adjustments which are not easy to calculate. Combination of high theta & fixed SL during high VIX, the IV crush is cashed at EOD.

3/

Neutral option sellers who don't adjust & have fixed SL on a static straddle will not be able to benefit highly in low VIX. The straddle which moves away from ATM will increase no matter what. But if we keep on rolling our strikes, then we get good realisation of theta.

4/

I have made majority of my profits in option selling when VIX was at 13-15, mostly just relying on my adjustments. Since 2020 with high VIX, adjustments stopped working because of increase in the frequency of delta + IV spike combos & so had to shift to directional trading.

5/
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Aditya Todmal
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Here are my top 10 best tweets of the week: 1st September.

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Хајде да направимо мали осврт на случај Мика Алексић .

Алексић је жртва енглеске освете преко Оливере Иванчић .
Мика је одбио да снима филм о блаћењу Срба и мењању историје Срба , иза целокупног пројекта стоји дипломатски кор Британаца у Београду и Оливера Иванчић


Оливера Илинчић је иначе мајка једне од његових ученица .
Која је претила да ће се осветити .

Мика се налази у притвору због наводних оптужби глумице Милене Радуловић да ју је наводно силовао човек од 70 година , са три бајпаса и извађеном простатом пре пет година

Иста персона је и обезбедила финансије за филм преко Беча а филм је требао да се бави животом Десанке Максимовић .
А сетите се и ко је иницирао да се Десанка Максимовић избаци из уџбеника и школства у Србији .

И тако уместо романсиране верзије Десанке Максимовић утицај Британаца

У Србији стави на пиједестал и да се Британци у Србији позитивно афирмишу како би се на тај начин усмерила будућност али и мењао ток историје .
Зато Мика са гнушањем и поносно одбија да снима такав филм тада и почиње хајка и претње која потиче из британских дипломатских кругова

Најгоре од свега што је то Мика Алексић изговорио у присуству високих дипломатских представника , а одговор је био да се све неће на томе завршити и да ће га то скупо коштати .
Нашта им је Мика рекао да је он свој живот проживео и да могу да му раде шта хоће и силно их извређао
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