1/ Volatility Swings and Trend
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Volatility Swings and Trend
Using a swing chart/overlay is an awesome way to determine trend. There are only two options (up or down) but there are many calculations that can be used to determine the swing direction, from points or percent retraced through to higher / lower bar relationships as introduced by WD Gann. No matter how they are calculated, we can use them as our guide to only trade with the primary trend.
One way to determine the swing direction is by using Average True Range price movement – or volatility – as described in Michael Gur’s book The Symmetry Wave Trading Method.
For the swing to change direction the price must retrace from a high or low by 4 ATRs. Chart 1 shows the Volatility Swing overlaid on the S&P500 is the first lower swing down after 7 higher highs and lows. The current swing low was on March 13th, and it will only turn higher if price moves 4 x ATR(14) to 5897. However, that value will change depending on the future daily volatility (if the ATR increases then a larger move will be required).
A quick Volatility Swing scan on the S&P500 shows that 161 members have an upward swing with four changing direction on Thursday, including Darden Restaurants $DRI which confirmed its 7th higher swing.
Here’s an update to the S&P1500 Breadth Thrust chart from earlier in the week. Despite strong advancing numbers recently, there was a net decline of -561 on Thursday, meaning the 10 day Thrust measure just failed to cross the threshold of 55.
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Originally posted 21st March
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