The Indicator And The Intraday
The MIDAS Touch
Part 2
Last issue, we looked at what the MIDAS formula is and how it can be applied to intraday charts. This time, we'll examine the intraday application of MIDAS more closely.
Previously, I discussed calculating the MIDAS formula, an acronym for "market interpretation/data analysis system," and how it can be applied to intraday charts. This time, I will discuss some of my observations concerning the application of MIDAS more closely to intraday charts.
1. The role of the previous day's high and low. In writing about MIDAS, the late technical analyst Paul Levine always identified the launch points of MIDAS as the swing highs and lows of trends, even though he stressed the importance of a launch point in terms of a major change in trading sentiment. The latter is consistent with any swing high or low and not just with the swing highs and lows of the classic trend shapes we are familiar with. This is all to the good, since any competent daytrader knows that the concepts of support and resistance play a broader role in daytrading. Not only is there a daily trend (if any) to be concerned about, but there are also other key levels such as the previous day's high, low, and close, as well as today's open and current high and low. It is interesting to see how MIDAS curves behave in relation to these additional areas where there is a change to a new trading psychology. Figure 1 is a 1M chart of the Xetra DAX index futures contract covering two trading days, February 25 and 26, 2008. As it reveals, launch points from the February 25th high and low can play a vital role in capturing:
a) Ongoing price action the same trading day (as the black arrows on February 25 indicate)2. Four new concepts. Figure 1 highlights an important phenomenon in MIDAS I refer to as "displacement." This concept is not new since it was implicit in Levine's work, but the daytrader must be much more aware of it.
b) Some of the following day's swing highs and lows, in this case, the day's low.
FIGURE 1: THE ROLE OF PREVIOUS DAY'S HIGH AND LOW. These launch points can help capture ongoing price action on the same trading day and the following day's swing highs and lows.
Briefly, as time passes, the MIDAS and I-MIDAS (the "I" stands for "intraday") indicators move away from price and, in so doing, only capture the larger swing highs and lows. Nowhere is this better illustrated than in Figure 1 where, by the second trading day (February 26), only the day's low is picked up. To ensure that we are keeping in touch with the rapidly moving intraday price action, newer I-MIDAS curves must be launched frequently from more recent swing highs and lows.
...Continued in the October issue of Technical Analysis of STOCKS
& COMMODITIES
Excerpted from an article originally published in the October 2008
issue of Technical Analysis of
STOCKS & COMMODITIES magazine. All rights reserved. © Copyright
2008, Technical Analysis, Inc.
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