Is anyone using NR7 for trading?
- Thread starter vagar11
- Start date
I am just sharing my opinion, I am not sure, how valid it will be in real trading. I have not tested it yet.
Instead of fixating ourselves on number of days like NR7,8,21 etc. cant we use some method which would measure the current volatility of a stock and compare it with past data and then simply show if a stock is going through High Volatility Regimen or Low Volatility Regimen currently.
Suppose, we take past one year worth of data for analysis. Then there would be some stock in the current market which are experiencing their Most Volatile Days currently, during the past whole year. And then there would be those stocks which are experiencing their Weakest Volatility Days currently, based on the volatility rate of their past one year data.
I think we need to ADJUST our trading approach accordingly. We should not use the same trading setup on a stock, when it is going through its most volatile phase VS when it is going through its least volatile phase, over the past one year.
It is helpful to have understanding about the current volatility regime. Because everything from “Trading Setup Selection” to “Deciding Profit Targets” to “Placement of Stop Loss” etc. gets greatly influenced by the Volatility Environment.
For example, during High Volatility Days, we need to have greater risk tolerance for our stop losses, otherwise we will get stopped out quite easily. Same is true for profit targets as well, if there is more volatility we can expect larger movement in our favor and can have wider targets. But if the overall price range itself is of 1 %, then we cannot have much bigger profit targets in such environment.
And this Volatility Phenomenon is not something which just happens Randomly, like one Big Range Day suddenly, and then complete lack of volatility for next 20 days, then again one Big Range Day and then next 30 days no major volatility. It does not happen like that. What I have noticed is when volatility picks up, within a counter "many times it happens in other counters of the same sector as well" then it tends to persist for a few days. We might not have big range days, in exact sequence, happening every day, but still, they would happen quite frequently during that particular phase. If they happen in the same direction, then we end up having a pretty good trend movement. If they happen in both direction, then we end up having a High Volatility Fight between bulls and bears, within a Bracket or Trading Range.
Can we somehow define exact rules and then do some testing to find out stocks which are in their Highest or Lowest Volatility Regimen currently ?
Thanks and regards
PS: I am sorry, if it turns out to be off topic. But I believe, it is related to the concept of NR7 in some way.
Instead of fixating ourselves on number of days like NR7,8,21 etc. cant we use some method which would measure the current volatility of a stock and compare it with past data and then simply show if a stock is going through High Volatility Regimen or Low Volatility Regimen currently.
Suppose, we take past one year worth of data for analysis. Then there would be some stock in the current market which are experiencing their Most Volatile Days currently, during the past whole year. And then there would be those stocks which are experiencing their Weakest Volatility Days currently, based on the volatility rate of their past one year data.
I think we need to ADJUST our trading approach accordingly. We should not use the same trading setup on a stock, when it is going through its most volatile phase VS when it is going through its least volatile phase, over the past one year.
It is helpful to have understanding about the current volatility regime. Because everything from “Trading Setup Selection” to “Deciding Profit Targets” to “Placement of Stop Loss” etc. gets greatly influenced by the Volatility Environment.
For example, during High Volatility Days, we need to have greater risk tolerance for our stop losses, otherwise we will get stopped out quite easily. Same is true for profit targets as well, if there is more volatility we can expect larger movement in our favor and can have wider targets. But if the overall price range itself is of 1 %, then we cannot have much bigger profit targets in such environment.
And this Volatility Phenomenon is not something which just happens Randomly, like one Big Range Day suddenly, and then complete lack of volatility for next 20 days, then again one Big Range Day and then next 30 days no major volatility. It does not happen like that. What I have noticed is when volatility picks up, within a counter "many times it happens in other counters of the same sector as well" then it tends to persist for a few days. We might not have big range days, in exact sequence, happening every day, but still, they would happen quite frequently during that particular phase. If they happen in the same direction, then we end up having a pretty good trend movement. If they happen in both direction, then we end up having a High Volatility Fight between bulls and bears, within a Bracket or Trading Range.
Can we somehow define exact rules and then do some testing to find out stocks which are in their Highest or Lowest Volatility Regimen currently ?
Thanks and regards
PS: I am sorry, if it turns out to be off topic. But I believe, it is related to the concept of NR7 in some way.
Definitely not off topic. You actually raised some good point.
Gary Antonacci author of Dual Momentum Investing said the stocks which are in momentum for last 3 months to 12 months will remain in momentum. Some research has been done on that for 40 years I think. He has quoted some references in this video.
https://www.youtube.com/watch?v=lf1u4dsHavs
Marketsmojo.com team(the founders of moneycontrol.com) is actually applying the same concept.
Here is the link showing the return.
http://www.marketsmojo.com/home/mojoportfolio#navDashboard
Need some more thinking what actually needs to be done to find volatile stocks. If we have some idea we can start crunching the data. I have seen this thing especially in small caps. They will remain silent for many months but when they are volatile, the range is very high.
Thanks for the links bro. :thumb:
I am not 100 % clear myself, but just to set the ball rolling. How about starting from the most basic idea of first defining every trading session, into one of these 3 categories -
High Volatility
Normal Volatility
Low Volatility
And then once we have every session labelled as one of the above 3 categories, then doing various tests. Like finding out the phase when there were almost 5 High Volatility Sessions in a period of 10 Sessions. And what was the impact on price movement etc.
Or maybe doing the Month-wise stats, like which month had the maximum number of High Volatility Days etc.
Or using some concept like IV Percentile in Options, which tells the exact status of IV, in context of past one year data. We can do that in terms of Volatility Value rather then IV in this case.
Or creating some Normalized Scale of Volatility from 0 to 100 and then seeing, where the current volatility state falls in that scale. Where 0 represents the least volatile state and 100 represents most volatile state.
And so on.....
We just need to start from somewhere, and then we can make progress step by step. New and better ideas would come, once we start, I guess.
Thanks and best regards
I am not 100 % clear myself, but just to set the ball rolling. How about starting from the most basic idea of first defining every trading session, into one of these 3 categories -
High Volatility
Normal Volatility
Low Volatility
And then once we have every session labelled as one of the above 3 categories, then doing various tests. Like finding out the phase when there were almost 5 High Volatility Sessions in a period of 10 Sessions. And what was the impact on price movement etc.
Or maybe doing the Month-wise stats, like which month had the maximum number of High Volatility Days etc.
Or using some concept like IV Percentile in Options, which tells the exact status of IV, in context of past one year data. We can do that in terms of Volatility Value rather then IV in this case.
Or creating some Normalized Scale of Volatility from 0 to 100 and then seeing, where the current volatility state falls in that scale. Where 0 represents the least volatile state and 100 represents most volatile state.
And so on.....
We just need to start from somewhere, and then we can make progress step by step. New and better ideas would come, once we start, I guess.
Thanks and best regards
Any good site that we can used to check candlestick charts of sector.
I have this http://www.marketsmojo.com/Markets#navSectors but it is not candlestick.
I feel momentum comes with sectors.
I saw a video regarding IV percentile in options and he did some research on it and sold options on high IV percentile and the stats were good.
Let me see if I can find it. It was from tastytrade.
I have this http://www.marketsmojo.com/Markets#navSectors but it is not candlestick.
I feel momentum comes with sectors.
I saw a video regarding IV percentile in options and he did some research on it and sold options on high IV percentile and the stats were good.
Let me see if I can find it. It was from tastytrade.
Last edited:
It is advocated to Sell options when IV is high and Buy when IV is low.
This is for two reasons:
1. When IV is high, the MP(market price) is higher than TP(Theoretical)
therefore, for the same expiry period, you'll collect more.
2. When IV is high, the Theta is also higher, and therefore options will loose more value per unit time (Faster Decay).
This is for two reasons:
1. When IV is high, the MP(market price) is higher than TP(Theoretical)
therefore, for the same expiry period, you'll collect more.
2. When IV is high, the Theta is also higher, and therefore options will loose more value per unit time (Faster Decay).
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