Price change smoothness

[Xeno]

Hi,

Is there an indicator that gives an indication of price change smoothness? By smooth I mean trends containing similar bars and rates of change, and a reversal that is not very erratic or choppy.

thanks
Xeno

 

[Rhody Trader]

Standard deviation indicates smoothness in terms of the variation between closes and a moving average. Something like the Average True Range indicator will tell you what's going on with ranges.

 

[Xeno]

Standard deviation indicates smoothness in terms of the variation between closes and a moving average. Something like the Average True Range indicator will tell you what's going on with ranges.

Ah, yes, makes sense. Thanks very much.

 

[Xeno]

Ah, yes, makes sense. Thanks very much.

Hmm, having said that, SD will only tell you smoothness when compared to a consistently equal distance from a moving average? If the price starts to smoothly pull away from a MA, the price change is still smooth, the SD curve is also smooth, but it's still a curve, so you still have the problem of telling when a curve is smooth. I know there are curve fitters around - just wondering of there's a pre-arranged indicator.

thanks
Dave

 

[Rhody Trader]

SD will tell you how close price is staying to average price - higher SD means more divergence, lower SD means less. Keep in mind that we're talking moving average here, so if a market is trending the average will be moving along with it.

 

[Xeno]

SD will tell you how close price is staying to average price - higher SD means more divergence, lower SD means less. Keep in mind that we're talking moving average here, so if a market is trending the average will be moving along with it.

Thanks. I realise that about SD. I wasn't asking about level of divergence - more smoothness of price change. i.e. a divergence can be increasing, but at a steady rate, and that is smooth price change. How do I detect the smoothness.

thanks
Xeno

 

[Rhody Trader]

So you want to see how steady the period-to-period change is?

 

[Xeno]

If you drew a price line instead of bars, I need to know how smooth the line is, where very smooth is linear, or 1/x2 etc.

 

[Rhody Trader]

What if you did something like drawing an envelop, the bottom of which connected the down ticks and the top of which connected the upticks. The width of the envelop would then be a way to measure smoothness.

 

[Xeno]

Not really - if every bar was 10% bigger than the last, the price would still be changing smoothly (although exponentially) but the envelope would be growing

 

[Rhody Trader]

You seem to be mixing terminology here. A "bar" is high to low, with close being contained somewhere therein. Up to this point you've been talking about closing prices.

As for the envelop, you could normalize the reading by dividing the width by the midpoint.

 

[JTrader]

a 1-tick chart would!

 

[Xeno]

You seem to be mixing terminology here. A "bar" is high to low, with close being contained somewhere therein. Up to this point you've been talking about closing prices.

As for the envelop, you could normalize the reading by dividing the width by the midpoint.

OK, but it doesn't make too much difference. Imagine a line instead, pulling away from the average smoothly. If you divide the width by the midpoint, you probably just get another curve right?

What I'm asking is this - how can you tell whether a line is smooth or jagged. There are algorithms which will curve fit (actually they may just be brute force) - they'll tell you what the formula is for a set of points, and how close a fit the formula is. It's very similar to that, but I was just wondering if there's an indicator for smoothness.

thanks