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11h • General discussion
QUANT RICK TREND DIAGNOSTICS
What it does and how to read it
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This indicator gives one reading of where 9 asset classes stand on trend:
large caps, mid caps, small caps, equal weight S&P, bonds, gold,
commodities, the US dollar and crypto. It is built on Rob Carver's trend
rules from "Advanced Futures Trading Strategies". It doesn't give buy or
sell signals. It tells you what state each trend is in.
WHAT YOU SEE ON THE CHART
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Two EMAs sit on price, a fast one and a slow one. By default they are
32 and 128 days. The space between them is shaded green when the fast EMA
is above the slow one and red when it is below. This is the simplest form
of the trend signal.
WHAT YOU SEE IN THE TABLE
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There is one row per asset and these columns:
EWMAC (trend strength)
The fast EMA minus the slow EMA, divided by the asset's daily
volatility. Dividing by volatility lets you compare a calm bond ETF with
a volatile asset like Bitcoin on the same scale. Four speeds are
averaged: 8/32, 16/64, 32/128 and 64/256 days.
Breakout (position in the range)
Where price sits inside its recent high-low range. Near the top of the
range it is positive, near the bottom it is negative. It averages four
lookbacks (20, 40, 80 and 160 days) and is smoothed so it doesn't jump
around.
Accel (acceleration)
How much the trend forecast changed over the last 16, 32 and 64 days.
A positive number means the trend is getting stronger. A negative
number means it is weakening. This is the column that changes first
when a trend starts to roll over.
Combined
A weighted blend of the three rules: 40% EWMAC, 40% Breakout and
20% Accel.
Agree
How many of the three rules point the same way as Combined. 3/3 means
everything lines up. 1/3 means the rules disagree, and that is often
where the useful information is.
State
The numbers put into words. See the next section.
HOW TO READ THE STATE COLUMN
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The state combines trend level with acceleration:
Accelerating up Flat Accelerating down
Uptrend Up, building Up, steady Up, fading
No trend Turning up No trend Turning down
Downtrend Down, fading Down, steady Down, building
There are two cutoffs:
- An EWMAC reading between -5 and +5 counts as "no trend".
- An Accel reading between -2 and +2 counts as "flat".
On top of that, "+ breakout" or "+ breakdown" is added when the breakout
forecast goes past +15 or -15. That means price is pressing against the
edge of its range.
WHY EVERY NUMBER IS ON THE SAME SCALE
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Every forecast is rescaled so that its average absolute value is 10, and
it is capped at +20 and -20. This is Carver's standard. In practice:
- About +/-10 is a normal-strength signal.
- About +/-20 is as strong as it gets.
- Near 0 means nothing is happening.
The scaling is calculated from each asset's own history, using only data
up to each bar, so there is no lookahead. It also means you can compare
rows directly. A +15 on gold and a +15 on small caps are equally strong
relative to each asset's own history.
RELATIVE MODE
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Turn on "Measure each asset vs benchmark" and every asset is measured
against SPY instead of on its own. The question becomes: is this beating
the S&P, and is the lead growing? For example, it shows whether small
caps or equal weight are outperforming cap weight. The SPY row shows n/a
in this mode because SPY divided by SPY is a flat line.
CRYPTO ADJUSTMENT
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Crypto trades 365 days a year and stocks trade about 252. Without an
adjustment, a 64-day lookback on Bitcoin would cover a much shorter
stretch of calendar time than on SPY. With the crypto setting on, crypto
lookbacks are stretched by 365/252, so 8/32 becomes 12/46 and every
lookback covers the same calendar time as for stocks. This is switched
off in relative mode, because the ratio only prints on weekdays.
ALERTS
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You can set alerts for the symbol on your chart:
- Combined crosses above or below zero.
- A breakout or breakdown crosses +15 or -15.
- Acceleration crosses above or below zero.
CAVEATS
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- EWMAC and Breakout are strongly correlated, so they agree most of
the time. The interesting cases are when they don't.
- Acceleration on short lookbacks is noisy.
- This describes the current state. It is not a backtested edge.
- It needs a lot of daily history before anything shows up. The
Combined column fills in after roughly 4 years of daily bars, so
newer ETFs can show n/a for a while.
- It is built for daily bars. On an intraday chart the current day's
values keep changing until the daily bar closes.
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QUANT RICK TREND DIAGNOSTICS
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