Silver Dragon and i wanted to discuss this topic and we both trade futures, so i have added this topic here because i have used the emini's as an example in our discussion. i also use the same analysis for currencies, metals, crude and natural gas.

this is what Silver Dragon said and i was interested in his thoughts on the subject.

Last fall I combined volatility and expected move along with mean reversion and have been successfully trading futures.

I daytraded stocks for 10 years and switched over to futures 13 years ago.

I am a trend trader and analyze volatility, expected move and trends every Friday after the close. My analysis tends to end up with percentages, averages, probabilities and ranges.
Most traders have different definitions for volatility, expected move and trends, so I will try to define them as I go.

Volatility is the distance that price moves over some time period. For emini futures I tend to trade the first 2 hours after the equities open. So my volatility number is the price move over those 2 hours. The price move over those 2 hours has 2 components, trends and chop. I focus on the trends. My definition of a trend is a price move in one direction from the trend start to when price retraces against the trend more than my initial stoploss. I analyze those trends and calculate the average percent of trends that move more than 2 times my stoploss. Based on Friday’s analysis, during that time period, for the emini, 38% of them moved more than 2 times my stoploss. For those 38% of trends, i calculated an average move of 3.1 to 4.2 times my stoploss.

During the trading day when I add support/resistance and market context, I can raise that ratio from 38% to over 50% for the actual trades that I take and achieve more than a 2:1 profit/loss ratio. The 38%/50% and the average move is used to setup my charts for trading. They are also used for trade management, determining the initial stoploss and contract sizing.

Silver Dragon, How do you define volatility, expected move and reversion to the mean and how do you analyze and use them in your trading.

Looking forward to our discussion

toucan

@Silver Dragon
Itīs interesting that you mentioned the std. deviation channels. Not many chart softwares have them included.
I tried them for future trading. I know tos has them and tradingview (member created indicator). May i ask which software you are using
for them?

Just curious since I see sloping std channel in charts posted here, generally its from open or some sort of pivot point from where I'm measuring it. Resulting in horizontal lines and not sloped ones.

I'm wondering whats the center here.

Please excuse if I'm asking silly question

Iīm using Motivewave. MW has regression channels with standard deviations. I set it up to use 1000 bars backwards to create the regression channel.
Itīs really amazing, not only for futures but also for stocks (5min, 1 min for daytrading).
The most programms i know donīt offer auto standard deviations channels. I know TOS, Motivewave and now tasty works.
Tasty works was created by the guys who also created TOS in the past.

Thanks a bunch, I'll program for Trading view same.

Thatīs great. Did you publish your code on tradingview? I found something similar and use it with tradingview.
But i am glad MW has such a tool on board because i canīt trade with tradingview because it doesnīt connect to IB.
MW does it. I put all regression lines on a chart with different colors and created a layout.
I set up 100 bars to calculate the regression lines on the one minute chart and 999 on the 5 minute but still trying to find the best setups.
Do you have a recommendation for the bar lenght to calculate the regression lines?
Some only trade with order flow but i still prefer the standard charting with regression.

I've checked inbuilt regression channel code on TV, it seems to be doing same, its regression line +/- 2 stdev channel, settings are adjustable. So I'm saved on effort of coding one from scratch. If you are interested you can check that one also, if you want to modify how stdev is calculated in it, you can simply swap that part of the code. However, I don't see any need for it,

I've not used regression channel enough to comment on recommendation but this is going to be highly subjective. I feel 100 is fairly decent length for it so far.

Hi @LastDino

I've been looking through TV and have found many Regression Channel options. Which one was the one that you found most closely resembled the one Silver Dragon is using on his chart? The built-in option only seems to give one line for STD on the upper and lower, however that line can be adjusted to which STD you want.
I was looking for one that has multiple lines, one for 2nd STD, another for 3rd STD etc.

Cheers!