A whipsaw, as it pertains to stocks, occurs when the price of a stock moves in one direction, only to quickly reverse in the opposite direction. If you look at the price mapped out on a chart, it can look like the jagged teeth of a whipsaw. Price whipsaws can be frustrating for traders who buy in anticipation of higher prices only to lose money as the price quickly reverses lower.
from eHow-com
i wonder if there exist indicators that could capture how much whipsaw a security features?
this because as a security's price movements are smoother and more defined, it could be possible to profit more consistently.
- i think that calculating the average true range of a security's 1 or 2 minute bars over a 3 or 6 month period and dividing it by the daily atr of the same period could be an approximation. tried that on tradestation but calculations take forever and haven't managed to create a composite indicator that uses two time frames at once.
- or failing that, an average of the candlesticks' wicks to bodies ratio for a 3 - 6 month period could work too. summing the distances of the upper and lower wicks and dividing that sum over the distance of the body for the 1 or 2 minute bars of a security over the 3 to 6 month period could be another approximation. don't know if any similar indicator exists, but it maybe wouldn't be that hard to program.
- i read that the beta of the security to the s&p 500 could be another measure. i'm still researching how to display that in tradestation, but this seems to me like the bluntest approach.
any thoughts or suggestions welcome. thanks.
Can you help answer these questions from other members on futures io?
thanks. i am checking out and enjoying the threads on choppy / sideways securities.
maybe whipsaw is not so good as a term. i hope this illustrations can help explain what i mean. two securities, nflx's price is all over the place be it moving or just standing, while xlk is one of the most parsimonious instruments i have seen: trends somewhere with definition and tightness, maybe then reverses back to where it started, but always in a very harmonic way. i'd like to measure for that tightness to be able to search for securities that display it.
