Trading Eurodollar One-Minute Bar Charts, Part 1 by Dennis Meyers, PhD
How do you determine when a price trend starts? The velocity of price movement can have something to do with it. Here’s one way you can measure volatility.
Many times, prices meander without any notable trend, and this is considered noise. During these times, you don’t want to trade because of the cost of whipsaw losses that would occur from this type of price action. When a price trend finally starts, the velocity of that price trend moves above a minimum threshold noise value.
In this article, I will introduce my nth-order fading memory polynomial velocity concept. The reasoning behind this type of system is to only trade when the price trend velocity is above a certain threshold.
The velocity-based system that I will use in this article to trade the eurodollar futures contract is called the nth-order fading memory adaptive polynomial (FADM) velocity strategy. The word adaptive is used because the polynomial inputs change over time, adapting to the changing trading patterns of the eurodollar futures contract. The nth-order fading memory adaptive polynomial velocity strategy has a number of unknown inputs that need to be determined before using this strategy to trade. These unknown inputs to the fading memory polynomial are the polynomial order; the optimum number of prices you need to determine the coefficients of the polynomial; and the velocity thresholds. Thus, the velocity system would only issue a trade when certain velocity thresholds above “noise” levels are crossed.