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Entropy indicators

Entropy indicators
By JohnLast 3154 days ago Comments (5)

Here I would like to present one new toy. This is the Averaged Predictability Reversal Bars.

The idea is that some bars are more special than others. Some bars show an order that is considerably higher than the other bars. The Averaged Predictability Reversal Bars provides a mechanism to quantify these upcoming events.

When you see a peak that would mean that a reversal is close. That is  the pattern. The idea of this indicator is to make something like the Prediction days indicator of the Noxa analytics.

I used the article Intradays patterns and local predictability of High Frequency Financial Time Series by Lutz Molgedey and Werner Ebeling.

First I used the conditionnal entropy.

h = H n+1 - H n (However in the indicator I used averages)

and the maximum uncertainty is 1. The Averaged Predictability is the difference between the maximal and the actual uncertainty

r = 1 - h

Please check the code I am not sure it is right. And I used for calculation of the difference more than 1 bar you can see I make a substraction of averages.

 

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От 23 септември 2011

Comments

  • JohnLast 3153 days ago

    This is a possible example how this patterb can be used. A spike means that we have a high probability of V top or V bottom reversal. This reversal can be catched eventually with fine tuned intrument, whatever you may use. 

     

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    От 23 септември 2011
  • JohnLast 3153 days ago

    On the original chart the pattern is even more pronounced. Look at the spikes, there is an increased probability of V top reversal. Especially at that levels you observe a hit of a particular accumulation of market orders ;). Like Today for example.  Like the screen shot here. I mean the accumulation of orders at the level 1.3500.

  • JohnLast 3149 days ago

    Here I would like to add another example from the recent market activity. Some hours ago I warned to a V top on the Euro/Usd. It is not surprising the market to correct from any sharp price impluse. But I had someething different in mind.

    Look here there is a peak in the entropy, that is indicated by the Entropy Average Pedictability Prediction Bars. (It is not exacly and not sophisticated as the Noxa indicator of predictability days, however it will be nice if we can compare both).

     

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    От 23 септември 2011
  • jaguar1637 3054 days ago

    THis thread is very interesting

    I will try it

  • jaguar1637 2898 days ago

    Hi

    This idea is a good and interesting one.