Before I got into Specter and FF5 I studied price above/below moving average performance. I also studied moving average up/down but wasn’t able to integrate that with above/below until FF5 was designed.
My articles from Finite State Accounting through at least the first Specter article deal with simple above/below analysis.
One of the key insights in above/below performance is that price will usually move from an above to below state with volatility. I regard volatility as unpredictable because I don’t see how to do that. Many technicians and statisticians think it is predictable, which seems like a silly position if they don’t know how to do it, but it takes a village.
The numbers in the E and M columns show how much of a move is required for price to move below (or above if the number is negative) the average.
Note the numbers here are positive and go from low to high based on length. This pattern is the most common equity market setup.
We can be relatively confident that the 13 day averages will not break today, but if they do the signal will be x0C. If only one breaks the signal will be xMC but that is not likely to happen because if volatility appears strong enough to take out one it will almost certainly take out both. That should be easy for a human to understand, my dog would have difficulty.
The distance shows that even if xCC holds, the market long positions in 3x Bulls could take significant losses.
xFC is a flat position. That is a close call in this environment. It basically isn’t very profitable over many samples, but obviously isn’t the voice in the haunted house telling people to get out.
