How do you trade an index?
= Action points
Check out the K ratio (Lars Kestner)
- from Lars Kestner’s book: Quantitative Trading Strategies,
- Check out the follow up z-score article
Check out the level II articles OR find level II books
Level II (order book)
- hard to get data to backtest
- See: Level II quotes: Decoding supply and demand
- Z-score is a measure of the distance — measured in terms of the number
- of standard deviations — of any individual data point from the recent aver-
- age of those data points.
- The z-score can be calculated for any data series;
- here it is applied to the closing price of a series of daily bars.
- A z-score of +1.0 for a particular bar means the closing price for that bar
- is 1.0 standard deviations greater than the average of the closing prices,
- while a z-score of 0.0 means the closing price is equal to the average.
- Momentum indicators are typically cal-
culated using the closing price, which
greatly influences their “message.” For
any oscillator to keep moving higher, the
close-to-close price changes must contin-
ue to increase. If they remain the same,
the oscillator moves sideways; if they decrease in size (even if
the changes continue to be positive), the oscillator will