Midas Analysis

Trading and Technical Analysis with MIDAS

Deeper Pullbacks with Midas Average Curve

In the previous post we demonstrated price action against a powerful R curve, which caught pullbacks 4-5 times.  One pullback slipped through around 11:35.   While MIDAS S/R curves often capture price action with a high degree of accuracy, there are cases where price pushes through, but doesn’t enter into a new trend.  Instead, it tends to hesitate and often reverse off of an invisible zone.

 

Deeper pullbacks can sometimes be explained by looking at a broader time span.  If you are on 1 min bars for example, a 5 min bar chart that includes data from the previous session or extended hours will often produce curves that clearly explain the price zone.

 

Another method for capturing deeper pullbacks is referred to as MIDAS Average Curves (or MACs).  This method was created by Bob English and covered in the book by “Midas Technical Analysis” by Coles and Hawkins.  MACs involve an averaging of the standard MIDAS S/R curves, so in a sense they are nominal MIDAS of MIDAS curves (instead of price data we use the S/R curve as source data).  It’s pretty easy to consider MACs a natural extension of MIDAS, since they simply involve repeating the MIDAS averaging process over the S/R curve.

 

Average curves can be launched along with regular S/R curves, and we often see price interacting with both the S/R curve and the Average.  When price breaks through the primary S/R, it’s common to see it interact with Average.  It might pull back from there, or if it breaks through that as well, we have a good indication of a genuine reversal.

 

The previous post included a number of S/R curves, but also showed Average and Delta curves, which were not explained.  We’ll be covering the Delta curve soon as well, but for now I’d like to draw attention to Average curves.  The previous chart (1 min bars of YM) is repeated above.  Here you see the primary curve holding in most cases, but at one point around 11:35 it fails to hold the price.  Price hesistates along the R curve but presses through.  Around 12:40 it moves to the Average curve and reverses (red dotted line).

 

We also see some later interaction with the Average curve.  Around 12:25 price is consolidating and retests support.  While we see a clean bounce off of its previous S curve, coincidentally we see it retesting the average curve of the major R line covered above.

 

In all fairness it must be noted that not every pullback or price move is explainable in terms of MIDAS.  Price action is the product of traders, who collectively or as major players push price in one direction or another.   As such, price is not bound by MIDAS.  Markets exhibit patterns probably based on fundamental trading behavior, which MIDAS is able to capture remarkably well.  The goal isn’t to explain every pullback and swing, but to understand how the market is moving and find profitable signals. Average curves provide another powerful indicator.