Distance from the Average Price (NT7)

Regular price $99.00

New traders and the speculating public often come into the markets 2 days after a move has begun to capitulate.

Here are the reasons:

1. Media outlets start talking about higher prices after a price spike has occurred.

2. The pubilc which does not trade every day will not get around to buying until the next day, when the market opens, and they have a few minutes on their lunch break to do so.

By this time price has capitulated to unprecedented highs, often trading far above the average price. However, this move cannot be sustained for long. The distance from the average price is important because it can only go so far before correcting.

If you were to pick up a 9 iron and start hitting golf balls you'd have a pretty good idea, after a few hundred shots of your average distance. Now if you were to put that into a standard deviation, you'd see that the majority of your shots landing within 145-155 yards (these are PGA stats I found online). 

As you can see the majority of shots ended up in the middle near 150 yards, while the rest declined at each extreme when using a 9 iron.

In trading price action works the same way.

 

Distance from Mean Indicator (NT7)

You can only expect price to go so far away from the average price. The detrended oscillator of the mean variance plots this in the lower order panel. If it gets too far away from the middle, it must either stall out and trade sideways, or begin its retrace to the middle. 

Successful trading requires being ready when opportunity presents itself. The Distance from Mean Indicator gives you the ability to know, precisely when the odds are in your favor.