1.0: Purpose of this Series
The tags cloud below summarizes the abstract context of this series.
2.0: Purpose of this article
I found myself face-to-face with this mess.
An analogy with the optimal dynamic non-linear system I can think of was my decision. Therefore, this article is a conceptualization analogical argument.
Choose your favorite but remember we are determined to find a baseline: a bare minimum.
2.1: Building Custom Tradometers
Many online services offer you to build car's custom dashboard, so will we from scratch and build a catalog of options in each class.
2.1.1: Display Types
2.1.2: Display Units/Scales
2.1.3: GPS Navigation
Speedometers measure velocity and hence displacement. See Veyron below.
The Veyron was actually a financial instrument, the elevation is now a bullish candle, and finally the start (open) was replaced by the previous stop (previous close) to include any gap-ups in this case.
Let's take an example of a market's momentum indicator to see what it measures to our previous findings.
2.1.5: Fuel Gauges
Without fuel, you are going nowhere, trading volumes are the fuel for any market move.
2.1.6: Temperature Gauges
Cars need warming up, instruments are indifferent. Volatility is the instrument's temperature.
Now, let's see the displacement or the actual "directional distance" covered.
An example with market's volatility indicator to see what it measures.
Obviously, volatility indicators are capable of alerting a relatively extended move.
Cars get volatile or overheated too.
Cars get overheated if they met a strong frictional force, like this:
With this bearish frictional resistance, lucky who just ends with a smoking engine. We will refer to it in a downtrend by the frictional support.Volatility indicators missed that out.
This particular case of excessive heat is a pronounced change in the instrument life-cycle, especially on excessive fuel consumption, or in other words, high volumes. Substantial moves are getting baked while the temperature gauge called volatility is too cold to sense it.
The following was the closest thing in the market to illustrate the concept.
2.2: Summary & Conclusion: