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I'm creating a web page on this chart / indicator. If one of you Value Chart experts will share some information on how this is traded, or provide me with a good link where it is explained, I would greatly appreciate it. |
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It's been a few years since I read the book (Dynamic trading indicators by Stendhal) but a Google book search will show the portion of the book with the main ideas.
If I remember correctly it's a statistical distribution method that uses the price of an instrument and it's ability to move away from it's own moving average. In the book he used a SMA 20 on a daily chart to illustrate the point. He then assigns points according to where it is in the distribution:
+8 and Above= Significantly overbought- 3
SD or above
+4 to +8= Moderately overbought- 2
SD
+4 to -4= Normal or value
-4 to -8= Moderately overbought- 2
SD
-8 and below= Significantly oversold- 3
SD or below
In a bell curve +4 to -4 would be the Mean and 1SD areas and the others would fall to the outside as described above.
Stendahl used these to play reversions back to the mean.There are several additional items he uses, that is the basic premise behind his value charts.
It also seems as if thats how the TTM guys are using it as well.