Here’s an in-depth look at an indicator that is part of Midas, the well-known market data analysis system. In this article, we will look at the formula used to calculate it. The innovative work of the late technical analyst Paul Levine into the application of volume-weighted average price (Vwap) principles to the financial markets has drawn attention in recent years. One result of this work is an indicator many readers will by now be familiar with. Levine called it Midas, an acronym for the market interpretation/data analysis system. The other result of this work is an indicator Levine called the “topfinder/bottomfinder,” the subject of this article.
Outside of Levine’s work, a standard Vwap calculation (the total value of shares traded in a particular stock on a given day divided by the total volume of shares traded in that stock on that same day) is typically used as a benchmark to measure the efficiency of institutional trading. It is also a standard tool in the brokerage industry in that a Vwap execution is a way of earning a trader’s commission. Beyond this, rudimentary Vwap calculations have played a limited role in trading decisions, as in technician Kevin Haggerty’s methodology of establishing whether a stock price has closed above its daily Vwap.
A radical extension of this standard Vwap calculation, however, has resulted in a technical charting indicator capable of fractal market analysis across multiple chart time frames. The Midas indicator on the daily charts generates robust nonlinear support and resistance curves that indicate major trend reversals. Midas has gained a reputation as a powerful indicator of trend exhaustion points in the primary (nine months to two years) and intermediate (six weeks to nine months) trends. However, recent articles have revealed that Levine’s fractal philosophy applies not only to different segments of the daily trend but also to smaller components that can be analyzed on intraday time frames.
Three Main Roles Of The Midas indicator
Before moving on, let’s be clear about what the Midas indicator does. Midas is capable of performing three fundamental roles. The first role can be described as a trend-continuity indicator. Figure 1 illustrates this primary role clearly in relation to an uptrend and a downtrend in a V-shaped bottom on a 1m chart of the Euro GlObex December 2008 futures. All ongoing trends, as you may know, have temporary exhaustion points (or pullbacks), and Midas effectively captures the end of these temporary pullbacks.
FIGURE 1: ONE-MINUTE CHART OF EURO GLOBEX DECEMBER 2008 FUTURES. Here you see two resistance curves in the downtrend and three support curves in the uptrend of a V-shaped bottom. MIDAS is performing its first role as the locator of the end of temporary trend exhaustion points (pullbacks).
The second role for Midas is that of an end-of-trend overbought/oversold indicator. This is what Levine referred to as the “hierarchical structure of support and resistance levels.” Levine’s view was that an ongoing trend could support a maximum of four to five Midas curves before it ends.
The third role for Midas is that of a reverse-trend target indicator. This is illustrated in Figure 2. Here, an upside trend that has been subject to a Midas curve launched at its inception (point 1) has ended and a new downtrend has begun (point 3). Note the displacement of this early Midas curve from the development of the uptrend (point 2). Because of this, the early Midas curve has now become a price target for the new downtrend. At the double bottom marked by point (4), note the on-balance volume (ObV) diverged positively from price as it made its second bottom. This suggests that the Midas resistance curve would not continue resisting price. At the same time, price reacted powerfully to the displaced Midas support curve, which had become a target for this modest downtrend.
FIGURE 2: ONE-MINUTE CHART OF DAX DECEMBER 2008 FUTURES. An early support curve displaces at point 2 and becomes a reverse-trend target indicator when price reaches point 4. Price finds support on the displaced MIDAS support curve in a double-bottom pattern. This is confirmed by a positive divergence in the on-balance volume.
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