I wanted to take a look and see if there was any correlation between the way Dr. Van Tharp categorizes market types using SQN and ATR%, and the size of Harmonic Rotations. Basically, Harmonic rotations can show how much an instrument is willing to trend in 1 direction, so I was curious to see if particular market types offer larger rotations over others.
What I did was write a C# strategy in NinjaTrader to output the same Harmonic Rotations I had in my Harmonic Rotation study along with the SQN(100) and ATR%(14) data. This allowed me to find the average size for each market type.
Here are the results for the ES
|Strong Bear||Bear||Neutral||Bull||Strong Bull|
Note: The #DIV/0! just means that there were no days with the criteria for that particular market type.
As we might expect, the more bearish the market is, the more likely we will have larger harmonic rotations. And also as the market becomes more volatile, which is more likely the more bearish the market is, the larger the rotation is as well.
What is also interesting is the large increase in the average rotation from the Bear to the Strong Bear market types. It’s quite clear that the rotations are much larger and thus you are statistically better off trading to the downside.