In last update of Chaos theory module (uploaded several days ago) there
isÂ a new feature channel breakdown, here it is:
I want to explain how it works, this histogram for this indicator:
You see, it tells us if RPO(5,100,100) falls in diapason 8%-12% with probability of 75% we have POSITIVE breakdown.
It works this way: for next day we take opening price let it will be $1000 and calculate 5% channel - up level $1050 and down level $950 and watch what level price hits first up or down.
We can read our results this way: when RPO(5,100,100) falls in diapason 8%-12%Â with probability 75%Â the price firstly hits upper level $1050.
Technically it means that we can set target price $1050 and may be stop 2% loss (5% win versus 2% loss, not bad).
This approach is used for developing fast trading system. I don't know how it works for EOD data. I think we have to take into account the average transaction length (how fast price breaks this channel).