Identifying the Cause of the Two Phenomena

In the majority of cases, both phenomena are linked to the same cause. When Levine created the MIDAS support and resistance curves, his choice of input was the average price, which he calculated by adding today's high and low and multiplying by 0.5. It's not clear whether this was an arbitrary choice or the result of deliberation; equally possible is that Levine was influenced by the original VWAP methodology from which the MIDAS system is an adaptation.

As we saw in Chapter 1, there's more than one way of calculating the daily VWAP, but the basic formula is to multiply the price and volume at each time interval and then divide by the total volume:

where

  • P = price of instrument traded
  • V = volume traded ...

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