Friday, April 02, 2010

Clarifications Regarding Price Target Calculations

I've been inundated with questions regarding the first and second posts detailing methods of calculating price targets. Here are responses to the more common questions:

* All calculations are in Excel; Excel functions will calculate medians and averages for you. No complicated spreadsheet programming or statistical software is needed;

* The data come from my archives, which is why they go back to late 2002. It's a sample of convenience that cuts across a variety of market conditions;

* Other values can be used, and I encourage readers to experiment with their own formulas. In place of the day's average price, you could use the pivot level for the day or the day's VWAP. A promising variation is to use today's open and calculate price targets around that;

* The basic approach from my second post can be used for any stock or ETF. You'll simply need to adjust the constant in the formulas for R1/S1, R2/S2, R3/S3, etc. Instead of using .60, .80, and 1.0 as in SPY, for instance, you'll need to define the proper constants for each market;

* Using weekly data instead of daily data will give you price targets for the following week. (Those constants need to be adjusted as well). That is very useful for swing traders. I post weekly price targets for SPY each Monday morning via Twitter;

* Formulas for the ES futures will look different, because the pivot and volatility calculations will incorporate overnight trading data. With SPY, there is no overnight data embedded in the formulas.

Hope that's helpful. My goal in providing the formulas is to encourage you to think of trading in a different way, with an emphasis on exits and targets, not just entries. If my posts raise questions and lead you to explore the data on your own and find relationships different from the ones that I have shared, I will have succeeded in my mission!

Thanks as always for the interest and support.