In finance, MIDAS (an acronym for Market Interpretation/Data Analysis System) is an approach to technical analysis initiated in 1995 by the physicist and technical analyst Paul Levine, PhD,Dr Levine's lectures were originally published on the website of Windows on Wall Street, a popular software trading platform which became a subscription-based utility in 2001 through Financial Data Casting. Until Dr Levine's death in 2001, the lectures were also published on Dr Levine's and Dr Stokes Fishburne's own website which distributed the early WinMIDAS software developed by Dr Levine and Dr Fishburne. and subsequently developed by Andrew Coles, PhD, and David Hawkins in a series of articlesSee sections 1.4 and 1.5 below for full published article citations for Coles and Hawkins. and the book MIDAS Technical Analysis: A VWAP Approach to Trading and Investing in Today's Markets.Coles, PhD, Andrew and Hawkins, David (2011). MIDAS Technical Analysis: A VWAP Approach to Trading & Investing in Today's Markets. Hoboken, New Jersey: John Wiley & Sons, Inc. . Latterly, several important contributions to the project, including new MIDAS curves and indicators, have been made by Bob English, many of them published in the book.See in particular Coles' Chapter 17 of Coles, PhD, and Hawkins (2011).
Paul Levine's initial MIDAS work and the new MIDAS approaches developed in the book and other publications by Coles, Hawkins, and English have been taught at university level and are currently the subject of independent study intended for academic publication.MIDAS techniques have been taught by Amir Naser Hojati, a PhD candidate at the Institute for Economic Research & Development, University of Tehran, and by Dr Bruce Vanstone, at Bond Business School, Bond University. Dr Vanstone and Mr Hojati are also collaborating on an academic study involving the programming of MIDAS curves and indicators intended for academic publication based on the day trading techniques developed by Coles in Chapter 3 of Coles (2011). Mr Hojati has been interviewed in the Iranian daily economic newspaper Donya-e-Eqtesad about his investment management course at the Institute of Economic Research & Development which incorporates MIDAS technical analysis and other volume-based techniques. The same MIDAS techniques have also been widely implemented as part of private trader and hedge fund strategies.The MIDAS curves and indicators have been extensively discussed on trader and investor forums, including Elite Trader, Trade2Win, Traders Laboratory, Ninja Trader, and Traderji. The MIDAS curves and indicators developed by Levine, Coles, Hawkins, and English have also been commercially developed by an independent trading software company for the Ninja Trader trading platform,The independent website of the trading indicator software development company is www.midasanalysis.com. There is no commercial affiliation between this company or this company website and Coles, Hawkins, and English. while individual curves and indicators have been officially coded by developers of a large number of trading platforms, including Metastock, TradeStation, and eSignal.
New MIDAS curves and indicators are in line with the MIDAS goal of developing an independent approach to financial market analysis. It uses unique standalone indicators available for every type of market environment while also offering information unavailable from other technical analysis systems.
The MIDAS Approach to Technical Market Forecasting The MIDAS approach to the technical forecasting of asset prices reduces to five key tenets concerning market price behaviour.
Tenet (1) Underlying all superficially random asset price behaviour is an order that cannot be identified by the majority of technical analysis approaches. This order - a complex fractal hierarchy of support and resistance levels - is the fundamental reality intrinsic to market price behaviour. Price movement occurs when price tests support or resistance and either breaks to new levels or fails in this process, in which case asset prices either reverse or continue to test until a break does occur, eventually moving prices to new levels.
Tenet (2) This fundamental order in the markets - the interplay between support and resistance - is a coaction between accumulation and distribution.
Tenet (3) The trading psychology behind accumulation and distribution can be analysed quantitatively from raw price and volume data and reveals a mathematical symmetry between price support (accumulation) and price resistance (distribution). In other words, the same mathematical formulae can be used to forecast future levels of support as resistance levels.
Tenet (4) For input to the mathematical formulae, it's essential to focus on price and volume data subsequent to a reversal in trend and thus to a major change in asset market sentiment. Price-derived analytics such as moving averages deemphasize these critical changes and so mix periods of differing underlying market psychology, thus contaminating new shifts in accumulation and distribution. Moving averages also neglect market volume. By contrast, MIDAS algorithms locate the real order underlying asset prices at the Volume-weighted average price (VWAP) taken over an interval subsequent to a reversal in trend.
Tenet (5) Asset price support (accumulation) and resistance (distribution) is fractal, meaning that an underlying order to asset market prices can be found at all degrees of trend in self-similar arrangements. Initially this insight was applied by Paul Levine to daily and weekly charts,Lectures 1 and 2 of Levine's lectures.Applications of the original MIDAS curves to daily and weekly charts is also discussed by Coles and Hawkins in Coles, PhD and Hawkins, David (2010). "Applying MIDAS to Daily and Weekly Charts". Technical Analysis of Stocks & Commodities. 27: 54-61. but Andrew Coles also later applied it to intraday timeframes, thus extending the MIDAS system for day-trading applications.
Two Drawbacks with MIDAS Technical Analysis There are two drawbacks in the timing of asset price moves in MIDAS technical analysis centering on the problems of price porosity and price suspension. The former refers to a shallow penetration of a MIDAS curve by asset prices. The latter refers to a premature turning of asset prices prior to reaching a MIDAS curve. Levine fully recognised the former problem.Levine, Lecture 4. The latter issue was first identified by Coles.Coles, PhD, Andrew (2008). "The MIDAS Touch, Part 2". Technical Analysis of Stocks & Commodities. 26: 32-45. This article was the cover story for the magazine for that particular month.
Levine assumed that this asset price/curve "elasticity" problem was intractable due to the MIDAS approach being a "simple approximation to a more complex and less deterministic reality."Levine, Lecture 4 However, with the development of Gen-2 curves,See below, section 1.4, for the full repertoire of MIDAS curves. Hawkins' study of long-term volume trends, and Coles' formulation of four volume-based trading rules for MIDAS curves, the elasticity problem is now entirely understood to be a volume problem. Coles and Hawkins have each put forward various techniques to deal with it.See in particular Hawkins' Chapter 6 and Coles' Chapters 11 and 13 in Coles, PhD, and Hawkins (2011).
MIDAS and the VWAP (Volume-Weighted Average Price) The basic VWAP formula is very slightly amended in MIDAS approaches, with the volume in the denominator of the MIDAS formula at the start of an indicator's launch being continually subtracted from the cumulative volume of the current price bar. The basic formula is as follows:This amended MIDAS version of the VWAP formula was discussed by Coles and Hawkins in Coles, PhD, Andrew and Hawkins, David (2009). "Market Trend and MIDAS", Technical Analysis of Stocks & Commodities. 27: 32-37.
where:
xi = cumulative volume of bar
xj = cumulative price of bar
dij = cumulative volume difference between price bars i and j = xi - xj
This same minor volume amendment underlies all MIDAS indicators when they are created from Gen-1 curves (see below).
Full Repertoire of MIDAS curves The MIDAS approach to technical analysis currently consists of five types (or generation) of MIDAS curve, none of which have a conceptual precedence over the other. Their application is relative to market conditions, user-adjusted preferences, and the type of financial dataset under consideration.
First Generation (Gen-1) curves
Originally developed by Paul Levine, PhD, Gen-1 curves process market volume and are launched from market inflection points at all degree of trend. They reflect the MIDAS philosophy of market order and price movement.Gen-1 curves can be found throughout Paul Levine's lecture series first published by Windows on Wall Street. The first published studies of Gen-1 curves applied to intraday charts for day-trading were made by Coles.
Second Generation (Gen-2) Curves
Developed by David Hawkins and Andrew Coles, PhD, Gen-2 curves process artificial market volume as input and thus extend MIDAS technical analysis to the foreign exchange market, which lacks centralized volume data, as well as the futures markets through the processing of open interest (instead of volume) in the Commodity Futures Trading Commission's Commitment of Traders Report.
Gen-2 curves also allow comparisons with Gen-1 curves and particularly the impact of genuine market volume over very long-term trends (when volume can sometimes become distorted) and also over short-term datasets (when there can sometimes be considerable volume volatility, as for example in periods of futures contract rollover).
Gen-2 curves can also help avoid the two MIDAS drawbacks discussed in section 1.2 above. Gen-2 curves for long-term data sets susceptible to largescale volume fluctuations were developed by Hawkins.See Hawkins' Chapters 6 and 9 in Coles, PhD, and Hawkins (2011). Coles developed Gen-2 curves for the volumeless forex markets and futures markets, where he has developed three highly contextualised curve subsets.See Coles' Chapters 1, 11, 12 and 13 in Coles, PhD, and Hawkins (2011).
Third Generation (Gen-3) Curves
Developed by David Hawkins, Gen-3 curves are methodologically distinct in regard to their unique launch points, Gen-3 curves calibrate distinctly to less obvious market trend inflection points and, in so doing, frequently create more accurate forecasts while also avoiding porosity problems.See Hawkins' Chapter 9 in Coles, PhD, and Hawkins (2011).
Fourth Generation (Gen-4) Curves
Developed by Andrew Coles, PhD, Gen-4 curves process alternative forms of financial data beyond asset prices and volume, thus further widening the technical scope of MIDAS analysis.
Additional financial data sets include technical analysis momentum indicators such as the MACD, volume indicators such as On-Balance Volume, economic datasets such as the Baltic Dry Index, market volatility datasets such as the VIX, market sentiment gauges such as the Put/Call Ratio, yield curve analysis, market spread data such as the TED Spread, and intermarket Relative Strength analysis. There are currently nine highly contextualised Gen-4 curve subsets developed by Coles.See also Coles' Chapter 16 in Coles, PhD, and Hawkins (2011).
Fifth Generation (Gen-5) Curves
Developed by Bob English, MIDAS Average curves and MIDAS Delta curves were developed to analyse steeper asset price trends and longer-term asset price trends respectively. The curves can also address price porosity and price suspension problems associated with rapidly changing volume conditions.English's full discussion of these two sub-variations of Gen-5 curves can be found in Chapter 17 of Coles, PhD, and Hawkins (2011).
Full repertoire of MIDAS indicators