Market System Quality Number (Market SQN)

2021年12月16日

––––History & Credit
Developed by Dr. Van Tharp, SQN it is the ratio between the R-expectancy and its standard deviation, multiplied by the square root of the number of trades.
Here is an extract of Dr.Tharp's blog post:
Importance of Market Type
Basically, my definition of a bull market is one that’s going up. A neutral (or sideways) market is one that moves sideways in a range — or perhaps a bigger range if volatile. And a bear market goes down.

Market type has no predictive value, it is just descriptive. In other words, you never will know how long it is going to last. But you don’t need prediction to make money. You just need wins that are bigger or more numerous than your losses which need to be smaller or fewer.

In addition, you can learn a lot about what works and what doesn’t work when you use a particular market type that fits your time frame and how you want to trade. That concept is extremely important because two key Tharp Think principles are:

It’s easy to design a good system that works well in any one market type and
It’s insane to expect that same system to work well in all market types.
In fact, I have recently focused our Systems Development workshop upon the principle of creating trading systems for particular market types.

–––––How to use it
If you are a directional, momentum trader, the Market SQN can give you an unbaised measure of wether you are in an uptrend, sideways or downtrending market.

Color legend
Lime = Super Bullish trend
Green = Bullish trend
Cyan = Neutral trend
Dark Red = Bearish trend
Red = Super Bearish trend