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The Weekly Expected Move: Our NorthStar?

Updated: May 30, 2023

In a sea of ever changing information what can we rely upon as a reliable measuring stick for price movement?



The Expected Move viewed as a framework can be thought of as a grid. Just like we use longitude and latitude on our mapping of the world as a common framework. However unlike the physical world which does not move, the markets are fluid. The Expected Move as a framework allows us to gauge these price movements relative to what was expected. This means that while the “latitude & longitude” of expected move is always moving, the moves relative to what was expected can be measured against a reliable constant.


For example, if you view price as moving across this grid of fixed points you can gauge it’s movement in a relative manner. That is to say that even though price may move from say $300 to $302 in one week while price in the same index moves from $310-$312 in another week both moves may be exactly the same when viewed through the Expected Move framework. that is to say that in similar conditions they may move in very similar ways even though the absolute amount is different.


Well, you may say so what. There's nothing new here. We always measure price against some metric like for example the 20 day simple moving average. That is very true but the difference is monumental. Rather than measuring price against a derivative of itself or some arbitrary value in which both cases are not constants (since they are not independent of what is being measured) we can instead measure against a completely independent variable.


In order for the variable to be completely independent it has to be subjective since the only things known are price and that is what you are measuring. So why would we want to use a subjective variable? Only because we have to but just because it's subjective does not make it bad. if it's subjective by virtue of the opinion of thousands of highly skilled and non conflicted traders making free market decisions in their own self interest it can become an extremely effective subjective measuring point.


These options traders in aggregate are trading tens of millions of contracts per day. They are not only very accurate in how they depict risk and therefore price movement as it's derivative but they also shape how price moves by virtue of how market makers manage their own risk. One has only to study historical price movements within the Expected Move framework to see how correlated these movements are. The size of the expected moves change from week to week but the nature of their moves are very similar over time.



And the best part is that all of this can be measured.






"A judicious man looks on statistics not to get knowledge, but to save himself from having ignorance foisted on him" ~ Thomas Carlyle


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