Introduction To Agathos Vector Analysis

Explaining AVA Output

AVA charts are generated in several different formats. A format may show a single time frame (e.g. monthly analysis), or multiple time frames. In each graph, 91 units of time are shown. Common to all output formats is the graphical content. While it may be arranged differently from one format to the next, it always comprises the following four elements:

Price

Closing price (solid black line), is shown together with the linear trend (thin black dotted line). The slope of the linear trend line is always such, that an equal number of underlying data points are found above and below.

Trend Velocities

Grouped together are three different trend velocities. PT (primary trend velocity) is the most stable. ST (secondary trend velocity) and RT (relative trend velocity) are more volatile than PT.

The secondary trend leads the primary one. ST’s position above or below PT signals in which direction PT is being dragged.  RT reflects how the series behaves versus a reference index (general market index for stocks, multinational index for indices). As all trend velocities may be positive or negative, the thin horizontal line shows ‘zero’. In the chart, velocities are represented by…

  • PT bold black line
  • ST thin black line
  • RT dotted black line

Greed & Fear

The two vectors define the forces that underly all price changes manifesting as trend. Greed is shown as solid green line, fear as solid red line.  Both may temporarily be ‘undetectable’. While this may last for some time, it suggests an excess of some kind. The prolonged absence of fear suggests a very level of risk. The prolonged absence of greed suggests excellent value.

Power Balance

PB is the net value of greed and fear. It is shown as solid blue line. As with the price itself, PB is shown together with a linear trend line (dotted). PB is also shown with a ‘zero’ line.

AVA Classification

Based on the observed price patterns of a financial assets and seen through the lens of Agathos’ Vector Analysis, a total of 16 stages are defined in every time frame. Classifications reflect particular constellations of trend velocities and vectors.

The primary trend velocity (PT) determines the quadrant:

  • Q1 when PT is negative & rising (stages 1 to 4)
  • Q2 when PT is positive & rising (stages 5 to 8)
  • Q3 when PT is positive & falling (stages 9 to 12)
  • Q4 when PT is negative & falling (stages 13 to 16)

The secondary trend (ST) and the balance between greed and fear (PB) determine the degree of maturity of the cycle stage represented by each quadrant. Stages 4, 8, 12, and 16 suggest the probable or ongoing migration into the next quadrant. However, the progression through stages and quadrants is not necessarily linear.

Sample Chart (Monthly Time Frame)

Below is a sample chart of a stock that is in the final stages of forming a long term base (Stage 4, Quadrant I). The analysis would suggest that the stock represents excellent value. Probably unnoticed by market participants busily chasing ‘headlines’ generating investments, the stock appears to be under careful accumulation. Obviously, the assumptions just articulated would need to be confirmed by the appropriate research. But it is an excellent illustration for how AVA contributes to a sound investment process, if only by focussing attention to areas of global markets that genuinely warrant it.

Additional statistics contained in this particular format are:

% Frame (the percentage change across the 90 months covered by the graph.

Regression Data

  • Alpha (intercept of y and x)
  • Beta (slope of regression)
  • RSQ (statistical congruence of y and x)

Interpreting AVA Output

Agathos Vector Analysis requires a very thorough examination of all information made available. To obtain the skills to do that will probably require a fair amount of dedication and experience as well as training.

Although classification into quadrants and stages may serve as initial filter, it is vital to understand that, on its own, it is far too simplistic. The ratings merely a starting point when it comes to judging the likely or probable future pricing on any asset so analysed. Ratings reflect the latest input.

Far more important is the history that precedes it and this can only be assessed visually. Key is the comparison of highs and lows of either set of indicators (e.g. Greed and Fear, PB, Velocities) with the price curve. Typically, genuine trend reversals from up to down and vice versa are preceded by divergencies between price and indicators. Price may be making new lows while fear builds lower successive peaks, greed forms higher lows,  or at least PB shows such a pattern. The same applies if PT and/or ST show higher lows against declining price patterns. So viewed, the weekly analysis will serve as leading indicator as to where curves in the monthly analysis will likely move. Interpretations should always be made using two time frames alongside.