AI
Wednesday, May 29, 2002 11:31:49 AM
Moving averages re-revisited (UGH!)
Myst, Rien, Tom, others --
I think I may have come up with a simple, conceptual win,win resolution to the SMA vs. EMA controversy. (Please assume the following EMA references also apply to VMA....less typing).
Assumptions:
1) It has been firmly established that XDEV optimum performance is critically dependent on the inherent lag of the 12? day SMA, for the stocks and funds it has been tested on.
2) The most effective moving average time span was discovered through a trial and error process.
3) The "best" effective SMA time span for a particular stock or fund, in a particular time frame, may (will) vary from the XDEV standard moving average time span.
4) This is due to variable market personality, and variable trading issue volitility characteristics.
5) This may be addressed by:
a) Only trading those vehicles that standard XDEV is most profitable with, at a particular time.
b) Install a variable moving average time span in XDEV, customizable to what is currently the "best" approximated moving average time span for the individual trading issue and market personality.
Problem:
1) Tests of 12 day (and other time span?) EMAs have resulted in significantly reduced XDEV optimum performance.
2) XDEV performance decrease results from the increased sensitivity of the EMA in comparison to the same time span SMA.
3) This is due to the decreased price vs. EMA deviations, which XDEV performance is critically dependent upon (...extreme deviations).
4) How do we need to modify the EMA to restore the XDEV benefits derived from the 12 day SMA time lag?
Solution:
Increase the EMA time span used, to the point that it's now decreased sensitivity most closely mimics the movements and deviations of the 12 day SMA. (TADA!!!)
There are additional side benefits to this solution that I touched on yesterday, plus some others.
(Interesting exercise).
What do you think? Take your best shots. I believe I'm ready to defend.
Thanks,
Robo
Myst, Rien, Tom, others --
I think I may have come up with a simple, conceptual win,win resolution to the SMA vs. EMA controversy. (Please assume the following EMA references also apply to VMA....less typing).
Assumptions:
1) It has been firmly established that XDEV optimum performance is critically dependent on the inherent lag of the 12? day SMA, for the stocks and funds it has been tested on.
2) The most effective moving average time span was discovered through a trial and error process.
3) The "best" effective SMA time span for a particular stock or fund, in a particular time frame, may (will) vary from the XDEV standard moving average time span.
4) This is due to variable market personality, and variable trading issue volitility characteristics.
5) This may be addressed by:
a) Only trading those vehicles that standard XDEV is most profitable with, at a particular time.
b) Install a variable moving average time span in XDEV, customizable to what is currently the "best" approximated moving average time span for the individual trading issue and market personality.
Problem:
1) Tests of 12 day (and other time span?) EMAs have resulted in significantly reduced XDEV optimum performance.
2) XDEV performance decrease results from the increased sensitivity of the EMA in comparison to the same time span SMA.
3) This is due to the decreased price vs. EMA deviations, which XDEV performance is critically dependent upon (...extreme deviations).
4) How do we need to modify the EMA to restore the XDEV benefits derived from the 12 day SMA time lag?
Solution:
Increase the EMA time span used, to the point that it's now decreased sensitivity most closely mimics the movements and deviations of the 12 day SMA. (TADA!!!)
There are additional side benefits to this solution that I touched on yesterday, plus some others.
(Interesting exercise).
What do you think? Take your best shots. I believe I'm ready to defend.
Thanks,
Robo
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