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Some uptrends are sustainable for more than 10-20 days.A
fast trend detector, like DEMA(StochD(40),20) would buy at B0 and sell at
S0.The very next days it would force the trader to follow the undesirable
whipsaws W1, W2 and probably loosea part of the B0/S0 profits.[see the black
line]A slow trend follower like DEMA(StochD(40),50) would start at
B1[missing the interesting first 7 bars] and stop at S1[6 bars after the
actual end of the trend]. The use of the slow period helps to avoid
whipsaws but expose the profitsto a probable dramatic decrease after the
actual peak. If the start of the trend was sharp with the well known gap
upsthen the remaining profits would not be similar to this great trend.[see
the yellow line].The technical analyst wish would be 1. to begin
ASAP, 2. avoid the whipsaws and 3. get out as closer to the actual
peak.It is the basic T/A problem with almost any indicator and here
is a solution proposal : the variable smoothing.Begin with the fast
indicator and, as the trend goes on, increase smoothing factor adding +1 delay
per bar.If the trend holds for 20 bars, the beginning would be per=20 and
today you would run a per=40.If the trend stops for any reason, sharply back
to per=20 to begin another, bearish cycle.The result is the ENTRY/EXIT of
the att. ^NDX gifPaste in your IB the
/*TREND DETECTOR WITH VARIABLE PERIOD, by D. Tsokakis,
Apr2003*/t=20;// the initial fast
periodx=DEMA(StochD(40),t);Plot(x,"",1,8);// fast trend
detectortA=50;// slow
periodxA=DEMA(StochD(40),tA);Plot(xA,"",7,8);// slow trend
detectorCond1=Ref(x,-1)==LLV(x,3);Plot(50*Cond1,"",5,2);// the start of
the fast uptrendCond2=Ref(x,-1)==HHV(x,3);Plot(50*Cond2,"",4,2);// the
end of the fast uptrendk1=BarsSince(Cond1);// uptrend bar
counterk2=BarsSince(Cond2);// downtrend bar
counterPlot((k2>k1)*10,"",5,2);Plot((k2<k1)*10,"",4,2);t1=IIf(k2>k1,t+k1,t+k2);//
the variable periodx1=DEMA(StochD(40),t1);// the variable trend
detectorPlot(x1,"",(x1>Ref(x1,-1))*5+(x1<Ref(x1,-1))*4,8);GraphXSpace=1;
The method accepts further calibration if you replace t1
with
coeff=0.5; // delay calibration, set coeff from 0.5
to 1.5
t1=IIf(k2>k1,t+coeff*k1,t+coeff*k2);// the calibrated
variable periodaccording to your needs.
The DEMA smoothing gives very reliable results and accepts
variable periods by design.
Dimitris Tsokakis
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