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Maas:
While my manual for V6.5 page 242 shows "random walk index of highs" and
"random walk index of lows" the only random walk index in my indicator
library is the one I downloaded from the Equis web site. The web site
version does not do justice to the random walk index at all.
I thought that Poulos had separated the ranges of from 1 to 9 days (short
term), and from 10 to 60 days (long term).
There are several formulations for the random walk index. Some time ago, I
found several on the internet formulated for Supercharts; including one from
a consultant who pointed out the errors in at least one other formulation of
this index.
There appears to be an error in your formulation. You are misusing the
"max" function. You can only have a max of 2 or more values. Your set up
shows a max of several individual functions. You need a formulation
something like
MAX ( funct1, funct2, funct3, etc) instead of
MAX(funct1),MAX(funct2),MAX(funct3) etc
Your long term LT 50 day formulation is a repetition of the short term ST 8
day. For the long term formulation you need a MAX of 51 terms (10 to 60).
You have shown that using V6.5 it may be possible to formulate the random
walk index with this software. Some time ago Equis support said that this
could not be done, and that it was difficult to include it as a built in
indicator.
Regards
Lionel
-----Original Message-----
From: A.J. Maas <anthmaas@xxxxxx>
To: Metastock-List <metastock@xxxxxxxxxxxxx>
Cc: rijt, wil v.d. <wil.rijt@xxxxxx>; Rene Dennesen
<dennesen@xxxxxxxxxxxxxx>; Onno Goedknegt <goedkneg@xxxxxx>;
m.jonker@xxxxxxxxxx <m.jonker@xxxxxxxxxx>; LuudMaas2
<nlcou936@xxxxxxxxxxxxxxxx>; KLPD, Jan <klpdmozo@xxxxxx>; Jan Diederik Haas
de <jddehaas@xxxxxxx>; derksenf <derksenf@xxxxxxxxxxxxxx>; Jan van Diessen
<diessen@xxxxxxxxxxxxxx>
Date: Thursday, October 01, 1998 8:52 PM
Subject: RWI - Random Walk Index system
================================================================
RWI - Random Walk Index System - E.M. Poulos/T. Maas - for Metastock v6.x
================================================================
Re-written by Ton Maas - 981001 - Ms-IRB@xxxxxxxxx - Amsterdam - The
Netherlands.
----------------------------------------------------------------------------
-----
The original formula of the Random Walk Index, was created by Equis Intl.
using
information from the article "Are There Persistent Cycles", by E. Michael
Poulos,
in the September 1992 issue of TASC.
----------------------------------------------------------------------------
------
This indicator is defined as the ratio of an acutal price move to the
expected
random walk. If the move is greater than a random walk, and thus a trend is
present,
its index will be larger than "1.0" .
Random Walk
An economic theory that price movements in the commodity futures markets and
in the
securities markets are completely random in character (i.e., past prices are
not a
reliable indicator of future prices).
Random Walk Index
Description
In an effort to find an indicator that overcomes the effects of a fixed
look-back
period and the drawbacks of traditional smoothing methods, Michael Poulos
developed
the Random Walk Index. The Random Walk Index is based on the basic geometric
concept
that the shortest distance between two points is a straight line. The
further prices
stray from a straight line during a move between two points in time, the
less
efficient the movement.
Interpretation
Mr. Poulos found significant evidence during his research that the "dividing
line"
between short- and long-term time frames for most futures and stocks is
right around
eight to 10 days. Therefore, he feels an effective trading system using the
RWI can
be devised using two different time frames:
1.a short-term RWI (two to seven periods) for the market's frantic, random
side and
2.a long-term RWI (eight to 64 periods) for the market's steady, trending
side.
-Peaks in the short-term RWI of highs tend to coincide with price peaks.
-Peaks in the short-term RWI of lows tend to coincide with price troughs.
-Readings of the long-term RWI of highs above 1.0 provides a good indication
of a
sustainable uptrend.
-Readings of the long-term RWI of lows below 1.0 provide a good indication
of a
sustainable downtrend.
Indicators
The Random Walk Index is standard build-in in Metastock v6.5. See below for
its
Parameters. However custom versions can be build by using the Indicator
Builder.
In Metastock v6.5:
NAME Random Walk Index [6.5] High
SYNTAX rwih( PERIODS )
FUNCTION Calculates the predefined Random Walk Index of the highs indicator.
EXAMPLE rwih( 21 )
NAME Random Walk Index [6.5] Low
SYNTAX rwil( PERIODS )
FUNCTION Calculates the predefined Random Walk Index of the lows indicator.
EXAMPLE rwil( 21 )
Parameters v6.5
Standard Time Periods ST = 9
Standard Time Periods LT = 70
Standard Indicator Color = High: Red,Solid and Low: Red,Dotted
Standard Horizontal Line = 1.0, Black/Blue
Note that by DEFAULT the v6.5 build-in is set to 9 for the periods used for
both
functions, and when 'dragged' from the Indicator Builder to the chart, both
will
be promptly plotted as the 1 indicator in their inner window.
In Metastock v6.x:
NAME:
"Random Walk Index [6.0] High"
Formula:
{This is the ST 9-day version of the RWI. Color High: Red,Solid
and the Low: Red,Dotted. Horizontal line at 1.0(Black/Blue)}
Standard Horizontal Line = 1.0, Black/Blue
Max( (HIGH -Ref(LOW,-1)) / ( (Ref(Sum(ATR(1),2),-1) / 2)*Sqrt(2) ),
Max( (HIGH -Ref(LOW,-2)) / ( (Ref(Sum(ATR(1),3),-1) / 3)*Sqrt(3) ),
Max( (HIGH -Ref(LOW,-3)) / ( (Ref(Sum(ATR(1),4),-1) / 4)*Sqrt(4) ),
Max( (HIGH -Ref(LOW,-4)) / ( (Ref(Sum(ATR(1),5),-1) / 5)*Sqrt(5) ),
Max( (HIGH -Ref(LOW,-5)) / ( (Ref(Sum(ATR(1),6),-1) / 6)*Sqrt(6) ),
Max( (HIGH -Ref(LOW,-6)) / ( (Ref(Sum(ATR(1),7),-1) / 7)*Sqrt(7) ),
Max( (HIGH -Ref(LOW,-7)) / ( (Ref(Sum(ATR(1),8),-1) / 8)*Sqrt(8) ),
Max( (HIGH -Ref(LOW,-8)) / ( (Ref(Sum(ATR(1),9),-1) / 9)*Sqrt(9)),0))))))))
NAME:
"Random Walk Index [6.0] Low"
Formula:
{This is the ST 9-day version of the RWI. For High: Red,Solid
and the Low: Red,Dotted. Horizontal line at 1.0(Black/Blue)}
Max( (Ref(HIGH,-1) -LOW) / ( (Ref(Sum(ATR(1),2),-1) / 2)*Sqrt(2) ),
Max( (Ref(HIGH,-2) -LOW) / ( (Ref(Sum(ATR(1),3),-1) / 3)*Sqrt(3) ),
Max( (Ref(HIGH,-3) -LOW) / ( (Ref(Sum(ATR(1),4),-1) / 4)*Sqrt(4) ),
Max( (Ref(HIGH,-4) -LOW) / ( (Ref(Sum(ATR(1),5),-1) / 5)*Sqrt(5) ),
Max( (Ref(HIGH,-5) -LOW) / ( (Ref(Sum(ATR(1),6),-1) / 6)*Sqrt(6) ),
Max( (Ref(HIGH,-6) -LOW) / ( (Ref(Sum(ATR(1),7),-1) / 7)*Sqrt(7) ),
Max( (Ref(HIGH,-7) -LOW) / ( (Ref(Sum(ATR(1),8),-1) / 8)*Sqrt(8) ),
Max( (Ref(HIGH,-8) -LOW) / ( (Ref(Sum(ATR(1),9),-1) / 9)*Sqrt(9)),0))))))))
Note that for both the High+Low as functions or as indicators "friendly
error
messages are returned regarding the division of "0". This is very common in
the program and in this they can be ignored. These "friendlies" will not
affect their functioning, values, output or readings.
NAME:
"Random Walk Index [6.0] LT High"
Formula:
{This is the LT 50-day version of the RWI. Color High: Red,Solid
and the Low: Red,Dotted. Horizontal line at 1.0(Black/Blue)}
SUM(
Max( (HIGH -Ref(LOW,-1)) / ( (Ref(Sum(ATR(1),2),-1) / 2)*Sqrt(2) ),
Max( (HIGH -Ref(LOW,-2)) / ( (Ref(Sum(ATR(1),3),-1) / 3)*Sqrt(3) ),
Max( (HIGH -Ref(LOW,-3)) / ( (Ref(Sum(ATR(1),4),-1) / 4)*Sqrt(4) ),
Max( (HIGH -Ref(LOW,-4)) / ( (Ref(Sum(ATR(1),5),-1) / 5)*Sqrt(5) ),
Max( (HIGH -Ref(LOW,-5)) / ( (Ref(Sum(ATR(1),6),-1) / 6)*Sqrt(6) ),
Max( (HIGH -Ref(LOW,-6)) / ( (Ref(Sum(ATR(1),7),-1) / 7)*Sqrt(7) ),
Max( (HIGH -Ref(LOW,-7)) / ( (Ref(Sum(ATR(1),8),-1) / 8)*Sqrt(8) ),
Max( (HIGH -Ref(LOW,-8)) / ( (Ref(Sum(ATR(1),9),-1) / 9)*Sqrt(9)),
0)))))))),40)
NAME:
"Random Walk Index [6.0] LT Low"
Formula:
{This is the LT 50-day version of the RWI. For High: Red,Solid
and the Low: Red,Dotted. Horizontal line at 1.0(Black/Blue)}
SUM(
Max( (Ref(HIGH,-1) -LOW) / ( (Ref(Sum(ATR(1),2),-1) / 2)*Sqrt(2) ),
Max( (Ref(HIGH,-2) -LOW) / ( (Ref(Sum(ATR(1),3),-1) / 3)*Sqrt(3) ),
Max( (Ref(HIGH,-3) -LOW) / ( (Ref(Sum(ATR(1),4),-1) / 4)*Sqrt(4) ),
Max( (Ref(HIGH,-4) -LOW) / ( (Ref(Sum(ATR(1),5),-1) / 5)*Sqrt(5) ),
Max( (Ref(HIGH,-5) -LOW) / ( (Ref(Sum(ATR(1),6),-1) / 6)*Sqrt(6) ),
Max( (Ref(HIGH,-6) -LOW) / ( (Ref(Sum(ATR(1),7),-1) / 7)*Sqrt(7) ),
Max( (Ref(HIGH,-7) -LOW) / ( (Ref(Sum(ATR(1),8),-1) / 8)*Sqrt(8) ),
Max( (Ref(HIGH,-8) -LOW) / ( (Ref(Sum(ATR(1),9),-1) / 9)*Sqrt(9)),
0)))))))),40)
System
Mr. Poulus feels that an effective trading system could be built that opens
trades (after short-term pull-backs against the direction of the long-term
trend)
using the following guidelines:
·Enter long (or close short) when the long-term RWI of the highs is greater
than 1.0, and the short-term RWI of lows peaks above 1.0.
·Enter short (or close long) when the long-term RWI of the lows is greater
than 1.0, and the short-term RWI of highs peaks above 1.0.
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