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We could argue that Wilders should have used a
slightly different name for his indicator, but I guess an inventor has the
prerogative.
I don't agree with the thinking behind the
statement "should be .. an average of the True Range over 10 periods" for the
following reason.
Both Wilders and Exponential smoothing contain
influences from further back than the nominated periods. That is, "periods"
is a damping factor, not a limitation on the data to be included in the
calculation. There are probably many other
indicators where the term "periods" is used loosely in this
way.
I think it's just another little fact that we need
to remember if/when transferring code between trading platforms, Wilders
original definition of ATR used his own method of smoothing which probably
pre-dated computer calculation of the current common definition of an EMA.
At various times, I
have used 3 different measures of volatility, ATR(n), SMA(ATR(1),n), and
EMA(ATR(1),n), and in my systems, I always adjust "n" to sit inside a range of
robust optimised values. I've never noticed much difference between the
variants when compared against the differences caused by my own
inadequacies.
Peter
----- Original Message -----
<BLOCKQUOTE
>
<DIV
>From:
Jose
To: <A
title=Metastockusers@xxxxxxxxxxxxxxx
href="">Metastockusers@xxxxxxxxxxxxxxx
Sent: Friday, February 27, 2004 8:44
PM
Subject: [Metastockusers] Re: ATR - True
& Reverse
Hi Roy,Leaving Exponential Moving Averages aside
for the moment, it's my firm belief that any x-period averaging mechanism
should do exactly what it says.Again, it's my opinion that regardless
of what Mr Wilder intended in the application of Average True Range (ATR),
a 10-period ATR should be just that: an average of the True Range over 10
periods.The way ATR is implemented in MetaStock, a 10-period ATR is an
exponential average of the True Range over 19
periods:ATR(10)=Mov(ATR(1),19,E)As Bill pointed out in the
previous post, TradeStation computes the correct simple average of True
Range over x periods.How many of us thought until now, that we were
using a 19-period average of the True Range in ATR(10)?In reality,
using a Average True Range of x periods when we are led to believe it's an
average over (x+1)/2 periods, is simply misleading.Why not call the
smoothing something else rather than "periods"?The key word here is
"Average" and its definition.Let's call a spade, a spade.jose
'-)--- In Metastockusers@xxxxxxxxxxxxxxx, "Roy Larsen"
<rlarsen@xxxx> wrote:> Hi Jose> > > Whilst
coding the True/Reverse ATR indicator below, I've noticed that>
> MetaStock Pro v8.01 smooths ATR's erroneously. The MS
exponential> > smoothing is based on periods*2-1.> >
The "periods*2-1" ratio is that used by Wilders Smoothing, the form of
exponential moving average> used in a number of indicators developed by
Wilder.> > See the following code for similarities and
differences. Notice that Wilders Smoothing is seeded by> a Simple
Moving Average for "n" periods while the EMA is seeded on bar one by the
value of the data> array being smoothed. The EMA code below does not
have any N/A plot (this can be created easily> enough) but it is
still true to the standard MetaStock EMA.> > Since Wilder iss
the author of the "Average True Range" indicator I would think that
Wilders> Smoothing is the intended form of smoothing. Of course I could
be wrong as you have seen more than> once in the past.>
> {Exponential Moving Average}>
n:=Input("Periods",1,999,10);> R:=2/(n+1); {ratio of new data added
each bar}> If(Cum(1)=1,C,PREV*(1-R)+C*R);> >
{Wilders Smoothing}> n:=Input("Periods",1,999,10);> R:=1/n;
{ratio of new data added each bar}>
If(Cum(1)<=n,Mov(C,n,S),PREV*(1-R)+C*R);> >
Roy
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