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Roy,
Many thanks for your unbelievably generous response to my post.
Preston expresses it far better than I ever could: "As always words
of wisdom. Appears to be a good chapter for the book."
I made my post at 2233 SHT (Scottish Highlands Time) and your reply
was at 2350. At that rate of output (five A4 pages), I estimate that
your book will take about four days to write. That's a lot less than
the several weeks it will take me to work through your response point
by point.
I'm amazed at your offer to an obvious know-nothing to "walk me
through" something that I described as "fiendishly complicated". (If
anyone else is following this thread, they can gauge the magnitude of
Roy's offer by having a quick look at his formula at:
www.users.bigpond.com/prominex/MetaStock/Roy-63.txt
"Quick look" was my attempt at a joke. For more gold dust, try
decrementing the URL.)
I'll take you up on your offer - although perhaps not quite in the
way that you meant. I have no intention of acting as a parasite by
taking advantage of other peoples' hard work. (While trying to find
MetaStock newsgroups, I browsed one group where the same person kept
asking for "an indicator to do this" and "an exploration to do
that". He always received helpful responses. Eventually one
responder suggested that it was time for the requester to do some of
the work by posting his own formulas, then asking for comments.)
I think the probability of my working out what your formula does
would be about 0.00...01, but I intend to give it my best try, so
brace yourself for some silly questions.
On the subject of probabilities, no statistician would believe that,
out of the world's total population of 7,000 (according to Fred
Flintstone -it's probably double that by now), I find myself casually
boasting to the author about a "fiendishly complicated" formula. If
the newsgroup moderators had any human feelings at all, they would
have intercepted your post to prevent the affront to my dignity.
Many thanks again.
Regards,
Alan
--- In equismetastock@xxxxxxxxxxxxxxx, "Roy Larsen" <rlarsen@xxxx>
wrote:
> Hi Alan
>
> > Thanks for your excellent advice. As a newbie, it's difficult for
me
> > to know what to believe and what not to believe on the internet.
> > That's why I wish I could analyse any formula that I find - such
as
> > the weekly MACD in my post.
>
> > I found the weekly MACD histogram formula at:
> >
http://www.paritech.com/education/technical/custom/indicators/macd.asp
> >
> > I have already posted your reply on their Metastock forum, so
> > hopefully they will remove their formula from their site, or at
least
> > try to justify it.
>
> That will be interesting. I don't really want to get into an
argument with Paritech but when I
> plotted the formulas you posted the weekly one was so far off it
was a joke
>
> > There's a fiendishly complicated formula for weekly MACD at:
> > www.users.bigpond.com/prominex/MetaStock/Roy-63.txt
>
> This is my formula :-) , hence the name "Roy"
> Yes it does look feindishly complicated but quite a bit of the
formula has to do with making
> allowances for things that can be wrong with the data so that it
will exactly emulate the MetaStock
> MACD values as plotted on a weekly chart. Try plotting my formula
on a weekly chart and then plot
> the MS drop-down indicator over the top of it. There will possibly
be some differences at the left
> side of the chart but values should agree to 4 decimal places at
the right unless you only have a
> small amount of history.
>
> My weekly formulas attempt to create exact weekly data from the
daily chart and are very accurate in
> doing so. Most attempts at weekly data emulation are done on
a "near enough is good enough" basis
> but in my view that's not good enough. When you have thinly traded
issues, suspensions,
> reconstructions, Easter or Christmas breaks, and various other
situations that cause gaps in the
> data, great care has to be taken to ensure that the right days are
included in the right weeks.
>
> I could create simpler weekly indicators but for some issues they
would be less accurate. Unless
> they are accurate 100% of the time how do you know when they will
be off? The thing with a weekly
> formula (for daily charts) is that it must plot the same values
that you would see for the standard
> MS formula on a weekly periodicy chart. That's the only standard it
can be judged by as far as I'm
> concerned.
>
> I can take you through a complete weekly formula and explain every
detail if you wish. It would take
> you a while to absorb but you would learn quite a lot.
>
> > I suspect that the Paritech formula is trying to calculate MACD
for
> > Friday's closing prices only. I verified this by plotting all the
> > individual bits and pieces as separate indicators, because I'm too
> > inexperienced to understand the formula. (If you know anyone who
> > understands the bit between the {start} and {end}, could you ask
them
> > to explain it. It doesn't matter whether they agree with it or
not.
> > At least I'll learn something.)
>
> I could do this but my thinking is your time and mine would be
better spent on studying something
> that has underlying principles that give accurate results. I didn't
attempt to study the Paritech
> code (I may have if I'd known where it came from) but I plotted it
alongside code I knew to be
> accurate. It was so far off I didn't see any reason to investigate
further.
>
> > I suppose it makes some sense: the
> > daily MACD formula is based on daily closing prices, so the weekly
> > MACD formula is based on Friday's closing prices. Presumably, if
> > there were a monthly MACD histogram, it would be based on monthly
> > closing prices.
>
> Exactly right. I could knock up a monthly MACD and it would only
use the CLOSE for each month, just
> as MetaStock would on a monthly periodicy chart. The plot that
doesn't change for several bars may
> look a little odd but when you think about it, it can't be any
other way if it is a true
> representation. A weekly MACD doesn't change value on Wenesday then
again on Friday.
>
> > I agree with your comment that the Paritech daily MACD
is "slightly
> > off". I found this description of the daily MACD histogram in a
book
> > by someone called Dr. Alexander Elder (why do all conmen and
shysters
> > call themselves "Dr"):
>
> I don't know that I'd call Dr Elder a conman. He is widely
respected in the trading industry and is
> the author of a couple of "must have" books.
>
> The reason why the Paritech MACD is slightly off is because they
are using the convventional 12/26
> "periods" to create the two exponential moving averages. This is
widely accepted as normal so in one
> sense these are "more" accurate than the MS version. You need to
understand how an EMA is
> constructed to understand why these differences show up.
>
> An EMA adds a proportion of new data for evey bar, and it also
retains a portion of old data
> (previous value). If the proportion of new data added is 20% then
the proportion of old data
> retained is 80%. Can you see that? A standard EMA calculates the
amount of new data to add like
> this - 2/(1+periods). The actual construction of an EMA follows so
that you can check the code for
> yourself.
>
> {Exponential Moving Average}
> n:=Input("Periods",1,999,10);
> R:=2/(n+1); {ratio of new data added each bar}
> M:=If(Cum(1)=1,C,PREV*(1-R)+C*R);
> M;
>
> So the factor determining how much new data to add and how much old
data to retain for a 12 period
> and 26 period EMA is 2/13 and 2/27 respectively. In decimal terms
this is 0.153846 and 0.074074.
> Metastock actually uses values of 0.15 and 0.075 rather than basing
on 12 and 26 periods, and that's
> why the MetaStock MACD is slightly of the Paritech code.
>
> > Page 129:
> > 1. Calculate the 12-day and 26-day exponential moving averages of
> > closing prices.
> > 2. Subtract the 26-day EMA from the 12-day EMA to obtain the fast
> > MACD line.
> > 3. Calculate a 9-day EMA of the fast MACD line to obtain the slow
> > Signal line. Plot both lines to obtain the classic MACD indicator.
> > 4. Subtract the Signal line from the MACD line to obtain an MACD-
> > Histogram.
>
> This is the accepted norm but I think may be only only a close
approximation of what the creator
> intended. I honestly don't know which is the "authentic" version.
At the end of the day they're only
> numbers that we interpret how we want. Anyway I have no argument
with the there being two different
> versions because I understand the slightly different values that
each version is based on.
>
> > The "MetaStock canned version", as you call it, is bound to be
> > superior, because at least I've heard of Equis :-), but I've never
> > heard of Dr. Alexander Elder.
>
> You have now :-) Don't write him off. There are many "experts" out
there but just take what you can
> use and leave the rest. My comment in my earlier reply "If this
works for you then great, but a
> weekly MACD it is not." applies across the board. If anything is
suspect as to name or accuracy but
> still works for you then don't throw it away, just make sure you
understand the differences. At the
> end of the day you have to use what works for you, not what some
guru tells you works for everyone
> else.
>
> > Thanks for your help.
>
> No problem. Remember that a fair bit of the above comments are my
opinions only, and may not be
> shared by others.
>
> I meant what I said about being willing to walk you through any of
my code if you want to learn.
>
> Good luck.
>
> Regards
>
> Roy
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