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I haven't taken to read all of this yet but the close or stock price is the
independent and the indicator is the dependent. Think of a function F(x) = x^2
or F(close) = close^2. The argument x is the independent variable and the value
x^2 is dependent upon x.
Harley
On Tue, 3 Jun 1997 23:55:58 +0000,
Michael Salvucci <salvucci@xxxxxxxx> wrote...
>To all,
>
>I'm still a newbie on Metastock and have been reading up on
>Correlation Analysis. I really appreciate everyone's help in the
>past. I would like to get everyone's opinion that has used
>correlation. It seems to me that if you compare the correlation of
>an independent variable (an indicator) against a dependent variable
>(a stock's closing price) and receive a positive correlation, you
>should have a leading indicator. Therefore, if you have a leading
>indicator, you may have a system or part of a system.
>
>In this simple system test:
>
>Correl(MACD(),CLOSE,5,10)>0.90
>AND MACD()<0
>AND MACD()>Ref(MACD(),-1)
>
>you look to see if there's a positive (greater than 0.9) correlation
>between MACD() and the closing price, that MACD() is less than 0, and
>that MACD() is increasing. If all of these things agree, you enter
>long. Do the reverse to exit long.
>
>The Metastock manual does not get in-depth in its discussion about
>the PERIODS and SHIFT. Let's say, I wanted to maximize my profits
>within 20 days. Should I set the SHIFT to 20? Does anyone know the
>effect the results have when you increase or decrease the period and
>shift? I've performed the above changes, but I'm not sure how to
>interpret the results when I start changing numbers. I don't want to
>just 'optimize' something I don't fully understand or 'optimize'
>something for the sake of optimizing.
>
>Increasing the SHIFT seems to put alot of uncertainty into the
>correlation - it starts decreasing. This may be the result of the
>farther you look into the future, the more unlikely your prediction
>will be. Is this a correct interpretation? Should SHIFT always be
>set between, say, 1 and 3 ?
>
>Increasing the PERIODS seems to smooth out the line (if plotted as an
>indicator), but what does it actually smooth? This is where I'm
>losing it. Does it mean that if PERIODS is set high (eg. 50 to
>smooth it over a long term) , the stock is following a long term
>upward trend, and the indicator is following an upward trend, then
>the correlation should be close to 1 because it is smoothing a result
>that coincides with the price increase?
>
>Correlation, to me, seems to validate or invalidate an indicator
>and/or system test. Because of this, I 'think' it's a great tool to
>use in TA.
>
>Something to think about: Only use indicators in a system test when
>they report a positive correlation to price. What do you think?
>
>Your help is greatly appreciated!
>
>Later,
>/\/\ichael Salvucci
>salvucci@xxxxxxxx
>Lawrenceburg, Tennessee USA
>http://www.public.usit.net/salvucci/index.html
>ICQ User Number 1035286 via http://www.mirabilis.com
>
>
Harley Meyer
meyer093@xxxxxxxxxx
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