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On page 52 of Chande's "The New Technical Trader" he writes "In choosing
values for alpha and k, we must ensure that the term (1 - alpha * K)
never becomes negative." Bounding K between 0 and 1 would ensure this
since alpha could approach 1. Alpha = (2/(N + 1)).
Harvey Pearce, Victoria, B.C., Canada
Rick Mortellra wrote:
>
snip .....
>
> That got me thinking about why the VMA indexed to the CMO didn't deliver on
> sensitivity. The answer then hit me over the head! The absCMO is bounded
> between 0-1. Using this as the indexing factor would naturally lead to a
> less sensitive indicator. Why Chande suggests on p68 of his book that using
> any index that varies between 0-1 is appropriate has mystified me,
> especially since the other indexing examples he provides clearly aren't
> bounded.
>
> It seems to me then that using VMA indexed to standard deviation or other
> unbounded indicators is more appropriate. Any ideas as to why absCMO is seen
> as a better choice? Is the math just evading me?
>
snip ....
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