Re: Lag In Moving Avg

[Bob Webb <Webb.Bob@xxxxxxxx>]

Jim,

I think I know what you mean by the question, but when you think about
it, it is not possible. A "moving average of X periods" is, by
its very definition, an average of X number of previous prices (O,H,L,C)
or some other value (e.g., see the use of m.a. in the MACD). If price
(e.g., Close) is reversing from being in an upward trend to moving lower,
then it will take a certain number of Closes, before the moving average
of X periods will begin to also reverse direction. Thus, a moving average
is, by very definition, a lagging indicator.

There are, however, two ways (and perhaps more) to decrease (but not
remove) the lag in a moving average:

(1) make the "X" in a "moving average of X periods" a
smaller number. Thus it will take a fewer number of lower Close values to
turn the moving average around.

(2) give greater weight to the most recent X values and lesser weight to
the older X values. This is accomplished by using a weighted or
exponential moving average.

The danger, however with using either of these above methods (or a
combination of both), is that you will have a greater number of
whipsaws.

In conclusion: a moving average is, by definition, a lagging indicator.
There are other indicators that are anticipatory, but not the m.a.

Hope this helps.

Bob.


At 11:54 AM 10/02/01 -0500, you wrote:
Aside from Jurik's
proprietary method, does anyone know of a way to formulate a way to get
the lag out of a moving average.
 
Thanks,
 
Jim Barone
 

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Robert L. Webb
Webb.Bob@xxxxxxxx
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