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Bob Webb is exactly right, and said it very well. It's
not possible to remove the lag from a moving average.
It is possible to draw a non-linear trendline through
a time series, and this will give you an idea of
the current trend. Such a trendline doesn't appear
to the eye to have the lag associated with an MA.
For example, try my "plot" page at
http://www.digital-web.net/~haferman/plot.html
Enter any U.S. equity symbol, wait about 10 seconds,
and you'll get a plot back with a best-fit non-linear
trendline.
Jeff
Bob Webb wrote:
>
>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.
>
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