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The specific statement that the lag in a moving average can't be removed is
correct; but the statement is misleading. Moving averages are just a type
of filter. We are attempting to filter out the unwanted parts (non-trend
information) while leaving in the desired parts (predictive trend
information). The original article by Patrick Mulloy article in the January
1994 issue of Technical Analysis of Stocks & Commodities magazine on TEMA
and DEMA described this better that I can. My background is Electrical
Engineering, so I know just enough to be dangerous about filters. Moving
averages, Jurik's methods, John Ehler's MESA, Butterworth filters, Kalman
filters and others are all attempts to filter out the unwanted from the
desirable.
The problem when you advance past moving averages isn't lag. The real
problem is "stationarity", how accurate are past data points at predicting
future data points? This is the common problem that we have all seen: even
if we find a perfect moving average with the perfect time period on past
data, how good will it be at predicting future data? So even if you find a
moving average or other filtering method that "has no lag", it doesn't mean
that you can forecast the future. Markets do not have "stationarity".
With apologies to Elliot Wave, Gann and other followers of their methods
(who seem to believe that markets do have stationarity).
Ross Kovacs
rossrk@xxxxxxxxxxxxxx
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