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Please excuse my ignorance, but curiosity knocks:
"...but I think that will not apply to most series studied in
Metastock."
Why not?
And what is an "optimal exponential moving average"?
"The long term component can be interpreted as the long term or true
value of the market, say where the market is supposed to be based on
fundamentals."
All this from a Time Series Forecast indicator... What kind of
fundamentals are you referring to?
Is this (Theta) theoretical stuff, or does it apply to trading the
real markets? If so, does it work?
jose '-)
http://www.metastocktools.com
--- In equismetastock@xxxxxxxxxxxxxxx, "MG Ferreira" <quant@xxxx>
wrote:
>
>
> Hi there,
>
> Some people have asked about the Theta model. I have not used the
> Theta in Metastock before, but made a quick and dirty implementation
> of it which you will find below. The Theta model decompose the
series
> into two components, a long and a short term one. If you use
monthly
> data, then it has a third component, which is the seasonality, but I
> think that will not apply to most series studied in Metastock. In
the
> default Theta model implementation, you have theta = 0 (long term)
and
> theta = 2 (short term) and you fit an optimal exponential moving
average
> to the short term, but to do this in Metastock will be quite
difficult.
>
> The long term component can be interpreted as the long term or true
> value of the market, say where the market is supposed to be based on
> fundamentals. The short term component is where the market finds
> itself based on shorter term factors. Thus the shorter term factors
> pushing it away from the long term line. The projection itself is
> exactly midway between the long and short term lines.
>
> Anyhow, we normally use both the short and the long term lines in
> strategies, as well as extrapolate the theta line itself, which is
> very easy to do (but difficult in Metastock).
>
> Regards
> MG Ferreira
> TsaTsa EOD Programmer and trading model builder
> http://tsatsaeod.ferra4models.com
> http://www.ferra4models.com
>
> ------------------- Theta model Metastock code follows
>
> {MG's implementation of the Theta model
>
> This is not an exact implementation,
> it e.g. does not optimise the theta = 2
> weight, assumes a theta = 2 line (as is
> usually assumed, reducing the whole model
> to a linear fit and an exponential fit to
> the residuals for the theta = 0 and
> theta = 2 lines) and the theta = 0 is not
> really a straight line, but the last value
> of length amount of straight lines fitted
> to the data. But the spirit of the model
> is the same as that of the real theta.
>
> This is actually a forecasting model, thus
> the theta line is a projection of where the
> price is supposed to go to. To use in
> practise, take it as a type of moving average.
> Thus if the price cross it, buy as if the price
> just cross above a moving average and vice
> versa.
>
> MG Ferreira
> 2005
> http://www.ferra4models.com
> http://tsatsaeod.ferra4models.com
> }
>
> {Length to use when fitting}
> length:=Input("Length",5,1000,50);
>
> {Theta long term line, assume theta=0, sort of...}
> lt:=TSF(CLOSE,length);
>
> {Theta short term, assume theta=2, sort of...}
> rs:=CLOSE-lt;
> st:=lt+2*Mov(rs,length,E);
>
> {Theta}
> (lt+st)/2
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