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MG,
> One where the exponential decay weight is optimised for.
Optimized to what, equity curve, market cycles? Curve fitting, maybe?
> Of course it works. In a scientific study, referred to before,
The real question is, does it work in the *real world*, with *real
trades*, using *real $*. Or is it just another paper study/theory,
dressed in quant jargon, with little or no relevance to the real world
of trading?
jose '-)
--- In equismetastock@xxxxxxxxxxxxxxx, "MG Ferreira" <quant@xxxx>
wrote:
>
>
> Comments below,
>
> Regards
> MG Ferreira
> TsaTsa EOD Programmer and trading model builder
> http://tsatsaeod.ferra4models.com
> http://www.ferra4models.com
>
> --- In equismetastock@xxxxxxxxxxxxxxx, "Jose" <josesilva22@xxxx>
wrote:
> >
> > Please excuse my ignorance, but curiosity knocks:
> >
> >
> > "...but I think that will not apply to most series studied in
> > Metastock."
> >
> > Why not?
>
> I think most people use Metastock for end-of-day or financial market
> data, where there usually is not a clear seasonal trend. I know
> there are exceptions, but 'usually'....
>
> > And what is an "optimal exponential moving average"?
> >
>
> One where the exponential decay weight is optimised for. This is
> what many people will understand as an exponential moving average or
> exponential smoothing. Technical analysis guys do not optimise for
> this weight, they specify it either by giving the length parameter
> or, if the software allows it, explicitly giving the weight.
>
> >
> > "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?
> >
>
> Note the 'say where the market is supposed....' Of course, no real
> fundamentals are used, but it makes it nice and practical to
> interpret it that way. Note the tsf function is used as a proxy,
> the real theta model is slightly more sophisticated. I think it is
> not too difficult to implement it correctly in Metastock actually,
> at least the long term portion, but we often use this same approach
> in practise for a variety of reasons.
>
> >
> > Is this (Theta) theoretical stuff, or does it apply to trading the
> > real markets? If so, does it work?
> >
>
> Not entirely sure what you mean with 'theoretical' vs 'real markets'
> and 'does it work'? Are these supposed to be exclusive concepts?
>
> But, acting on what I suspect you have in mind.....
>
> Of course it works. In a scientific study, refered to before, this
> model was found to be one of the best forecasting models when
> compared to many others. 3003 series from all walks of life,
> financial, economic, demographic, bussiness etc. was tested, in
> many different frequencies (daily, monthly etc.) and the Theta model
> really fared well. It was pitched along side every conceivable
> exponential moving aveage technique (figuratively speaking), neural
> networks, RBF models and others and outperformed the lot. It is all
> in that article that I referred to before if you need to check the
> salient details.
>
> Now there is a big difference between forecasting and trading, but,
> if you apply the Theta model correctly, it will work in trading too.
> The code I posted does not implement it as theory dictates, but is a
> practical enough implementation for Metastock to handle it, yet
still
> in the spirit of the default Theta model (theta = 0, 2).
>
> We usually use both the Theta lines and the Theta projection itself,
> as well as an extrapolation of the latter, and had excellent results
> with it. Using the three lines referred to is a lot like using
three
> indicators at the same time - it gives lots of additional
information
> but adds a bit of subjectivity as well, which is often nice in a
real
> trading environment.
>
> Finally, since I claim that, if used correctly, it will work, please
> note that the usual disclaimer applies ;-) I cannot nor do I
> guarantee that it will work in any circumstances and can assure you
> that it sometimes won't work, even in the most ideal of
circumstances,
> but it sure is worth a try.
>
> >
> > 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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