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Most indicator smoothing works by just ignoring larger than expected
changes. The stochastic indicator is notorious for this, for example. I'm no
mathematician, but it's not clear to me that the IFT or other Fisher
transforms do anything different. The procedures just map one data set onto
another and distort the bits of it that you don't want until it's got a
pleasing shape. They remove information for the sake of clarity - but
restrict the usage. When you're dealing with volatility, smoothing so you
don't see the fat tails any more doesn't sound like the right
direction...that way lies the LTCM collapse.
-----Original Message-----
From: equismetastock@xxxxxxxxxxxxxxx [mailto:equismetastock@xxxxxxxxxxxxxxx]
On Behalf Of TecloGeo
Sent: Tuesday, May 17, 2005 3:19 AM
To: equismetastock@xxxxxxxxxxxxxxx
Subject: RE: [EquisMetaStock Group] ATR-based volatility
All this talk of standard deviation reminds me of Ehler's use of the Fisher
transform. As he states - the transform "changes the probability density
function (PDF) of any waveform so the transformed output has an
approximately Gaussian PDF". The reason that there is huge lag for the st
dev on sharp moves is because normal price behaviour does not fit a nice
bell-shaped curve - sharp moves are often in the "fat tail" territory of the
PDF (i.e. the low probability/high impact events at the extremes) - whereas
st dev relies on a purely normal distribution.
Can these fat tail events be smoothed with the Fisher transform so that st
dev can be applied more appropriately to a more normal-looking Gaussian PDF?
The Fisher transform has been used to great effect on prices and
oscillators.just wondering if there has been any application of it in the
respect of volatility measures? Not aware that Ehler himself has done any
work on volatility.maybe there's a good mathematical reason for this?
_____
From: equismetastock@xxxxxxxxxxxxxxx [mailto:equismetastock@xxxxxxxxxxxxxxx]
On Behalf Of mgf_za_1999
Sent: Tuesday, May 17, 2005 6:55 AM
To: equismetastock@xxxxxxxxxxxxxxx
Subject: Re: [EquisMetaStock Group] ATR-based volatility
The following study, which, please note, is very theoretical, looks at
volatility in a lot of markets.
http://www.monep.fr/pub/clive.pdf
Just skip all the math stuff and go to page 60 if you are interested in
this. There they start tabulating results of different techniques and
comment on the performance.
Regards
MG Ferreira
TsaTsa EOD Programmer and trading model builder http://www.ferra4models.com
http://fun.ferra4models.com
--- In equismetastock@xxxxxxxxxxxxxxx, "dr.torque" <drtorque@xxxx> wrote:
> I think we should define how to measure the volatility in a specific
market
> based on the volatility characteristics of that market and what type
of an
> indicator would best fit for measuring that relevant type of
> volatility.
>
> Jose's suggestion of ATR is one of the very best but I suppose we
are not
> looking for average very good solutions here.. I totally agree that
there
> seem to be some major problems for an average trader, but we are not
trying
> to be an average trader as well.
>
> maybe we can get to somewhere interesting brainstorming on this
> topic..
>
> regards,
>
>
>
> Dr. Torque
>
>
>
>
>
> -----Original Message-----
> From: equismetastock@xxxxxxxxxxxxxxx
[mailto:equismetastock@xxxxxxxxxxxxxxx]
> On Behalf Of Whit
> Sent: Monday, May 16, 2005 1:13 PM
> To: equismetastock@xxxxxxxxxxxxxxx
> Subject: Re: [EquisMetaStock Group] ATR-based volatility
>
>
> Here is a related idea, picking up on this interesting theme. That
> is, rather than using Bollinger Bands, which are based on a StDev
function, you
> can use Keltner Channels, which are based on ATR. For example, you
can set
> your upper and lower K-Channel bands to be 2 Average True Ranges
(over the
> past 20 bars, say) above and below the MA. This gives a very nice
measure
> of volitility and is very helpful in assessing an impulse move out of
> a consolidation. When price penetrates the K-Channel after a
consolidation,
> you have good odds of an impulse move and follow through in the
direction of
> the penetration. (I'm sorry i can't give you the code for this -- I
am a
> Trade Station convert and just beginning to learn MS code).
>
> Whit
>
> Jose Silva <josesilva22@xxxx> wrote:
>
> Manuel, Andrew, staying away from mathematical jargon if possible,
> let's concentrate on what seems to work best on the markets.
>
> Plot and compare these two indicators below any volatile chart:
>
> ATR(1);
>
> Stdev(C,2);
>
>
> It may be a subtle difference, but I know which one I'd prefer.
>
> And introduce Standard deviation to a large price gap over say, 21
> periods [Stdev(C,21)], and the *increasing volatility* shown by Std
> Dev *after* the event, is simply wrong. Compare to Mov(ATR(1),21,E).
>
> Again, from *my own chart observations*, my view is that the ATR is
> probably the more natural measure of price volatility.
>
> My observations and thoughts may not be mathematically correct, but
> that is the way I view volatility in charts - not as a bunch of
> abstract numbers to be manipulated mathematically, but rather, data
> points representing mass psychology at work.
>
>
> jose '-)
> http://www.metastocktools.com <http://www.metastocktools.com/>
>
>
>
> --- In equismetastock@xxxxxxxxxxxxxxx, "Manuel Cabedo" <manelcabedo@x
> ...> wrote:
> >
> >> From my own chart observations, I think that the ATR is probably
> >> the best measure of volatility.
> >
> > I don't think so, Jose. Volatility is a kind of dispersion, and the
> > best measure of dispersion is the standard deviation. It is a simple
> > question of statistics. With standard deviation you can do
> > quantitative assertions about the probability of breaking a channel,
> > for instance, or being exited of an operation by a stop.
> >
> > Speaking of securities, I particularly like the standard deviation
> > of daily returns. The distribution of this quantity is not normal,
> > of course, but you can study it on a heuristics base.
> >
> > The work of Bollinger is interesting (I am the translator of his
> > book in Spain) because he always justifies (or tries to.) his
> > methods from a statistical point of view. If someone likes his
> > bands, then reading his book is a must.
> >
> > Once more, thank you, Jose. Your contributions to this forum are
> > always highly valuable (including the one about ATR...).
> >
> >
> > Kind regards.
> >
> > Manuel
>
>
>
>
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