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Hi there,
This is a general, almost philosophical question, but some of you may
have had to deal with it before or may have some ideas on it. It
pertains to automated trading and system building. If you build an
automated trading system, you often create some 'signal' and trade
based on this. Now, this signal could be say the difference between
two moving averages, and you trade whenever they cross which will be
exactly when the signal crosses the zero line.
When you evaluate such a system, you buy when the signal goes positive
and sell when it goes negative. All of this is fairly general and
fairly common. Note in this example, however, that the actual value
or magnitude of the signal does not play any role - the important
thing is when it crosses the zero line. Again, no rocket science in this.
I am toying with the idea to build a system based on the *strength* of
the signal rather than when it crosses zero, which introduces some
problems. The question really is, when do you then enter a trade?
One obvious way is to put some band around zero and trade when the
signal goes outside of this band. This complicates matters as you
also have to create this band. Another way is to still trade on the
zero-line crossover, which is fine but then you could just as well
stick with the original where the whole system is built around this.
You could use a moving average of the signal line and trade when they
cross, but this is just the same as trading a zero line crossover.
What ideas do you have for automatically trading a system using some
signal, that are not triggered by this signal crossing zero?
Regards
MG Ferreira
TsaTsa EOD Programmer and trading model builder
http://www.ferra4models.com
http://fun.ferra4models.com
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