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I appreciate this explanation thank you pierre. I disagree that you are not
an expert. To explain this where a layman can understand it not even using
your native language takes an expert. I'm going to give further
consideration to Safir-X.
Robert
At 03:22 AM 9/13/1999 +0200, pierre.orphelin wrote:
>OK, Robert I'll take on this one and post to te list because the first
request was public.
>More,it can be of interest to the readers of the list.
>
>
>Was ( Re: "DON'T WORRY - BE {{{ CONFIDENT}}} CRAPPY")
>
>----- Message d'origine -----
>De : Robert W Cummings <robert.cummings@xxxxxxxxxxxxxxxx>
>À : pierre.orphelin <pierre.orphelin@xxxxxxxxxx>
>Cc : Robert W Cummings <robert.cummings@xxxxxxxxxxxxxxxx>
>Envoyé : lundi 13 septembre 1999 00:37
>Objet : Re: "DON'T WORRY - BE {{{ CONFIDENT}}} CRAPPY"
>
>
>
>
>> Let me try and put it another way on the stochastic indicator. I wanted to
>> know the thinking around using 100 multiple using an average of lowest low,
>> highest high, and average close then he calls it fast D, why the D why 100.
>> Then on K he uses a .5 of D.
>
>First, the 100 factor is a scaling factor because people may better
understand when using percent
>values.You may remove the 100 factor, the stochastic will have the same
shape.
>It's only for convenience.
>
>Stochastics came from the raw indicator known as RawK ( PercentR in
TradeStation).
>I'll explain the names after.
>They are only smoothed values of th K indicator , for a better reading (
average remove the spikes,
>at the cost of lag).
>
>What is K and why K ?
>The K indicator and its avatar are probably the best oscillator ever devised.
>First, K is nothing that the representation of the position of the last
close compared
>to the highest HH and the lowest LL of a given lookback period.
>
> == == HH========================100%
> __________________________________ Close (K=85 %)
>
>
>
>
>== ==============LL============= 0%
>
>It can be seen as a normalization of the price values on a scale that is 0
for LL
>and 100 for HH.
>So C is of course in between and moves inside an relative interval of 100 %
>
>But, as we calculate the HH and LL value on a sliding window, the 0 -100
scale
>is always changing whn comparted to price move.
>This has one advantage ans on inconvenience:
>The bad new is that a 0 -100 reading has no meaning in itself over the
long run.
>You may observe huge move of the K oscillator when the price stay in a
narrow range.
>The good new is that there is a sie effect ( a window effect):
>When volatility occurs, the HH-LL value is modified and the K value goes
quickly
>to the extremes, because the price C moves, but also the HH or LL value
that will go into the same direction
>In this sense, the stochastics acts as an oscillator with a booster effect
when the trend starts ( HH or LL mobe acts like a momentum overlaid to the
oscillator
>
>For a downtrend starting:
>
>== == HH=cancelled=======================.
>
>******************************newHH = 100
>*****************************************newHH =100%
>
>__________________________________ Close quickly moves to LL
>= ==============LL======================= 0%
>
>
>Once established
>Th close stick to the descendinc new low LL and prodces a relaible 0%,
indicating a downtrend
>
>******************************newHH
>*****************************************newHH
>
>= ============================C=LL 0%
>= =============================C==LL 0%
>= ==============================C==LL 0%
>
>
>The sensitivity is very high, so it is necessary to smooth the K oscillator.
>The first smoother is a 3 bar exponential like moving average applied to K.
>The name is FastD ( or slowK,or %K)
>Then you may smooth again D to get D % ( or Slow D or %D)
>
>
>Extremes readings are good trend indicators for the stochastics.
>
>The interpretation is far different when the volatiliy is low or high.
>If you want to devise a stochastic system, you need different rules
>according to volatility or trend strength (both are the same.)
>
>Now, to find the rules, you can spend a lot of time on it, and they are
not in a book
>
>Suppose that you download the evaluation of the Safir -X software.
>
>( I wrote " suppose")
>
>The examples provided use only 2 stochastics of 10 and 20 bars.
>You will see that by building complex rules with a very small set of
indicators that make sense,
>provided that the rules are well written and precise.
>In this case, 300 to 500 rules are generated to interpret the 2 stochastics.
>Ans the system works well after on several dozens of thousands of unseen
bars, different markets.
>
>
>>Where did the K come from and why .5 of D just
>> to have it move a little faster than D?
>
>According to George Lane, he named his trials from the alphabet.
>The K oscillator was his trial number 11, so the name was K
>Same for D ( 4 th trial for smoothing).
>Do not forget that Lane's stochatics were calculated by hand and is work
>if far before Welles Wilder (who had a small HP palmtop calculator in
1978)
>
>> Then he uses the same variations
>> with percent d and percent k when describing slow by grouping an average of
>> the same.
>
>The other advantage of comparing %D and %K is that you perform moving
average analysis on
>not the price, but a pseudo normalized value of the price that , for the
reason ofthe side effect explained above,
>can move faster than the price when the trend starts.
>So, the lag of the moving average is compensated by the %K speed, giving
clean signals with less noise and les lad than any other simple method (
providend that the price serie is not too much noisy).
>This is of course not true for high low readings of the stochastics, but
mainly this is the reason of the averaging technique.
>It shoud be clear that the key is a different interpretation according to
external condition.
>This is the case for all classical indicators, that are not so stupid.
>What is stupid is what you read in the books and the poor 2 - 8 rules
that our brain is only able to conceive and apply.
>This is the reason why we have spent so much time on Safir-X, because we
will never be able to beat its complexity.
>
>You, maybe, but not me...
>
> As an expert PO what tells you when to use these math equations
>> when plotting momentum, volume, trend, price, volatility. I mean you have
>> no energy here only a tick count then from this all other indicators evolve
>> by using math,trig etc. The most obvious is the MA with time based on
>> history that is then recycled using more history and we use that to trade
>> the future.
>> Just wondering how you looked at this after all your experience doing it.
>>
>I'm not an expert,and I do not believe in prediction power of technical
analysis.
>Let be a follower, but very skilled, and it's enough to make a living
>My definitive opinion is that technical analysis work with classical
indicator,
>but the very good solutions are not available to human being with their
naked brain.
>
>I cannot tell you when to plot a momentum.
>I have a vague idea like i explained above for the stochastics, but I'm
unable
> to explain the exact rules because I do not know them.
>The best progress that I have mad was to understand where were ( hi hi) my
limitations.
>So, I stopped to code trading systems by hand
>( I have found some interesting, but too much time consuming),
>but I do not want to do this anymore because
>I do no tbelieve that the ( my) potential is here.
>
>I have found my solution(s) by 100 % computer mean
>You can too, there are an infinite number of possibilities.
>I of course speak as a systematic trader.
>For visual use, I'm not very good at it,a nd I'm not interested to see the
charts.
>Indicators have been removed from the TradeStation display for years now.
>They are integrated as the initial part of the computerized decision.
>
>For the rest , I wait for the active order window.
>
>Sincerely,
>
>Pierre Orphelin
>www.sirtrade.com
>
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