Re: System Development

[DonC <countach@xxxxxxxxxxxxxxxx>]

> Subject:           System Development
>    Date:           Sun, 30 Jan 2000 13:41:29 -0500
>    From:           "Herbert (Pete) Holt" <rascal2@xxxxxxxxx>
>      To:           omega-list@xxxxxxxxxx
>
>I've been working on a daily S&P reversal system.  The system needs
>filters to screen out incorrect signals.  I've used ADX to eliminate
>signals in strongly trending markets with some success.  I need a filter
>for moderately trending markets where I now get successive trades that
>are stopped out.  For example, a day when the market trends upward all
>day by about 30 points, but has no sudden spikes.  Any suggestions as to
>what I might use as a filter would be very appreciated.
>


Try the Efficiency Ratio of Perry Kaufman.  It acts a lot like ADX, but
different.  ADX seems to be better at indicating up trends, but ER is
better at indicating bottoms.  Essentially it is a momentum indicator
with a noise filter.   I use a length of 150 on 6-minute charts.


The following EL code is for a function.


{  Kaufman's Efficiency Ratio }

Inputs:  Price(NumericSeries),          {Price which is averaged}
         Period(NumericSimple);         {Lookback period}

Vars  :  Noise(0),                      {Sum all individual excursions}
         Signal(0),                     {Total excursion over period}
         Diff(0),                       {Individual price excursions}
         EfRatio(0);                    {Efficiency Ratio}

Diff = AbsValue(Price - Price[1]);

if CurrentBar < Period then EfRatio = 0 else begin
   Signal  = AbsValue(Price - Price[Period]);
   Noise   = Summation(Diff, Period);
   EfRatio = IFF (Noise <> 0, Signal / Noise, 0);
end;

EffRatio = 100 * EfRatio;