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Gary Funck wrote:
>
> Sounds interesting. If you don't mind sharing the "discovery", would
> you please explain how you use the MA lag to determine the cycle period?
>
> [...]
Sure, but it's worth noting at the outset that I soon learned that my
'dicovery' was a well known phenomenon with some folks.
There was a trader once who started using a neural net to generate buy
and sell signals for the emini. Sometimes it gave good signals,
sometimes it cost him money. He started trying to see into the black box
(the NN) by various means, in an attempt to learn when to take signals
and when to pass. He himself had not selected the NN's inputs nor had he
trained it.
At one point he decided to run a MA crossover optimization -- if I
remember, it was on the equity curve -- and tested for best ROA. Before
running the optimization, he had neglected to filter the opto
instructions, so he wound up with a long list of combinations whose
length parameters were 'invalid,' i.e., the short and long MAs were
inverted, so the MA labeled 'fast' actually contained more periods than
the MA labeled 'slow.'
After the run was completed, the best ROA was found when the inverted
'fast' MA crossed above the inverted 'slow' MA. In reality, this meant
that the best ROA was achieved when the slower MA crossed above the
faster MA.
It turned out that the reason this bearish crossover signal delivered
the best ROA was because the crossovers were the same distance apart as
the price cycle period. More precisely, the crossovers were occurring at
the half-cycle, as Mark Jurik pointed out.
So the LAG of the MAs can identify the price cycle period this way, and
position you so you are 'in tune' with the cycle (remembering of course
that the cycle could still change or disappear altogether).
I'm sure there are a number of people on the List that could elaborate
on this, and hopefully someone will, but that's it in a nutshell.
Regards,
Monte
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