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Carroll Slemaker wrote:
>
> Keep in mind that a MA is a low-(frequency)-pass filter. That is, it passes
> through most variations of longer duration than the MA span but removes most
> (or all) of shorter-period variations. To use one for revealing a cycle,
> therefore, one should start with a MA having a span of, perhaps, a quarter
> of the length of the cycle of interest and compare its result with that of
> successively longer-period MAs. What you want is the shortest-period MA
> which produces the desired degree of smoothing (removal of short-period
> variations) withOUT significantly reducing the size of the desired cycle.
Possibly my view of this is wrong. When I say we can determine the
length of the price cycle with MA Lag, the cycle I'm thinking of is an
independently existing cycle that exists in fact. There is nothing
subjective in it, and does not depend on the time frames we prefer to
trade. It may be that you are suggesting a sort of infinitely
fractalized cycle, or a lower or higher 'harmonic' of the extant cycle.
By 'extant cycle' I mean a price cycle that can be shown to BE a cycle
by reason of frequency measurement, which can be done with MA Lag.
We may desire a longer or shorter cycle period, just as we may desire a
higher or lower absolute price, but the price is the price, and the
cycle period is the cycle period. (This, at least, is my view and I
won't be surprised to find some nuggets of ignorance that are in part
responsible for spawning it).
>
> You can take this one step further by also calculating a MA with span equal
> to the cycle of interest and then displaying the difference - short period
> MA minus long period MA. This gives you a rough band-pass filter.
Yes, I can see why one would want to 'parse' the cycle, once it's
identified.
Regards,
Monte
> ----- Original Message -----
> From: "Monte C. Smith" <mcs@xxxxxxxxxxx>
> To: "Gary Funck" <gary@xxxxxxxxxxxx>
> Cc: <omega-list@xxxxxxxxxx>
> Sent: Friday, September 29, 2000 5:30 PM
> Subject: Re: Exponential moving average
>
> > 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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