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what you say about simple averages is true.
the other filters respond faster, etc.
but it indeed proves nothing as they are all worse
than the price itself to estimate its present and
future value.
IVT
--- Bob Fulks <bobfulks@xxxxxxxxxx> wrote:
>
> At 06:45 PM 1/13/2007, Adrian Pitt wrote:
>
> >Would it be possible for Alex or Bob to publish a
> before and after scenario.
> >They don't have to reveal the system, but simply
> show, using the exact same
> >rules, what effect switching from say regular
> Bollinger Bands to JMA/T3
> >based bands can do to various profitability
> numbers. Would this be
> >possible?
>
>
> I could do that but it would take a lot of time and
> really prove
> nothing. Instead, I will offer the following example
> that I posted to
> another list long ago.
>
> This relates to the undesirable "artifacts" that
> show up when you use
> a simple moving average. There are many:
>
> > Value dropping out of the back end of the
> average creates noise
> Why should the value "Length" bars ago have the
> same impact as
> the new bar?
>
> > It rejects cycles with period = “Length” (See
> below)
>
> > All values in the average have equal weight
> Shouldn't more recent values have higher weight?
>
> > Has a poor response to fast changes
>
> > Offers very little smoothing (filtering of
> noise).
>
> The attached picture shows a periodic test signal at
> the top made to
> simulate a cycle in the price of a security. It has
> a period of 22
> bars and repeats exactly every 22 bars.
>
> The lower part of the chart shows the Bollinger Band
> bandwidth for
> Lengths of 19, 20, 21, 22, 23, 24 bars. You can see
> that when the
> length of the indicator equals the length of the
> cycle in the price
> (22), the resulting signal completely disappears -
> becomes a constant.
>
> This is true of any technical indicator that uses a
> simple moving
> average where all values inside the averaging window
> have the same
> weighting. This is because the value dropping out
> the back-end of the
> window is exactly equal to the value being added at
> the front of the
> window. In engineering terms, the indicator has a
> null in it's
> frequency response for signals with a period equal
> to the Length (and
> Length/2, and Length/3, etc.).
>
> This is true of Bollinger Bands, standard deviation,
> the simple moving
> average (SMA), some implementations of Stochastic,
> and any indicator
> that uses the SMA internally. It is also true of any
> indicator that
> uses the linear regression line such as common
> measurements of Alpha and Beta.
>
> If we are using an indicator with a fixed-length of
> 20 and the cycle
> in the signal we are analyzing varies from 18 to 22,
> we can see that
> we can get all kinds of strange effects.
>
> Most of our technical indicators were designed way
> back before we
> understood these things. Signal processing engineers
> today would never
> use a simple moving average for such things. Neither
> do I.
>
> Bob Fulks
>
>
>
>
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