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This is not a new idea. I first ran into it in "Real-Time Futures Trading"
by Al Gietzen (1992) - he uses this for his basic momentum indicator, which
he then massages further with a volume and range component to create his
"Market Reactivity" indicator. Personally I think this is an underrated
book, although I suspect he drew the wrath of the purists by using different
cycle lengths for each commodity.
Also, there's an article in the February 1998 T.A.S.C. by Rudy Stefenel
called "Anchored Momentum". What he calls "Anchored Momentum" is exactly
what you're talking about here. There are two variations. What you are
talking about he calls "Most Anchored Momentum" - subtracting a centered
N-day SMA from the current price. He also discussed the general form, where
the period you're using for the centered SMA may be shorter then N.
Gietzen tries to determine two cycle lengths, a trading cycle (e.g. 30 days,
depending on the commodity) and a short cycle (e.g. 9 days), using
detrending techniques. If the Trading Cycle is T days and the Short Cycle
is S days, he calculates "momentum" as
Today's price - (Centered S-day moving average of T/2 days ago).
The idea is to choose a half-cycle period, and then smooth the indicator by
removing the effect of the shorter cycle.
So it's not a new idea, but I personally do think it's a good one, although
I haven't yet done enough testing to say for sure. You end up with a much
smoother indicator which still turns at cycle tops and bottoms, assuming the
cycle lengths you choose have some approximate relationship to reality (and
also assuming that the thing you're trading has cyclical behavior at all).
Coincidentally, I was working on coding this into EasyLanguage when I say
your post!
Regards,
David Rosenthal
-----Original Message-----
From: Kovacs, Ross R <KOVACSRR@xxxxxxx>
To: RealTraders Discussion Group <realtraders@xxxxxxxxxxxxxx>
Date: Wednesday, April 29, 1998 2:58 PM
Subject: New version of ROC?
>Just wondering if anyone has seen this idea before:
>
>Rate of Change and Momentum indicators have been around for years. A
>significant problem has been their often bumpy movement due to changes
>in price N days ago rather than the change in price from yesterday to
>today. In other words, Momentum is
>
>PRICE today - PRICE N days ago
>
>As the indicator moves forward in time, Momentum can make big moves
>that are caused by a new value for PRICE N days ago.
>
>Most technical analysts know that a simple moving average has a time
>lag approximately equal to ½ its time length, i.e., a 12 day SMA has
>approx. 6 days time lag. Doesn't it make sense to use the value for a
>simple moving average N/2 days ago in the Momentum formula, rather
>than the single price n days ago?
>
>PRICE today - N day SMA from n/2 days ago
>
>should partially alleviate the bumpy movement in ROC or Momentum.
>
>Obviously, this isn't a big idea. It's just that I've never seen it.
> Has anyone seen or tried this version?
>Just wondering.
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