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Close Price VS Median Price (or other price types)

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  • Which price type you consider the most reliable & accurate ?
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  • Post #1
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  • First Post: Sep 3, 2014 5:14pm Sep 3, 2014 5:14pm
  •  Proximus
  • Joined Oct 2013 | Status: Forex Shaman | 1,468 Posts
Many of you use moving averages in your trading strategy, or some kind of indicator which is based on a moving average derived formula.But all moving averages are only a type of a mean of a price series, but have you ever wondered how accurate and reliable is your moving average ?

Because whatever type of MA you use: Simple,Exponential,Linear-weighted,Smoothed,or other, it is calculated on a base data which ,in MT4 atleast, can be:

 

  1. Close
  2. Open
  3. Low
  4. High
  5. Median -> (High+Low)/2
  6. Typical -> (High+Low+Close)/3
  7. Weighted (H + L + C +C) /4
  8. Or other

All variations can be used for various types of strategies however the most basic is the CLOSE and the MEDIAN



And this is my dilemma, because the CLOSE looks only at the final price of a candle, while the MEDIAN calculates in the wicks too.One can say that the wicks are only noise, so the CLOSE must be the better one, but not always, sometimes the wicks can hint of the future direction, so it may be a mistake to use the CLOSE.It is a big dilemma nontheless...

So in the debate between CLOSE PRICE vs MEDIAN PRICE which one do you consider more important ?

Let us analyze this carefully, and debate this because this is an important question for all MA users our there, so please share your thoughts and opinions !

"There's a sucker born every minute" - P.T. Barnum
  • Post #2
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  • Sep 3, 2014 7:00pm Sep 3, 2014 7:00pm
  •  Proximus
  • Joined Oct 2013 | Status: Forex Shaman | 1,468 Posts
So anyone wants to share their opinion? I`m really curious what is your logic behind choosing CLOSE PRICE over MEDIAN PRICE or vice-versa, lets discuss it!
"There's a sucker born every minute" - P.T. Barnum
 
 
  • Post #3
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  • Sep 3, 2014 7:04pm Sep 3, 2014 7:04pm
  •  maverick2017
  • | Joined Jul 2013 | Status: Member | 1,494 Posts
The price which has the most no. of reactions on both sides.
A trade should be based on an assumption based on facts
 
 
  • Post #4
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  • Sep 3, 2014 7:13pm Sep 3, 2014 7:13pm
  •  albchr
  • Joined Mar 2009 | Status: Member | 25,480 Posts
I use all the same Ema's on close on all TF's. 50, 100, 200ema and sma. But in reality it matters not. Watch anything long enough and you get used to how price reacts around it. For instance in day trading/scalping, I will almost always take the first hit of price on a 4H 50ema. Like a tennis ball against a racket it's a pretty good bounce.

That's about all I can share on it. Trying to describe "how" I got used to them on all TF's would take about as many years as it did to do so.

Now for my Tick Chart Project it's a little different. They're Linear Weighted on close. The values I'll keep to myself.
Ghost Rider - WWTBMD?
 
 
  • Post #5
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  • Sep 3, 2014 7:22pm Sep 3, 2014 7:22pm
  •  Proximus
  • Joined Oct 2013 | Status: Forex Shaman | 1,468 Posts
Quoting Mave
Disliked
The price which has the most no. of reactions on both sides.
Ignored
Sorry i dont understand.
Quoting albchr
Disliked
I use all the same Ema's on close on all TF's. 50, 100, 200ema and sma. But in reality it matters not. Watch anything long enough and you get used to how price reacts around it. For instance in day trading/scalping, I will almost always take the first hit of price on a 4H 50ema. Like a tennis ball against a racket it's a pretty good bounce. That's about all I can share on it. Trying to describe "how" I got used to them on all TF's would take about as many years as it did to do so. Now for my Tick Chart Project it's a little different. They're...
Ignored
Well personally i prever the SMA, but i`m more curious why you choose the Close over Median, because it's absolutely not trivial, its actually very important.

Attached Image (click to enlarge)
Click to Enlarge

Name: EURUSDM15.png
Size: 41 KB


Its not a lot of difference, but its still difference, and i`m being a precise guy i want to find the most optimal one.You can see both are PERIOD 10 SMA, but the blue one is the MEDIAN and the orange is the CLOSE one.The difference is obvious, and i would like to hear why you choose 1 over the other, any reason which is logical please
"There's a sucker born every minute" - P.T. Barnum
 
 
  • Post #6
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  • Sep 3, 2014 7:36pm Sep 3, 2014 7:36pm
  •  albchr
  • Joined Mar 2009 | Status: Member | 25,480 Posts
Quoting Proximus
Disliked
{quote} Sorry i dont understand. {quote} Well personally i prever the SMA, but i`m more curious why you choose the Close over Median, because it's absolutely not trivial, its actually very important. {image} Its not a lot of difference, but its still difference, and i`m being a precise guy i want to find the most optimal one.You can see both are PERIOD 10 SMA, but the blue one is the MEDIAN and the orange is the CLOSE one.The difference is obvious, and i would like to hear why you choose 1 over the other, any reason which is logical please
Ignored

You must have missed the key to my post I guess. "But in reality it Matters not. Watch anything long enough and you get used to how price reacts around it".

I just happed to start with EMA Close and stuck with it. Had I chosen Median and stuck with that, it would be the same thing. The mathematical difference is so small (slightly larger on the bigger TF's of course) that one over the other makes no difference. It's what you're "used to" that matters most....to me.

Pick one and spend a few years watching it on the various TF's on various pairs. You'll see. The only difference in the actual "math" would be for the coding of an EA or indicator as they actually calculate those small differences as time goes by. Do we? Not I. Logical enough?
Ghost Rider - WWTBMD?
 
 
  • Post #7
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  • Sep 3, 2014 7:39pm Sep 3, 2014 7:39pm
  •  maverick2017
  • | Joined Jul 2013 | Status: Member | 1,494 Posts
Quoting Proximus
Disliked
{quote} Sorry i dont understand. {quote} Well personally i prever the SMA, but i`m more curious why you choose the Close over Median, because it's absolutely not trivial, its actually very important. {image} Its not a lot of difference, but its still difference, and i`m being a precise guy i want to find the most optimal one.You can see both are PERIOD 10 SMA, but the blue one is the MEDIAN and the orange is the CLOSE one.The difference is obvious, and i would like to hear why you choose 1 over the other, any reason which is logical please
Ignored
http://www.forexfactory.com/showthre...487549&page=20
post #397 specifically and skfx's post on that thread.
A trade should be based on an assumption based on facts
 
 
  • Post #8
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  • Sep 3, 2014 7:48pm Sep 3, 2014 7:48pm
  •  Proximus
  • Joined Oct 2013 | Status: Forex Shaman | 1,468 Posts
Quoting albchr
Disliked
{quote} You must have missed the key to my post I guess. "But in reality it Matters not. Watch anything long enough and you get used to how price reacts around it". I just happed to start with EMA Close and stuck with it. Had I chosen Median and stuck with that, it would be the same thing. The mathematical difference is so small (slightly larger on the bigger TF's of course) that one over the other makes no difference. It's what you're "used to" that matters most....to me. Pick one and spend a few years watching it on the various TF's on various...
Ignored
I understand your point, and i understand what you say, but you still didnt showed any rationale behind your choice, to why 1 over another.

And no it is not indifferent, or atleast not for quants like me, because i try to understand the microstructure in the same fashion as the macrostructure.

If the chart were a tick chart, which unfortunately MT4 doesnt have , then it would not matter, but so far M1 is the smallest TF so, there could be still difference between.For example if a news event gets triggered at 15:00:20 second then it would affect the high/low due to volatility, it it would be triggered at 15:00:59 then it would affect the CLOSE price.

So it is definitely dependant on the triggering time of the news, however still i cant decide which one is more accurate than the other?
"There's a sucker born every minute" - P.T. Barnum
 
 
  • Post #9
  • Quote
  • Sep 3, 2014 7:57pm Sep 3, 2014 7:57pm
  •  nanningbob
  • Joined Jun 2007 | Status: Teach men to fish | 7,383 Posts
The Close brings your MA line closer to the candles and the Open puts it farther away. Using each one on a MA cross pattern gives it a solid cross when price changes direction.

I use median most of the time because it averages out the candles and keeps the MA centered with price action. This helps in filtering out the spikes that can happen in either direction. So using the 1 MA median crossing some MA line gives me an entrance point rather than using Bid or Ask which will often touch a MA line and continue giving a false or too early of an entrance point.

Interesting discussion. Thanks for starting a thread like this.
 
 
  • Post #10
  • Quote
  • Sep 3, 2014 8:09pm Sep 3, 2014 8:09pm
  •  albchr
  • Joined Mar 2009 | Status: Member | 25,480 Posts
Quoting Proximus
Disliked
{quote} I understand your point, and i understand what you say, but you still didnt showed any rationale behind your choice, to why 1 over another. And no it is not indifferent, or atleast not for quants like me, because i try to understand the microstructure in the same fashion as the macrostructure. If the chart were a tick chart, which unfortunately MT4 doesnt have , then it would not matter, but so far M1 is the smallest TF so, there could be still difference between.For example if a news event gets triggered at 15:00:20 second then...
Ignored
The rational was... I just picked one. I was brand new to trading and .... I just picked one. Because I stuck with it for years I'm used to it and know how to read them visually now. I'm not saying it makes no difference to others. Just not to me. In fact I'm almost willing to bet that as this thread goes on, you'll see many folks with all kinds of different choices for different reasons. I'm not a quant. I'm a visual trader with regards to MA's. SR/SD & PA? That's different.

Anyway I need to grab some sleep. Nice thread.

233 Tick Chart - MT4 ... But that's getting of topic.
Attached Image (click to enlarge)
Click to Enlarge

Name: !t-gbpusdmm233.png
Size: 71 KB
Ghost Rider - WWTBMD?
 
 
  • Post #11
  • Quote
  • Sep 3, 2014 8:33pm Sep 3, 2014 8:33pm
  •  Proximus
  • Joined Oct 2013 | Status: Forex Shaman | 1,468 Posts
Quoting nanningbob
Disliked
The Close brings your MA line closer to the candles and the Open puts it farther away. Using each one on a MA cross pattern gives it a solid cross when price changes direction. I use median most of the time because it averages out the candles and keeps the MA centered with price action. This helps in filtering out the spikes that can happen in either direction. So using the 1 MA median crossing some MA line gives me an entrance point rather than using Bid or Ask which will often touch a MA line and continue giving a false or too early of an entrance...
Ignored
Yes it makes sense,one could say that what if we would use the (Ask+Bid)/2 the same way we use the median, but then if you use the median you can always factor in the excess price difference by using the MEDIAN + AVERAGE SPREAD type of price where you just add the all time average spread of your broker to the median and it would reflect the price very accurately.

Thanks for the rational response.

Quoting albchr
Disliked
{quote} The rational was... I just picked one. I was brand new to trading and .... I just picked one. Because I stuck with it for years I'm used to it and know how to read them visually now. I'm not saying it makes no difference to others. Just not to me. In fact I'm almost willing to bet that as this thread goes on, you'll see many folks with all kinds of different choices for different reasons. I'm not a quant. I'm a visual trader with regards to MA's. SR/SD & PA? That's different. Anyway I need to grab some sleep. Nice thread. 233 Tick Chart - MT4 ... But that's getting of topic. {image}
Ignored
Very well then, so it is subjective to you, i understand that.But me looking for a quantified analysis, its not enough for me, i look for objective ways.
Anyway thanks for sharing your ideas.
"There's a sucker born every minute" - P.T. Barnum
 
 
  • Post #12
  • Quote
  • Edited 9:00pm Sep 3, 2014 8:41pm | Edited 9:00pm
  •  skenobi
  • Joined Oct 2007 | Status: Former institutional dogsbody | 1,253 Posts
Quoting albchr
Disliked
{quote} The rational was... I just picked one. I was brand new to trading and .... I just picked one. Because I stuck with it for years I'm used to it and know how to read them visually now. I'm not saying it makes no difference to others. Just not to me. In fact I'm almost willing to bet that as this thread goes on, you'll see many folks with all kinds of different choices for different reasons. I'm not a quant. I'm a visual trader with regards to MA's. SR/SD & PA? That's different.
Ignored
albchr hit it right on the head.

Hey Proximus! You shouldn't second-guess yourself with these kinds of confidence-building-NOT questions.

When I was a rookie Bank trader starting out fresh from college, I used to think EMAs were "better" because somehow I thought "smoother" was supposed to more useful, and besides, "exponential" sounded more "scientific" than "simple".. (I'm laughing at previous self, by the way, not at you. ) Those were the days I used to trade on MA crossovers (much to my senior mentors' dismay) and when I actually thought ADX/DMI lines were useful in any way.

Over the years I learned that SMAs were just as useful for the only purpose I use MAs for (these days anyway): deciding trend direction....

For every person who can make money using the default close price, you should find at least one other person who SWEARS by median price.

As a variation to albchr's opinion, I will go ahead and say that sure, it DOES matter to some people, but really it SHOULD NOT.

Just pick one that works for you, is my advice.

Take it easy, Proximus!
I'm not trying to convince anyone. I'm not in the "convincing" business.
 
 
  • Post #13
  • Quote
  • Sep 3, 2014 8:53pm Sep 3, 2014 8:53pm
  •  Proximus
  • Joined Oct 2013 | Status: Forex Shaman | 1,468 Posts
Quoting skenobi
Disliked
{quote} albchr hit it right on the head. Hey Proximus! You shouldn't second-guess yourself with these kinds of confidence-building-NOT questions. When I was a rookie Bank trader starting out fresh from college, I used to think EMAs were "better" because somehow I thought "smoother" was supposed to more useful, and besides, "exponential" sounded more "scientific" than "simple".. (I'm laughing at previous self, by the way, not at you. ) Those were the days I used to trade on MA crossovers (much to my senior mentors' dismay) and when I actually...
Ignored
I know it should not matter for a daytrader or ,but i`m trying to build a quant model to connect microstructure with macro.Of course trend spotting is the goal of it.

So far i lean towards the MEDIAN+SPREAD model because it includes intra-candlestick price movements, which close price does not, and if the timeframe is too big then it reduces accuracy severely.On a tick chart it would not matter (because there are no high-lows), but MT4 unfortunately does not have tick chart

But even on M1, some big news event which happens at the middle of the M1 bar, if CLOSE price is used, then it misrepresents it severely.Of course one might say that news impact can happen at random seconds depending on the ECN mechanism speed and liquidity, but i just feel its statistically more correct to use MEDIAN price with M1 data isnt it?

The only argument i have for close price is that many chart traders probably wait for "candle close", the question is how much do they matter in the grand scheme , does the market care about their trade timing or not ?

Anyway other opinions are welcome, thanks for response
"There's a sucker born every minute" - P.T. Barnum
 
 
  • Post #14
  • Quote
  • Sep 3, 2014 9:00pm Sep 3, 2014 9:00pm
  •  skenobi
  • Joined Oct 2007 | Status: Former institutional dogsbody | 1,253 Posts
Erm... after re-reading this thread, I have to apologize for chiming in. If my last post seemed like it's discouraging the discussion or downplaying the "interesting-ness" of the matter being discussed, that was not my intent! I suppose from an academic standpoint, this is still a valid debate.

Cheers, mate!
I'm not trying to convince anyone. I'm not in the "convincing" business.
 
 
  • Post #15
  • Quote
  • Sep 3, 2014 9:25pm Sep 3, 2014 9:25pm
  •  Proximus
  • Joined Oct 2013 | Status: Forex Shaman | 1,468 Posts
Quoting skenobi
Disliked
Erm... after re-reading this thread, I have to apologize for chiming in. If my last post seemed like it's discouraging the discussion or downplaying the "interesting-ness" of the matter being discussed, that was not my intent! I suppose from an academic standpoint, this is still a valid debate. Cheers, mate!
Ignored
No problem, all ideas are welcome in my threads, i`m an open minded guy.

===========

So i thought the scientific method to test it would be perhaps to take the lets say last 10 seconds of a minute, and the first 10 seconds in a TICK format, and compare it with a randomly selected another 20 seconds of a minute.So that we we can test if the last seconds and first ones differs from the rest, if the correlation is high, then the MEDIAN PRICE is better, if its low then the CLOSE PRICE because indeed markets could move differenly at the end and beginning of a candle.

We would need a big sample ,lets say 1 month of tick data, on various pairs, and including of course high volatility news.Lucky me that i have
"There's a sucker born every minute" - P.T. Barnum
 
 
  • Post #16
  • Quote
  • Sep 3, 2014 10:55pm Sep 3, 2014 10:55pm
  •  Adal
  • Joined Mar 2009 | Status: Member | 770 Posts
Quoting Proximus
Disliked
{quote}So i thought the scientific method to test it would be perhaps to take the lets say last 10 seconds of a minute, and the first 10 seconds in a TICK format, and compare it with a randomly selected another 20 seconds of a minute.
Ignored
There is more trading in the "first" of a time frame than in the rest on average. Why?

Because many traders trade after a signal is confirmed (previous candle closed, new candle open) - M1, ... H1. And many badly programmed order splitting algos trade once a M1, ... H1, and they do this usually on a new period start (first second, minute, ...)

So in the first seconds of each M1 there is more trading than in the rest of the seconds.
In the first minutes of each H1 there is more trading than in the rest.

And surprise, surprise, in the first miliseconds of a second there is more trading than in the rest.

This is on average, of course, if news hits, well...

Some algos even consider trades opened in the "first" as less informed than trades opened in the "rest", because if you concentrate your trading in the "first" moments, it means that your models are less sophisticated.
 
 
  • Post #17
  • Quote
  • Sep 3, 2014 11:20pm Sep 3, 2014 11:20pm
  •  Proximus
  • Joined Oct 2013 | Status: Forex Shaman | 1,468 Posts
Quoting Adal
Disliked
{quote} There is more trading in the "first" of a time frame than in the rest on average. Why? Because many traders trade after a signal is confirmed (previous candle closed, new candle open) - M1, ... H1. And many badly programmed order splitting algos trade once a M1, ... H1, and they do this usually on a new period start (first second, minute, ...) So in the first seconds of each M1 there is more trading than in the rest of the seconds. In the first minutes of each H1 there is more trading than in the rest. And surprise, surprise, in the first...
Ignored
Nope its completely random, from a logical standpoint its also true because orders can delay, especially in the seconds its very easy to get a RANDOM delay for a 200m order.And more trading does not necessarly imply volatility, and i`m looking for the volatility distribution here.

But also i`ve finished the experiment and the evidence suggests that MEDIAN PRICE is more effective

I`ll post soon the documentation.
"There's a sucker born every minute" - P.T. Barnum
 
 
  • Post #18
  • Quote
  • Sep 3, 2014 11:30pm Sep 3, 2014 11:30pm
  •  Adal
  • Joined Mar 2009 | Status: Member | 770 Posts
Quoting Proximus
Disliked
{quote} Nope its completely random
Ignored
I based my opinion on academic papers which studied this (but I don't have a link now). You based in on what? Did you measure this?

Quote
Disliked
And more trading does not necessarly imply volatility
Actually it does. This is a fact proven beyond any doubt. Trading volume is a very good proxy for volatility. This is valid for both equity and forex markets. This also explains very well the intraday volatility seasonality.
 
 
  • Post #19
  • Quote
  • Sep 3, 2014 11:50pm Sep 3, 2014 11:50pm
  •  Proximus
  • Joined Oct 2013 | Status: Forex Shaman | 1,468 Posts
Quoting Adal
Disliked
{quote} I based my opinion on academic papers which studied this (but I don't have a link now). You based in on what? Did you measure this? {quote} Actually it does. This is a fact proven beyond any doubt. Trading volume is a very good proxy for volatility. This is valid for both equity and forex markets. This also explains very well the intraday volatility seasonality.
Ignored
I`ll post soon my research, but it uploads it slowly.

In the meantime, how does volume = volatility, as the ECN system should handle the orders the same way if they are added with partial fill, and not putting the entire order in the market at once, even if it has the necessary liquidity for it.If there is no liquidity for the order then true it can cause volatility as the price will jump to the nearest liquid level, but i dont think it can be generalized.

The smoother the ECN system is the less the volatility, the more greedy the LP is the more volatility as spread widening can cause some excessive volatility there.
Its a duty of the LP to provide a liquid market with smooth price moves.

The fact that increasing volumes makes volatility increase, is only an indication that the LP's are doing their job poorly, but i dont think it can be generalized.

===

Or put it this way, the size of the FX market, and the daily turnover is increasing by 50% or so yearly yet the volatility is not doubling, how you explain that ?
"There's a sucker born every minute" - P.T. Barnum
 
 
  • Post #20
  • Quote
  • Edited Sep 4, 2014 12:05am Sep 3, 2014 11:53pm | Edited Sep 4, 2014 12:05am
  •  Proximus
  • Joined Oct 2013 | Status: Forex Shaman | 1,468 Posts
Ok so basically the experiment was done this way:

I took 20 days or so of tick data from last month to this month then i compared the [0,10] and [51,59] seconds of a candle with the [21,40], where [] mean that the edge numbers included, and compared the results.This was done by taking the PREVIOUS BID and subtracting the current BID from it, and taking the absolute value as direction doesnt matter here, we look for volatility.

Now first there were randomly more ticks in the 1st category, by 9000+ and such more than in the 2nd, but for a correlation test you need same sized samples, so what i did is that i deleted in a randomly fashion all those 9000+ extra ticks that the group 1 had, until both groups became equal.

Then i removed the space between the numbers with a text editor, and then i correlated the 2 columns.And the result is a perfect 100% correlation between the 2 column so, the volatility indeed true random at the tick level, and also timeframe as such doesnt matter, so there is no volatility difference between X second of a candlestick from Y second of a candle stick (representing M1 candles by using real HQ tick data to calculate it),on average atleast.Therefore by all means its more precise to use MEDIAN PRICE than CLOSE PRICE.

The sample size was 876,433 ticks of which 289,519 were used in the correlation test.I think its a pretty solid sample size, encompassing 20+ days of data.

Here is the evidence (53 MB tick data + my research included)

http://www.mediafire.com/download/rg...ur/EURUSD.xlsx
"There's a sucker born every minute" - P.T. Barnum
 
 
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