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The difference between a MA and a non lag MA?

  • #21
  • Jan 23, 2011 2:40am Jan 23, 2011 2:40am
Quoting jamjamjam
Disagree with this. The nearer price approximates a completely random walk (in the gaussian, IID sense) the better chance you have at a non-zero expectancy. In moving averages and actual market behavior, it's the fat tails and non IID (serial correlation) behavior that are killers.
By 'random walk' I mean a coin-toss, i.e. exactly 50/50 probability of uptick/downtick at EVERY point. That's the same as blacks/reds at roulette --- assuming a perfectly 'fair' wheel, the game can't be beaten, because there are no inefficiencies.
  • #22
  • Jan 23, 2011 2:46am Jan 23, 2011 2:46am
Quoting hanover
By 'random walk' I mean a coin-toss, i.e. exactly 50/50 probability of uptick/downtick at EVERY point. That's the same as blacks/reds at roulette --- assuming a perfectly 'fair' wheel, the game can't be beaten, because there are no inefficiencies.
A perfectly gaussian generated walk with zero bias meets the above criterion, only the magnitudes are not binary (although the states can be made equivalent). And I know it goes against conventional wisdom, but once you see your conclusion is not true (with your own eyes) it will change your entire way of thinking about market signals. It was one of the more profound insights I had years ago (and I know I'm not the first to observe it).
  • #23
  • Edited 3:13am Jan 23, 2011 2:55am | Edited 3:13am
Quoting jamjamjam
A perfectly gaussian generated walk with zero bias meets the above criterion, only the magnitudes are not binary (although the states can be made equivalent). And I know it goes against conventional wisdom, but once you see your conclusion is not true (with your own eyes) it will change your entire way of thinking about market signals. It was one of the more profound insights I had years ago (and I know I'm not the first to observe it).
If you want me to see 'it', you'll need to explain it in simpler terms.

Are you saying that if I've tossed (say) 50 consecutive heads, my next toss is more likely to be a tail? If your argument is based on such a theory ('Gambler's fallacy'), then it's an argument I've had with many other folk: let's just agree to disagree.

[EDIT] The (hypothetical) market equivalent is that, no matter how many pips price has moved in a given direction, there is always exactly a 50% probability of the move continuing, and a 50% probability of a reversion toward an arbitrary prior mean. If that were the case, then there would be no exploitable inefficiency, and expectancy of any future move (up/down) would always net out to zero. I may be wrong [I don't understand what you mean by "the magnitudes are not binary (although the states can be made equivalent)"], but I think the distribution you're talking about makes some kind of assumption that a reversion to a mean is always more probable than a move continuation. That may qualify as some kind of 'random walk' in strict math terms (I'm not a mathematician), but if there is a directional bias at any point, then it's not the kind of 'random walk' that I'm talking about.
  • #24
  • Jan 23, 2011 3:05am Jan 23, 2011 3:05am
Quoting hanover
If you want me to see 'it', you'll need to explain it in simpler terms.

Are you saying that if I've tossed (say) 50 consecutive heads, my next toss is more likely to be a tail? If your argument is based on such a theory ('Gambler's fallacy'), then it's an argument I've had with many other folk: let's just agree to disagree.
Not today. Regarding Gambler's fallacy, a random computer algorithm can easily generate a billion high states in a row (and I've seen it done) by chance, but have you ever seen an unbiased coin come up heads a billion times in a row?

The basic theory I'm referring to is based upon properties of gaussian behavior and associated likelihoods. Notice, to be clear, I never said markets were perfectly gaussian; therein lies the rub.

I'll just leave it as food for thought and let the grenades be thrown for a while. Otherwise, we can agree to disagree; no harm done.
  • #25
  • Jan 23, 2011 3:23am Jan 23, 2011 3:23am
Quoting jamjamjam
Not today....
So your argument is based around the premise that perfect random number generation is impossible?

I'm talking hypothetically; I agree that markets aren't perfectly gaussian, which is precisely why I believe that exploitable inefficiencies do exist.
  • #26
  • Jan 23, 2011 3:27am Jan 23, 2011 3:27am
I think the point of an MA is to eliminate noise by averaging it out.

You WANT an MA to lag. Imagine a hundred copies of a photograph. Suppose that each copy has been overlayed by a guassian noise filter. Each picture is an obscured and difficult-to-recognize version of the same picture. If you average each pixel between the different images, you will get a resulting imagine that is much less obscured than any of its composites.

A nonlagging MA defeats the whole point of averaging... the price itself would be an ideal non-lagging MA.
  • #27
  • Jan 23, 2011 3:45am Jan 23, 2011 3:45am
MA kills higher frequency. It destroys periodic within the signal. Do you really want that? You want to kill noise but not the signal. This is why MA aren't good.
  • #28
  • Jan 23, 2011 3:57am Jan 23, 2011 3:57am
Quoting mfurlend
I think the point of an MA is to eliminate noise by averaging it out.

You WANT an MA to lag. Imagine a hundred copies of a photograph. Suppose that each copy has been overlayed by a guassian noise filter. Each picture is an obscured and difficult-to-recognize version of the same picture. If you average each pixel between the different images, you will get a resulting imagine that is much less obscured than any of its composites.

A nonlagging MA defeats the whole point of averaging... the price itself would be an ideal non-lagging MA.
Agree with you; the primary idea behind any averaging process (MA, Heikin-Ashi, Renko, etc) is to smooth out the false signals caused by 'noise'. With a MA, smaller period = less smoothness, and less lag. A 1 period MA is the equivalent of price itself.

Lag results in later entries, forfeiting pips; however, such a delay may result in a false signal being avoided, especially if price is moving sideways.

For better or worse, the 'non-linear' MAs (Hull etc) attempt to reduce lag while still retaining some smoothness. That supposedly gives the best of both worlds; however, if these MAs really delivered profit in spades then I'd expect them to be widely recognized as some kind of Holy Grail. Yet they're not.
  • #29
  • Feb 6, 2011 7:59pm Feb 6, 2011 7:59pm
Hanover

Know this is beyond the thread scope but interested in your views about the usefulness of std deviation analysis in forex analysis. Seems though to be a logical extension to discussion on MAs. Also has some intuitive appeal to a relative newbie like myself and popular tools like Bollinger Bands are based on it.
Audentes Fortuna Juvat
  • #30
  • Feb 14, 2011 1:56pm Feb 14, 2011 1:56pm
Quoting hanover
So your argument is based around the premise that perfect random number generation is impossible?

I'm talking hypothetically; I agree that markets aren't perfectly gaussian, which is precisely why I believe that exploitable inefficiencies do exist.

Pls Mr Hanover you are obviously more knowledgeable here and even so on forex. I just need help with this query:

Is it possible to include the bollinger bands levels in a code, pls could you kindly give me a hint or refer me to somewhere I could get a sample. Thanks in advance.

Regards
D8d3.
  • #31
  • Last Post: Apr 9, 2011 4:17am Apr 9, 2011 4:17am
Hi there.
I've found this nonlagma indicator. I've been searching the entire forum and I still cannot find how the MA for this indicator is calculated. Unfortunately, I do not know how to code indicators, or how to interpret the code. Maybe someone here can help me?
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File Type: mq4 NonLagMA_v5 Indicator Window(2).mq4   5 KB | 751 downloads
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