Teach A Man To Fish And.........

[YAGNESH]

thanxs a lot dear!!!!!!!!!!

Hello,

Its a great pleasure to join this community,hope i learn a lot from here.

 

[uma_k]

Hi Saint,

I need some help from you. Under the thread Experiments in Technical Analysis started by Karthik, there is a post No. 351 in which Anant has explained the lag in Moving Average with respect to price movement. The explanation is oversimplified according to him. I would like to know your views on the explanation and whether the lag can be explained in actual conditions where the simplified price movement does not hold. After Anant's post no body reacted in that forum so I am asking you as you have vast knowledge on technicals.

Thanks
***Uma***

 

[P.SUHAS T&I]

dear saint

just completed this thread reading
while reading i make all copy paste, remarks and charts in word file and taken notes as well. you have provided TMI, thanks. this thread help me a lot in polishing all my trading skills.

we all are actually exprementing the probabilities in techanical analysis.
i think TA is a social science and it changes with fear and greed i e human behavior and rightly u said "just ride the trend is the only thing in our hand".

i am not using any heavy weight words for thanks.
just second the above all encouragements, apprecations and thanks Quote for you.
TYVM for all your elderly knowlege and love for all new members like me.

i am not a member to any such forum and i am new to this

so ill thanks you and amarnathji for suggesting me, the meaning of capital letters in forum and i expect suggestions like this in future on my mistakes i.e. CMIIW. i know it is not the forum for suggestion on how to write so i am taking almost care for it and i start it as well & i surf google for this and find some information.

i am hoping for LLR with this group.
cu
BFN
P.suhas
Trader & Investor

 

[Saint]

Hi Saint,

I need some help from you. Under the thread Experiments in Technical Analysis started by Karthik, there is a post No. 351 in which Anant has explained the lag in Moving Average with respect to price movement. The explanation is oversimplified according to him. I would like to know your views on the explanation and whether the lag can be explained in actual conditions where the simplified price movement does not hold. After Anant's post no body reacted in that forum so I am asking you as you have vast knowledge on technicals.

Thanks
***Uma***

Hi Uma,

Can't beat that one from Anant,......frankly no idea how to make it simpler than that.

Excellent Stuff from Anant........his post below.

Dear Uma,

Thank you for your appreciative words and I am glad to see your interest in learning.

I am giving the proof of moving average delay below:

For the sake of easy explanation I am oversimplifying the example. However, the steps explained here are equally applicable to real situation also.

Let us assume a share being traded at Rs. 100 and the price goes on increasing by Re. 1 every day (You can take any value you like, eg price = 300 and increase = 1.7 etc. But the values I have taken make the calculation easy). Also assume that the price increases from 100 to 110 and then starts falling by Re. 1 each day till it reaches Rs 95. Thereafter it again increases Re. 1 everyday to again reach Rs 110. This up and down continues. Let us take the first 50 days' data for our example. Let us say we want to calculate 5-day and 15-day simple moving averages and their cross over. The price data, the moving averages and their difference along with the chart are attached as a PDF file with this post. You can download the file, take a print out and follow along with the explanation here.

The 5-day moving average is simply the average of previous 5 day prices starting today. So, in our example the first four days have no moving average, 5th day onwards the values are calculated and entered against the day number. So, the first MA value is against 5th day, second value against 6th day etc. Similar is the case with 15-day moving average, the first value is against 15th day and so on. The moving average difference column starts with 15th day.

You can see from the table of values in the attached file that the price has reached the maximum value of 110 on 11th day and thereafter it is falling. But the 5-day moving average reached maximum value of 108.80 on 13th day and the 15-day MA reached its maximum value of 106.27 on 18th day. This extra time is the moving average lag. Why it happens?

When you take 5-day MA the first time you add values of day 1 to day 5. On the second occasion you add values of day 2 to day 6. In effect, you are removing the first day value and adding 6th day value. As the 6th day value is higher than 5th day value the MA increases. On 11th day you add the maximum price for the first time. On 12th day you add a value which is smaller than the maximum, but the value being removed is still smaller than this 12 th day value. So, MA continues to increase even after the Peak in price is reached. This continues till the latest value added is smaller than the value removed. This happens when the Maximum Price is in the center. As we are taking 5-days prices, the Maximum price is in the centre after half of this period i.e. 2.5 days. This makes it 11+2.5=13.5. So we see the peak in MA on 13th day. Similarly, the peak of 15-day MA appears on 11+(15/2)=11+7.5=18.5 days which is rounded to 18th day. Therefore, the MA peak lags the price peak by half of the averaging period. Similarly, the lowest value of MA lags the lowest price by the same number of days.

We have taken regularly increasing/decreasing prices in this example. In real situation this is not true. So, the actual lag will be a little different from the 'half of the veraging period'. Depending on which side of the price peak (or valley) is changing faster, the MA peak is displaced a little to the left or right. But on an average we can take this lag to be half of averaging period.

Coming to the cross-over of the two MAs we can explain it as follows. Now I have to introduce a little maths here. But it is very simple.

Let us say p1 is short term, p2 is long term. As we have seen above, the short term MA reaches peak (p1)/2 days after the price peak and the long MA reaches its peak (p2)/2 days after price peak. So the time difference between the two MA peaks is (p2)/2 - (p1)/2 which is same as (p2-p1)/2. That means Half of the difference between the two averaging periods. The cross over will occur midway between this difference. So it will be hallf of (p2-p1)/2 or equal to (p2-p1)/4. That is one-fourth of the difference between the averaging periods. In our case the MA period difference is 15-5=10 and 10/4=2.5. So the cross over is 2.5 days (or 2 to 3 days) after short MA peak. We can see from the data and graphs that this is indeed the case.

If you have understood this, then you can try to prove why the histogram peaks appear much before the cross over. I will leave it as an excercise. As the Histogram peak appears much before the cross over, I tried to use it in my MABIUTS-H strategy.

Regards

-Anant

Best way is to test the various systems and latch on to something that you are comfortable with,and which gives you regular profits.More importantly,once you are trading a system is to stick by it,day in day out.

My simpleton of a mind has never really asked why this indicator does this,or why that indicator does not do that.......am more interested in checking out whether anything makes consistent profits for me.

Quite sure this answer would not suffice,....suggest asking Anant himself.Or probably Karthik,Murthy or Sanjay.Am quite sure that they will only be too pleased to help.

All the best!
Saint

 

[Saint]

dear saint

just completed this thread reading
while reading i make all copy paste, remarks and charts in word file and taken notes as well. you have provided TMI, thanks. this thread help me a lot in polishing all my trading skills.

we all are actually exprementing the probabilities in techanical analysis.
i think TA is a social science and it changes with fear and greed i e human behavior and rightly u said "just ride the trend is the only thing in our hand".

i am not using any heavy weight words for thanks.
just second the above all encouragements, apprecations and thanks Quote for you.
TYVM for all your elderly knowlege and love for all new members like me.

i am not a member to any such forum and i am new to this

so ill thanks you and amarnathji for suggesting me, the meaning of capital letters in forum and i expect suggestions like this in future on my mistakes i.e. CMIIW. i know it is not the forum for suggestion on how to write so i am taking almost care for it and i start it as well & i surf google for this and find some information.

i am hoping for LLR with this group.
cu
BFN
P.suhas
Trader & Investor

Hi Suhas,

Figured that TVYM is Thank u very much.......plz help me decode LLR,CMIIW,BFN and TMI though

Thank you for all your kind words.....and looking fwd to your posts in the forum.Once again,a warm welcome to you.

All the Best

Saint

 

[asnavale]

Hi Saint,

I think the abbreviations mean the following:

LLR=Long Lasting Relationship
CMIIW=Correct Me If I'm Wrong
BFN=Bye For Now

I may be wrong.

I can't figure out what is TMI.

Regards

-Anant

 

[P.SUHAS T&I]

dear saint

LLR - long lasting relationship
cmiiw - correct me if i am wrong
bfn - bye for now
tmi - too much information

while searching for how to write in forums and chatting, i come to know about it.

please find the attachement

p.suhas
trader & investor

 

[Saint]

Thanks Anant,Suhas......

 

[uma_k]

Hi Saint,

Thanks for your reply. As Anant's post was in the same thread where Karthik, Murthy, Sanjay etc. are regularly posting, I was waiting for their comments. But no one has poated either approving it nor questioned the logic. So, I asked you as are the one with vast knowledge. And I am happy you responded.

Your experience with application and Anant's theoretical foundation combine together to educate all the newer entrants and make their understanding of the TA perfect. Great work by both of you and others who are contributing so much to enhance the knowledge of all the members.

***Uma***

 

[Satyen]

Thank you Very much Saint

Regards

Satya