TRADING TECHNIQUES
A New Twist on Ehlers' Zero-Lag Data Smoother
The Moving Trend
by William Rafter
Here's a look at a nonlagged filter that can be used as a forecasting tool.
Data smoothing has long been likened to taking the first generation of allergy medication. The medication relieved the symptoms, but slowed you down so much that the effect seemed worse than the original allergic discomfort. For years, I have been using a data smoother called the "moving trend," which is the market's best forecast - based on a previous trend - of where the price level should be today. It proved to greatly diminish the lag problem. John Ehlers' article in the July 2002 STOCKS & COMMODITIES prompted me to look at the moving trend operation (movtrend) a little differently. In the process, I learned something worth sharing.
Figure 1: MOVING AVERAGE VS. MOVING TREND. Note how the moving trend more closely follows the moving average.
...Continued in the January 2003 issue of Technical Analysis of STOCKS & COMMODITIES
Excerpted from an article originally published in the January 2003 issue of Technical Analysis of STOCKS & COMMODITIES magazine. All rights reserved. © Copyright 2002, Technical Analysis, Inc.