On Wednesday, May 11, 2011 1:05:41 PM UTC-4, Klaus wrote: > > now I am puzzled. Why would you do this? > The first derivative is the change rate. Ok, I would understand one > does want to do some > smoothing. But the difference between short and longterm EMA certainly > isn't the first derivative. > It does not seem to be a very good approximation, either. > > I can see this is a somewhat bizarre change rate indicator, though. > And it might have some merits, if it just works.. > > Well, I disagree that it a "bizarre" indicator. Consider MACD, a well researched and very popular indicator. The MACD signal line is defined as the difference between the shorter and longer term EMAs, which is precisely what the PriceVelocity indicator in JBT does. The BalanceVelocity indicator in JBT also uses the same concept, applied to book balances. The Tension indicator in JBT is the difference between BalanceVelocity and PriceVelocity.
In regards to whether the difference between the shorter and longer term EMAs is a good approximation of velocity (i.e. the first derivative of a given quantity with respect to time) is debatable. If you can think of better ways of calculating the first derivative from a notoriously noisy time series, please let me know, and we can certainly experiment with it. However, intuitively, it makes sense to me the way it is right now. Think of it this way: if the average price over the last 5-minute interval was 110 and the average price over the last 60-minute interval was 100, then the first derivative is: firstDerivative = velocity = priceChange / timeChange = (EMA(5) - EMA(60)) / (1 hr) = (110 - 100) / (1 hr) = 10. Does this make sense? -- You received this message because you are subscribed to the Google Groups "JBookTrader" group. To post to this group, send email to [email protected]. To unsubscribe from this group, send email to [email protected]. For more options, visit this group at http://groups.google.com/group/jbooktrader?hl=en.
