On second look, the coefficient may be quite important. As alpha ->1, the difference between the slow and the fast EMAs begins to shrink. The coefficient seems to counteract that trend. So, the derivative estimate is a little less dependent on the choice of alpha and more on the actual local variation. From: Astor <[email protected]> To: "[email protected]" <[email protected]> Sent: Sunday, May 22, 2011 7:18 AM Subject: Re: [JBookTrader] Re: Book trading discussion
There is one more difference in LaViola's apporach to that of JBT. The scaling coefficient alpha/(1- alpha) in front of the difference in EMAs in Eqn. 3. Would be interesing to see if that coefficient makes any difference in forecasting. From: nonlinear <[email protected]> To: [email protected] Cc: Astor <[email protected]> Sent: Saturday, May 21, 2011 9:16 PM Subject: Re: [JBookTrader] Re: Book trading discussion On Saturday, May 21, 2011 4:24:32 PM UTC-4, Alexana wrote: The whole concept of LaViola's paper is estimation of local linear regression parameters. Of course the time series is not linear, so linear regression can only be used within some local region, where some linearity can be assumed. The smoothing constant alpha defines the size of the "local" region. Larger alpha assumes rapidly changing function and, therefore, very small "local" region. Equation 1 defines the fast EMA and Equation 2 the slow one. Equation 3 computes the difference (derivative). Equation 5 is classic linear regression forecasting. > > Indeed, LaViola's equation (3) is calculating the difference between a "fast" and "slow" smoothers. That's what JBT does in a number of its indicators, including Tension. There is a difference, however: LaViola: derivative = EMA(N) - (EMA(N) of (EMA(N)), i.e. the difference between the EMA and the double-EMA JBT: derivative = EMA(N) - EMA(M), where N < M I'm going to try LaViola's approach to see if it improves my backtesting results. Will report here. -- 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. -- 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. -- 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.
