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TECHNICAL PAPERS
Inferring Trading Strategies from Measured Probability Density Functions This was the Runner-up Winner of the MTA's 2008 Charles H. Dow Award. In this paper I show the implications of the various forms of detrending and how the resultant Probability Distributions can be used as strategies to generate effective trading systems. Results of these robust trading systems are compared to standard approaches. INFERRING TRADING SYSTEMS, download 754Kb
Skinning the Cat This is another way to measure the spectrum of market cycles. Here, I show you how to measure the spectrum using a contiguous bank of bandpass filters. The spectrum is displayed as a heatmap. Skinning the Cat, download 249Kb Fourier Transform for Traders The problem with Fourier Transform for the measurement of market cycles is that they have a very poor resolution. In this paper I show how to use another nonlinear transform to improve the resolution so that the Fourier Transforms are usable. The measured spectrum is displayed as a heatmap Fourier Transform For Traders, download 298Kb
Swiss Army Knife Indicator Indicators are just transfer responses of input data. By a simple change of constants, this indicator can become an EMA, SMA, 2 Pole Gaussian Low Pass Filter, 2 Pole Butterworth Low Pass Filter, an FIR smoother, a Bandpass filter, or a Bandstop filter. Swiss Army Knife, download 204Kb
Ehlers Filter An unusual nonlinear FIR filter is described. This filter is among the most responsive to price changes but smoothest in sideways markets.
System Performance Evaluation Describes how to build an Excel Spreadsheet to better understand expected performance of a trading strategy. The Profit Factor (gross winnings divided by gross losses) is analogous to the payout factor in gaming. Thus, when the Profit Factor is combined with the percentage winners in a series of random events, instances of how a trading strategy equity growth can be simulated. System Evaluation, download 34Kb
FRAMA FRAMA (FRactal Adaptive Moving Average). A nonlinear moving average is derived using the Hurst exponent.
MAMA MAMA is the mother of all adaptive moving averages. Actualy the name is an acronym for MESA Adaptive Moving Average. The nonlinear action of this filter is produced by the flyback of phase every half cycle. When combined with FAMA, a Following Adaptive Moving Average, the crossovers form excellent entry and exit signals that are relative free of whipsaws.
Time Warp Without Space Travel Laguerre Polynomials are used to generate a filter structure similar to a simple moving average with the difference that the time spacing between filter taps is nolinear. The result enables the creation of very short filters having the smoothing characteristics of much longer filters. Shorter filters mean less lag. The advantages of using the Laguerre Polynomials in filters is demonstrated in both indicators and automatic trading systems. The article includes EasyLanguage code. Time Warp Without Space Travel, download 59Kb
What's the Difference? A nonlinear moving average is formed by measuring the difference between a Simple Moving Average and a Median Filter. Whats the Difference , download 530Kb
The CG Oscillator The CG Oscillator is unique because it is an oscillator that is both smoothed and has zero lag. It finds the Center of Gravity (CG) of the price values in an FIR filter. The CG automatically has the smoothing of the FIR filter (similar to a simple moving average) with the position of the CG being exactly in phase with the price movement. EasyLanguage code is included. The CG Oscillator, download 56Kb
Using the Fisher Transform Many trading systems are designed using the assumption that the probability distribution of prices have a Normal, or Gaussian, Probability Distribution about the mean. In fact, nothing could be farther from the truth. This paper describes how the Fisher Transform converts data to have nearly a Normal Probability Distribution. Given the Probability Distribution is Normal after applying the Fisher Transform, the data is used to create entry points with surgical precision. The article includes EasyLanguage code. Using the Fisher Transform, download 80Kb
The Inverse Fisher Transform The Inverse Fisher Transform can be used to generate an oscillator that switches quickly between oversold and overbought without whipsaws. The Inverse Fisher Transform , download 189Kb
RVI The Relative Vigor Index (RVI) is a new indicator formed from old ideas. It is a measure of the average difference between the close and open, normalized to the average daily trading range. It is an excellent oscillator to complement other indicators.
RSI Smoothing There is more to smoothing an RSI than just taking a moving average after the RSI is computed. By applying some advanced filters in the process of computing the RSI you can not only get better smoothing but also enhance the turning points of this proven indicator.
Gaussian Filters Lag is the downfall of smoothing filters. This article shows how lag can be reduced and the highest fidelity smoothing is obtained by reducing the lag of high frequency components in the data. A complete table of Gaussian filter coefficients is provided. Gaussian Filters, download 68Kb
Hybrid Filters Simple Moving Averages are a subset of FIR Filters. Exponential Moving Averages are a subset of IIR filters. Traders are not necessarily limited to the selection of one or the other. This article describes how you can make hybrid filters and realized the best characteristics of both.
Poles and Zeros A description of digital filters in terms of Z Transforms. The ramifications of higher order filters are described. Tables of coefficients for 2 Pole and 2 Pole Butterworth filters are given. Poles and Zeros, download 78Kb
Zero Lag Data Smoothers A comprehensive discussion of removing lag from data smoothing filters and the penalties paid for removing that lag. Zero Lag Data Smoothers, download 87Kb
Simplifying Simple Moving Averages Shorthand algorithms for computing simple moving averages. Simplifying Simple Moving Averages, download 41Kb
Squelch Those Whipsaws A squech circuit on a CB radio cuts out noise when a signal is not present. The concept of the squelch circuit is applied to market data to discern when the market is in a Trend Mode or a Cycle (or congestion) Mode. Squelch Those Whipsaws, download 61Kb
The Joy of Detrending There are many ways to detrend data. This article describes a novel approach borrowed from Moving Target Indicators (MTI) in RADARs. Detrended this way, fidelity of the detrended waveform is retained. The Joy of Detrending, download 130Kb
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