Tutorial on the Formulation and Construction of an Index of Weighted Biases

Discussion in 'Technical Analysis' started by UrmaBlume, Sep 11, 2009.

  1. Many traders find it useful to bring indications from higher time frames into consideration when executing in a lower time frame where structure allows more precise entries and closer stops.

    A bias can be as simple as a fast moving average above a slow moving average for a positive bias and below for a negative bias. Most of the indications of bias demonstrated here come not from price based indicators but from indications taken from measures of actual buying and selling - the balance of trade.

    Peter Steidlmayer used to teach that the best indicators of future price have price as NO part of their calculation. Price based indicators such as MAs, Stochastic, RS, ROC & MACD can never lead price because they can't change until AFTER price changes.

    In these examples we have taken bias information from 8 different indicators in 3 different time/volume frames for a total of 24 inputs.

    In each case we first assign a +1 or -1 to each of the 24 inputs and then weight each input from the results of "survival of the fittest" genetic optimization runs. For each input we multiply the +1 or -1 by a weight which ranges from .1 to 2.6.

    The weighted value of each input is then stored in a global variable. In Trade Station we use the free dlls and mapping functions in ADE (all data everywhere) and the "Easy Language Collection."

    "Get" functions retrieve and combine these values and posts them to what ever chart the trader desires or feeds them as value to certain other functions.

    We also take these measures of bias as inputs to such predictive technologies as Neural Networks and MARS (Multivariate Adaptive Regression Splines).

    If proper weighting is applied to well-selected inputs such an approach can often produce indicators that LEAD the market.

    In the chart below the lines represent an adaptive moving average that comes with an adjustment for phase of the mid-points of each bar. This is the Jurik Moving average from Jurik Research and the best smoother we have been able to find anywhere and you can see at a glance that in every instance the lines are posted to the right of the price bars which means the average LAGS PRICE.

    The dots are an index of weighted biases based on different readings of both totals and velocities of total, buying and selling volumes. In almost every instance the dots are to the left of price which means they are LEADING PRICE.

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  2. Urmablume is a snakeoil vendor and has been banned from ET.