Saturday, May 11, 2013

Adaptive Indicators 4 - Adaptive MACD


It is weekend and time for my experiments…on Technical Analysis. I am still stuck on the topic of Adaptive indicator. Of course I have been doing a little bit of reading on my favourite subject Volume. The little time I get during the week days have been spent on the book “Investing with Volume Analysis” by Buff Dormeier.  Now I am working on how the VPCI can help in VSA studies.

More on VPCI later. Right now let me continue with the current topic Adaptive Indicator. I have been experimenting with making the simple moving average adaptive to the dominant cycle. This adaptive moving average was used for smoothing in the ADX calculation to make it adaptive which was explained in the last post.  The next obvious move was to create a MACD of the adaptive moving average. The MACD is basically the difference between two moving averages one short and another long. However in case of the moving average adapted to the dominant cycle the period itself is not fixed and is varying. So I calculated the adaptive MACD with two adaptive moving averages, one adaptive to the dominant cycle and the other adaptive to twice the dominant cycle.   As the basic behind the MACD is the difference of two moving averages we cannot find much difference between the conventional MACD (12, 26) and the adaptive MACD. However the adaptive MACD is less prone for less whipsaws and the catch the trends very well at the same time the catches the turning points in time. The Adaptive MACD is definite one notch better than the conventional MACD.



No comments:

Post a Comment