changing moving average intervals based upon volatility

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richard
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changing moving average intervals based upon volatility

Post by richard » Fri Jul 30, 2004 1:00 pm

It seems that a system like the Turtle system could be improved by altering the MA intervals based upon volatility.

For instance, couldn't an exit be improved so that for lots of volatilty, the exit would be quicker based upon a shorter MA interval crossover? And for less volatile times, couldn't the MA intervals become longer?

sagev
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Post by sagev » Fri Jul 30, 2004 1:55 pm

The Variable Moving Average (VMA) allows you to automatically adjusts the smoothing constant based on the volatility of the data series. The calculation detail could be find at Technical Analysis from A to Z: Moving Averages

The Dynamic Momentum Index (DMI) which was described in the New Technical Trader by Tushar Chande and Stanley Kroll is another indicator of which the sensitivity is also controlled by the recent volatility of time series.
Last edited by sagev on Sun Aug 01, 2004 12:49 pm, edited 1 time in total.

Jake Carriker
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Post by Jake Carriker » Fri Jul 30, 2004 2:22 pm

There is also Kaufman's Adaptive Moving Average described in his book Smarter Trading.

BTW Richard, what moving average are you talking about in the Turtle system. The only one I am aware of is the exponential moving average of ATR (dubbed "N"). The length of this moving average does not seem extremely critical (for parameters within reason) based upon my testing.

The entries and exits themselves are of the N-day breakout variety, so a moving average (sensitive to changes in volatility or otherwise) might not change performance much. Hill, Pruitt, and Hill do describe an adaptive breakout system in their book The Ultimate Trading Guide. You might take a look at that one if you are interested in the concept.

I find that channel breakouts are adaptive by their nature. During times of high volatility channels are further apart than they are in low volatility conditions. For my own style, I find the cons of adding more degrees of freedom in an effort to improve responsiveness outweigh the pros of hypothetically improved performance. Others may reach different conclusions.

Best,
Jake

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