Setting-Less Trend-Step Filtering

2019년 10월 6일

Introduction

Indicators settings have been a major concern in trading strategies, in order to provide the best results each indicators involved in the strategy must have its settings optimized, when using only 1 indicator this task can easily be achieved, but an increasing number of indicators involve more slower computations, lot of softwares will use brute force for indicators settings optimization, this involve testing each indicator settings and see which setting/combination maximize the equity, in order to fasten this process softwares can use a user defined range for the indicator settings. Nonetheless the combination that maximize the equity at time t might be different at time t+1...n.

Therefore i propose an indicator without any numerical setting that aim to filter small price variations using the architecture of the T-step lsma, such indicator can provide robust filtering and can therefore be used as input for other indicators.

Robustness Vs Non Robustness

Robustness is often defined as the ability of certain statistical tools to be less affected by outliers, outliers are defined as huge variations in a data-set, high volatility movements and large gaps might be considered as outliers. However here we define robustness as the ability of an indicator to be non affected by price variations that are not correlated with the main trend, which can be defined in technical analysis as pullbacks.



Some small pullbacks in INTEL, the indicator is not affected by them, which allow the indicator to filter the price in a "smart" way.

This effect is made possible by using exponential averaging in the indicator, exponential averaging is defined as y = sc*x + (1-sc)*y, with 1 > sc > 0. Here sc is calculated in a similar way as the kalman gain, which is in the form of a/(a + b), in our case this is done with :

sc = abs(input - nz(b[1]))/(abs(input - nz(b[1])) + nz(a[1]))

Non Robust Version Of The Indicator

The user is allowed to use the non robust version of the indicator by unchecking "robust" in the setting panel, this allow a better fit with the price at the cost of less filtering.



robust checked



robust unchecked

Conclusion

I proposed a technical indicator that aim to filter short frequencies without the use of parameters, the indicator proven to be robust to various pullbacks and therefore was able to follow the main trend, although using the term trend for such small price variations might be wrong. Removing high frequencies is always beneficial in trading, noisy series are harder to manipulate, this is why you'll see a lot of indicators using median price often defined as hl2 instead of the closing price.

Like previous settings-less indicators i published this one can behave differently depending on the time frame selected by the user, lower time frames will make the indicator filter more. I'll try to make more setting-less indicators that will correct this effect.

Acknowledgements

The support and interest of the community is only thing that allowed me to be where i'am today, i'am thankful. Special thanks to the tv staff, LucF, and my family who may not have believed in this project but are still proud of their son.