Comments on: Moving Median: a better indicator than Moving Average?

By: Milktrader

Milktrader — Tue, 19 Jan 2010 03:35:12 +0000

The most intriguing element for me is looking at things a little differently. The basic logic behind MA crossovers remains intact, but you’ve chosen to look at it differently. This time it didn’t work, but I’m convinced sooner or later it will. The trick is to balance imagination with craziness – I’m definitely working on that part.

By: Jez

Jez — Fri, 15 Jan 2010 22:16:53 +0000

Great, Thanks! Will check that tomorrow
The MACD/MMDI filter on multiplee timeeframes is exactly the sort of things I have in mind…

By: david varadi

david varadi — Fri, 15 Jan 2010 22:10:51 +0000

hi jez the link is http://cssanalytics.wordpress.com/2009/08/06/meanmedian-divergence-a-great-trend-indicator-part-1/ and it contains the formula and the indicator itself is available for free for tradestation on dvindicators.com

as a second note a multi time frame macd/mmdi may be useful to create a long/cash/short strategy whereby you enter in the direction of the long term using the short term indicator and you exit to cash with the short term indicator etc

keep up the good work…..the trend side of things is certainly under-researched
best
dv

By: Jez

Jez — Fri, 15 Jan 2010 21:52:29 +0000

Thanks David!
Great idea regarding the MMDI. Especially since a concept i am considering is using a higher-timeframe MACD filter to enter trend following trades – ie go with the major trend only. If MMDI can be better at filtering noise out, that sounds like a perfect improvement!
I’ll definitely give that a try. Do you have a link to a blog post of yours covering that by any chance?

By: david varadi

david varadi — Fri, 15 Jan 2010 18:20:30 +0000

hi Jez, great post, and the median is a superior short term filter for spiky/noisy data. As a related test I demonstrated the superiority of the MMDI vs the MACD by using a median for the MMDI. However the concept there was to use the median for the short term and the moving average for the long term. In this case the crossover wasn’t significant but rather the net difference between the two—ie the zero line. You may wish to try this on the futures markets.
Keep up the great work.
best
david

By: Jez

Jez — Fri, 15 Jan 2010 16:47:16 +0000

@George
The main goal of this exercise was to “check my premises” that using robust statistical tool in the trading system rules would result in a more robust trading system in general – hence the idea of replacing the moving average by the moving median…
I take the points you made in your comments (and thanks for adding to the discussion)… However I wanted to compare likes-for-likes with the only variable being the actual statistical measure of tendency calculation method (ie median vs mean) – hence the same parameters, and identical money management (without worrying whether it is the most optimal one for testing…).

Basically, the question I wanted to answer was: “Can we take a trading system (MA crossover), replace its indicator by a more statistical robust one (median) and obtain a more robust system?”

By: George

George — Fri, 15 Jan 2010 14:43:41 +0000

Hi Jez,

Great post! It’s neat to read about how you are dissecting the complex art of trading and figuring out what is really happening. I have never heard of the Moving Median before!

Here’s some random ideas.

1. Why use the same values for the averages and the means? If a 220/50 combination works best for the Moving Averages, then why couldn’t a different combination work best for the Moving Medians? Why couldn’t another set of 9 combinations be more robust than the ones that you chose for the Moving Averages?

2. I think the Moving Average is the oldest technical indicator, and it is easy to use and understand. That’s why it is so common. But whether it is the best indicator for our systems remains to be seen…I suspect it is more of a relic…

3. Your results are going to be skewed by high performing systems that make tons of money because they reinvest their profits. Even if you do this with actual trading, I think during the development it is better to use a fixed dollar position size. This allows us to understand what is happening without the distorting effect of exponential growth.

For example, the standard deviation of a set of systems that reinvest profits will always be much greater than systems that use a fixed position size. I think that it is easier to understand what is happening without this exaggerated effect.

4. I agree that the reason that the Moving Median systems did not perform as well is because of the signals generated that did not precede a movement in price.

Thanks for sharing.