Technical analysis has become ubiquitous in financial markets. Various technical indicators were developed over decades with supporting rationale, theory and mindset. In this post, we show that some indicators can be approximated by simply using band-pass filters.
As seen in the previous post, a Singular Spectrum Analysis (SSA) readily extracts periodic components that behave as though they are band-pass filters. So, when configured correctly, CSSA of price can be used to synthesize long-established indicators.
As a way to illustrate this statement, we show MetaStock 10.0 chart examples. The top panel shows the indicator we want to emulate with CSSA of Close. The middle panel shows the emulated version of the indicator. The bottom panel shows price.
In the following two examples we construct the MACD indicator when applied to DIA and XOM. Note that the setting in CSSA (GroupStart = 2 and GroupDepth = 7) is identical to both instruments.
Chart Example #1: SPDR Dow Jones Industrial Average (NYSEArca: DIA)
Top chart: MACD (9) indicator
Middle chart: CSSA Cycles(Close)
CSSA Cycles parameters:
m-histories = 100 bars
GroupStart = 2
GroupDepth = 7
Chart Example #2: Exxon Mobil Corporation Common (NYSE: XOM)
Top chart: MACD (9) indicator
Middle chart: CSSA Cycles(Close)
CSSA Cycles parameters:
m-histories = 100 bars
GroupStart = 2
GroupDepth = 7
In the remaining charts we demonstrate the construction of the TRIX, RSI and CMO indicators with CSSA.
Chart Example #3: Research In Motion Ltd. (RIMM)
Top chart: TRIX (12) indicator
Middle chart: CSSA Cycles(Close)
CSSA Cycles parameters:
m-histories = 100 bars
GroupStart = 2
GroupDepth = 3
Chart Example #4: Research In Motion Ltd. (RIMM)
Top chart: RSI (50) indicator
Middle chart: CSSA Cycles(Close)
CSSA Cycles parameters:
m-histories = 100 bars
GroupStart = 2
GroupDepth = 25
Chart Example #5: Avid Technology, Inc. (NasdaqGS: AVID)
Top chart: RMO indicator
Middle chart: CSSA Cycles(Close)
CSSA Cycles parameters:
m-histories = 100 bars
GroupStart = 2
GroupDepth = 19
As you can see, the GroupStart parameter is invariably set to 2 in all charts meaning that the emulated indicators are in fact low-pass filters. The GroupDepth parameter is set so as to match the width of these filters to the frequency content of the indicators.
Noxa Blogger
www.noxapredict.com
As seen in the previous post, a Singular Spectrum Analysis (SSA) readily extracts periodic components that behave as though they are band-pass filters. So, when configured correctly, CSSA of price can be used to synthesize long-established indicators.
As a way to illustrate this statement, we show MetaStock 10.0 chart examples. The top panel shows the indicator we want to emulate with CSSA of Close. The middle panel shows the emulated version of the indicator. The bottom panel shows price.
In the following two examples we construct the MACD indicator when applied to DIA and XOM. Note that the setting in CSSA (GroupStart = 2 and GroupDepth = 7) is identical to both instruments.
Chart Example #1: SPDR Dow Jones Industrial Average (NYSEArca: DIA)
Top chart: MACD (9) indicator
Middle chart: CSSA Cycles(Close)
CSSA Cycles parameters:
m-histories = 100 bars
GroupStart = 2
GroupDepth = 7
Chart Example #2: Exxon Mobil Corporation Common (NYSE: XOM)
Top chart: MACD (9) indicator
Middle chart: CSSA Cycles(Close)
CSSA Cycles parameters:
m-histories = 100 bars
GroupStart = 2
GroupDepth = 7
In the remaining charts we demonstrate the construction of the TRIX, RSI and CMO indicators with CSSA.
Chart Example #3: Research In Motion Ltd. (RIMM)
Top chart: TRIX (12) indicator
Middle chart: CSSA Cycles(Close)
CSSA Cycles parameters:
m-histories = 100 bars
GroupStart = 2
GroupDepth = 3
Chart Example #4: Research In Motion Ltd. (RIMM)
Top chart: RSI (50) indicator
Middle chart: CSSA Cycles(Close)
CSSA Cycles parameters:
m-histories = 100 bars
GroupStart = 2
GroupDepth = 25
Chart Example #5: Avid Technology, Inc. (NasdaqGS: AVID)
Top chart: RMO indicator
Middle chart: CSSA Cycles(Close)
CSSA Cycles parameters:
m-histories = 100 bars
GroupStart = 2
GroupDepth = 19
As you can see, the GroupStart parameter is invariably set to 2 in all charts meaning that the emulated indicators are in fact low-pass filters. The GroupDepth parameter is set so as to match the width of these filters to the frequency content of the indicators.
Noxa Blogger
www.noxapredict.com
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