The Breakout Calculator and the short term average

[Pascal]

Hi Pascal,

I wander if there are any reason why you have used simple MA for short term average in your BC and not for example an exponential MA?

MA is influence by the price twice, once when entering the period window and second time when it gets dropped off. For 5 day period each day constitutes 25% of the total MA value so when the old data gets dropped it can change the MA a lot. It is not so with EMA where the old data fades away slowly.

By the way: Happy New Year to You and all the members ! :)

Regards

Jarek

Hi Jarek,


Thank you for posting this question.

This Breakout calculator started as a small project on a spread sheet and I used the simple moving average as it was straightforward to calculate. Later on, I even did not think moving to an exponential moving average.

And yes, you are right, an exponential MA would have worked better especially for breakouts/breakdowns because it moves faster than a simple MA (See the red lines compared to the blue lines below).



Now I do not think that the results would change much because good trades should also show strong results in terms of sensitivity to the distance to the average, which basically is what a change of the type of MA would do.

Anyway, I'll test the EMA and will compare results. But I will most probably change the code of the Breakout Calculator to use an EMA, which is the right thing to do. I use an EMA method for all my other tools and should have also used an EMA for the BC.



Pascal

PS: Thank you again for your question. I will extend your current subscription with a free additional three months access, starting from January 1.