White Paper
Analysis of Erlanger Data Series:
Displaced Moving Averages
By: Philip B. Erlanger, CMT
When using measures of sentiment, it is often a problem to
determine the precise point of excess to act upon. This white paper
makes an effort to deal with the difficulties of managing sentiment
indicators through the use of displaced moving averages.
I. Introduction
It is an age-old problem. How high is high? What constitutes an
excess of sentiment? When does one act on such extremes?
The heart of contrary opinion is that when market participants
collective take one side of the market, they are at extreme risk
to a contrary move. Our experience tells us, however, that it pays
to wait for some measure of confirmation from "price action" before
committing to the anticipated contrary trend. The primary reason
for this is there is rarely a fixed set of parameters when judging
excesses of sentiment… in other words, non-stationarity is a phenomenon
very prone to sentiment indicators. One process to manage this circumstance
finds "triggers" that reflect or indicate a switch to the anticipated
contrary trend in price. This white paper focuses on displaced moving
averages as a short-term "trigger" mechanism.
II. Definitions
III. Applying DMA's to Erlanger 2000 charts
IV. Applying DMA to the Erlanger Trading Rank
V. Conclusion
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