A leading signal for oscillator indicators

It has been some time since my last post, the reason being the Christmas period and being busy working on non trading stuff. However, I am now back to work on the system and have been looking at creating a leading signal to avoid the pitfalls of indicator lag. Above is a snapshot of what I have come up with shown on a sine wave function (this leading indicator is for application to oscillator indicators).

The sinewave (in dark blue) is first smoothed by a FIR filter, sinewave smooth (in cyan), with filter coefficients such that this sinewave smooth has a constant lag at all frequencies. Knowing what this lag is, along with the frequency, the lag can be compensated for using mathematical and DSP theory to produce the lag adjusted sinewave smooth (in red). It can be seen that although the amplitude of the lag adjusted sinewave smooth is slightly attenuated, it is exactly in phase with the original signal. The lead signal 1 (in magenta) and lead signal 2 (in green) lines are leading signals 1 and 2 "points" (days, bars, candlesticks etc.) in advance of the original signal.

These signals are to be interpreted as follows

• lead 2 crosses lead 1 exactly one "day" before the high or low, giving advance warning of the high or low
  
• lead 1 crosses the lag adjusted sinewave smooth exactly on the high or low, acting as confirmation of the advance warning
  

Of course additional leading signals could be calculated to give a sort of countdown to the high or low as consecutive lines cross each other. All this will have to be tested on real data, but it is gratifying to see that the theory, and my coding of it, work flawlessly on idealised data. This testing on real data will be the subject of a future posting.

Bayesian Analysis Update

Having spent the last 6-8 weeks researching and trying out various coding attempts, I've come to the conclusion that, for the moment at least, my time will be spent more usefully doing some of the other things on my to do list. Bayesian analysis is on the back burner for the nearest future.

Bayesian Analysis

The thing I'm working on at the moment is applying Bayesian analysis techniques to the trading system, and I'm currently in the research phase consisting of lots of reading and occasional queries to on-line statistical forums. The idea behind this is to develop a methodology to switch between different sets of trading rules, each rule set being applicable to defined market types. More on this as and when I have something relevant to report.

Posting to another forum

Readers of this blog might be interested in a recent forum posting of mine here, under babelproofreader.

Recent coding work

Have been working on the various .oct compiled functions and am happy to say that the work on MC re-optimisation of .oct functions for ucl & lcl for price, cybercycle, fisher transformed cybercycle, cybercylce relative to price bars and fisher transformed highpass filter has now been completed and the "to do page" updated accordingly.

Update on First Trades

The Feeder Cattle trade has been stopped out for a loss in both the Collective2 account and the live trading account. However, the EURCAD forex trade remains open and is showing an open profit of $1602 (on Sunday evening before the markets open) in the Collective2 account. The EURCAD trade was not taken in the live account because the risk was too great for the account size.

First Trades

Today, following signals given by the Bandpass filter, the first two trades of the revised Dekalog system have been opened in the Collective2 account; long Feeder Cattle and long the EURCAD forex pair. The feeder cattle trade has also been taken in a live trading account too. At the time of posting, both are still open. Details will be posted in a follow up blog post.