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Strategies & Market Trends : Technical Analysis- Indicators & Systems
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To: TechTrader42 who wrote (1885)7/6/1997 5:09:00 AM
From: wolfgangl   of 3325
 
Brookelise,

if you have two indicators with a diffent scale, you can use the scaling capabilities of your charting software to overlay them. The basic idea in overlaying indicators instead of one indicator and a moving average or using a zero crossing is, that the formulae of both indicators have some structural similarity or even algebraic similarity. If they indeed do, you are able to avoid whipsaws.

If you want to formulate a trading system, you can not rely on the scaling algorithms of your graphics unit. You have to normalize / standardize the formulae themselves. That is what I did.
The difficulty is that you have to introduce a number, which is greater than the presumptive range of the indicator (2500). By this number you divide all values of the indicator in order to make them anything between 0 and 1.
Then you basically multiply by a number (100) which suits you for the final new value range of the normalized indicator.
If you choose the divisor to small, then there might be a value, which is not properly normalized, if you choose it too big most of the values are to much compressed. This in turn is mainly a visual effect.
The only thing you really have to take care for is that you adapt the divisors to the original value ranges respectively, i.e. if one range is from 0 to 2000 you choose 2500 and if the other was from 0 to 1000 only 1250. Only then they match, when crossing is used in the system test.

I used Bill's system in its simplest form. I do not remember from which of his posts I took it. I do not know anything about "Red Line Indicator" or any Stochastics as proxys. You need not worry about "Std(((h+l+c)/3),28)" missing in BNS2 formula. BNS1 is just constructed faster than BNS2 and this is achieved by a seemingly completely different algebraic expression. It works obviously. I did not yet encounter any uncomplete exits.
The real difficulty with the system is nevertheless exits. Both indicators cross the zero line by an angle of almost 90 degrees. But after peaking they approach the zero line at a very flat angle which excludes using that line for exits. Crossing each other for exit is much better in system tests. On the other hand volatility in both indicators is still too big in order to obtain a clean exit. Usually after 1/3 of a moove the first exit occurs and several reentries and exits follow.
From these notions the direction of further developping the system seems obvious. One would have to smoothen both BNS1 and BNS2. If they deliver timely signals after smoothing will to be seen.

Wolfgang
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