quantitative trend determination

[burnsy]

use linear regression slope as an indication of trend
set minimums for both up trends and downtrends, with mid trend equating to the area between both minimums

 

[Hugin]

Quote from ScoobyStoo:

"One problem with trend indicators is that a change in volatility may be interpreted as a trend which results in false indications."

I disagree with this. It's not a problem with the trend indicator. The trend indicator is doing exactly what trend indicators are supposed to. It is using an algorithm to try to determine whether a sequence of price movements is weighted in one particular direction and to quantitatively score that weighting. The fact that the timescale over which the price movements occur has no bearing on whether they constitute a trend or not. I think what you are actually saying is that you wish to filter out trends which occur on short timescales (which I think you consider to be just volatility induced noise).

Nothing wrong with that, all I'm really saying is that a trend is a trend is a trend...timescales have nothing to do with their definition. They are defined solely by price movements.

For a trade indicator to be useful I believe it should be consistent and not signal a trend if the underlying price generating process does not include one. The problem is that even if you construct a time series with no trend component, an increase in volatility may make some trend indicators signal that a trend is present. The paper discussed earlier provides some examples. Or you could check it out in Excel. Another important aspect is that the result provided by the indicator should correspond to what you see on the screen.