quantitative trend determination
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We have used a trend indicator based on regression. The basic input is the steepness of the regression line using the price data. One problem with trend indicators is that a change in volatility may be interpreted as a trend which results in false indications. To handle this the slope is adjusted by dividing with the standard error of the regression. This results in a trend indicator less sensitive to volatility shifts. There is a paper from Amplitude Capital called "Examining Trend Characteristics" that describes the details (google should be able to find it).
Paper is at http://www.eurekahedge.com/news/attachments/Amplitude_Examining_Trend_Characteristics.pdf and perhaps elsewhere.
If you find robust regs actually improve the profitability of your trendline-based trading, G-d bless you. I'd like to see a breakout of the results.
I use an adaptive, rather short, window of up to 40 days. The main benefit over most other standard trend indicators is that it addresses fake trends due to volatility changes. I've done some tests on various time series in Excel with various volatility and most time my eyes agree with the conclusion of the indicator.
Regarding the conclusions they make I suspect the paper was released in order to create some interest around their funds. I still find the result that correlation between their trend indicator and volatility breaks at high vola quite interesting (even though it may be specific to Forex of which I know next to nothing). Their approach may be interesting to equities as well but I haven't done anything yet.
Interesting approach, but doesn't take into consideration magnitude of vector elements.
For example, suppose you had sequence
10% 10% 10% 10%
-1% -1% -1% -1%
repeated several times
now suppose you had
10% 10% 10% 10%
-10% -10% -10% -10%
repeated same number of times
Hamming distance would be same, but trend characteristics are completely
different. One is perfectly trending, other
is perfectly sideways. Not a good measurement for trend.
Might work for coin tosses; not market.
Karsten and his team have some problems to identify "the trend" this year...maybe adapt the model ?
http://www.iasg.com/group/amplitude/dynamic-trading-fund-c-class
"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.