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Stocks & Commodities V. 1:7 (166-167): The Market Direction Indicator Anticipating Moving Average Crossovers by DONALD R. LAMBERT
O ver the years, trading methods have evolved from the very simple (such as the CHANGCHENG
BANFA or "Great Wall Method," which dates back to the Orient of the 1700's), to Point and Figure, to
numerous modern complex calculation methods.
Despite all the modern techniques available, many traders still cling to their moving averages (and
sometimes crossover) systems, and make money doing so, but unfortunately not as much money as they
should. Since moving averages always lag behind actual price movements, devotees of the moving
average always get their signals a little late, often too late to take effective action.
Sometimes though if the trader is willing to venture a little beyond his customary technique, performance
can be improved through "anticipation calculations;" that is, computing in advance of market activity the
price that would be necessary to cause a moving average to cross the price line. The calculation for this
method is as follows:
Crossover Price =
I call the resulting percentage the "Market Direction Indicator." Its formula is:
M.D.I. =
The example shown in my chart of Treasury Bond prices uses 70-day and 20-day moving averages. The
use of other time periods for the moving averages can vastly affect the shape of the resulting M.D.I. chart.
For the trader who is willing to go beyond moving averages, the M.D.I. could mean better performance,
which means higher profits.
W
1270 LET U = (X(1,I + 1) +X(2,I +
1) + X(3,I + 1) + X(4,I + 1)
- X(1,I - K) - X(2,I - K) - X
(3,I - K) - X(4,I - K)) / 8 +
U
1280 NEXT I :
LET B = T + 2:
RETURN
1998 VTAB 2:
HTAB 1:
PRINT P$;:
INPUT " ";N:
RETURN
END OF LISTING
PROGRAM LEGHTH: 21 LINES / 846 BYTES
Futures, foreign currency and options trading contains substantial risk and is not for every investor. Only
risk capital should be used for trading and only those with sufficient risk capital should consider trading.
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