Chart Update, page-2006

With reference to my previous post, I finally got around to loading the Ehlers MAMA and FAMA indicators into my Amibroker chart software.  A chart with these “rocket science” moving averages is shown below.  I found an article in the “Technical Analysis of Stocks and Commodities” magazine in which Ehlers introduces these indicators.  The article is “MESA Adaptive Moving Averages” TASC Magazine V.19:9 2001.  Ehlers suggests that the indicators could be used as a simple crossover system.  Looking at the A2M chart below the system would involve going long when the green MAMA crosses above the pink FAMA, and vice versa for a short trade.  As you can see the current state of such a crossover system for A2M would be that of “Hold Long”.

  

On my first look at the indicators on the chart I thought yes the suggested system would result in fewer false signals compared to a simple moving average crossover system, but then I spotted the “Go Long” signal that occurred on 09/05.  This system would have put me into a long trade 5 days prior to the large gap down on 16/05.  So my enthusiasm for investigating the possible use of these indicators waned a little bit.  I guess they could be used as a Trend direction filter in a trading system.  The indicators do have two settings that are adjustable.  So to determine whether they would provide any advantage I’d have to run optimisation tests over an extended date range and the range of securities I intend to trade, and see if there was a pair of settings that provide a stable and positive resulting system equity.  I have other ways of determining trend so I’ll leave all of that work for a later time I think.

So for anyone who took the time to read the article that @Legacy provided a reference to, I hope the chart above helps the reader to determine how applicable the technical analysis in the article is to their own A2M trading/investing strategy.