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This page looks at the predictive abilities of different methods of averaging applied to KM stock prices. Techniques available include moving weighted or exponential averages of various periods and the family of MACD (Moving Average Convergence Divergence) indicators. Unfortunately, some of the most popular indicators of this type can prove to be the worst forcasting indicators. The effectiveness of these methods as applied to KM stock price trend evaluation is tested on the next page.
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The unsophisticated moving averages plotted here are unweighted, but they still may return better results than many of the more popular, highly tuned averages seen in some of the following sections. It is always possible to fine tune an exponential or other weighted average so that it seems to outperform a simple average in a given situation. However, overtuning can increase false and misleading indicators. Norman G. Fosback has noted that legitimate signals of this sort will normally be evident through a variety of averaging methods. |
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MACD analysis can use any of an infinite number of averaging methods and coefficients. Also, many analysts add a trigger line which is based on some average of the first two averages. Here we depict the results of 12 and 26 session Exponential Moving Averages. The exponential coefficient used here is .18. There is nothing magic about these parameters, but these are frequently seen. Float the cursor for a longer term chart. |
The 200 session average is red, the 20 bar, green. The un-sophisticated moving averages plotted here are un-weighted, but they still may return better results than many of the more popular, highly tuned averages seen in some of the following sections. It is always possible to fine tune an exponential or other weighted average so that it seems to outperform a simple average in a given situation. However, over-tuning can increase false and misleading indicators. Norman G. Fosback has noted that legitimate signals of this sort will normally be evident through a variety of averaging methods. |
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Moving Average Convergence Divergence, or MACD, produces buy or sell signal that are color tinted here.
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