While searching for robustness, you might come across the term of robust statistical estimator: Robustness in trading is a tough beast to tame and understand.

The moving average indicator is so ubiquitous in trading that most folks me included use it without second thoughts. Its legacy probably dates from the era of expensive and complicated computing it is relatively inexpensive to computeso I wanted to revisit its hegemony — and give it a run for its money: Could it be that a moving median is actually a better indicator than the moving average?

To find out I used a basic and simple mechanical trading strategy: This trading systems is always in the market, buys when the fast moving average crosses over the slow moving average and sells short when the fast average crosses under the slow average. The second system would be a Moving Median Crossover. The money management for both systems is to trade each instrument in a separate independent sub-account, fully funded i.

All commissions or slippage are ignored. The main interest of the experiment is the robustness of each indicator.

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To quantify this, each system is run over 9 combinations of parameters for the Golden Cross fast indicator values: A measure of the robustness of the indicator is the uniformity of the results over the 9 combinations.

At first glance, it appears that the Moving Median indicator significantly under-performs the standard Moving Average indicator for these crossover systems. The calculation confirms the under-performance of the Moving Median Crossover system. What about robustness you ask? The Moving Average System produces more uniform robust? Below is also a histogram of all individual returns per market per parameter combination, i. There is clearly more blue presence on the left side of the chart and more red one on the right side….

Using some inductive logic warning: Below is an example of what I found:. The chart above only shows Moving Averages and Moving Medians the prices have been removed to make the picture clearer. Average and Median seem to closely follow each other both on slow and fast sides. Indeed the bulk of the trades take place at roughly the same time i.

We can see that the Median Crossover system generates more signals than the Moving Average one 9 v 5. Trend following systems notoriously make big bucks in large moves but lose money in trend-less, range-bound markets — like the one being zoomed into.

If the Moving Median Crossover system is more active in these sort of markets it will generate more losing trades while capturing similar big winners to the Moving Average Crossover system.

Intuitively, it could be hypothesized that the Moving Average evolves in a smoother manner and will generate smoother curves with less erratic moves and consequently less losing trades during trend-less markets — while the Moving Median does not generate a significant edge in detecting large trends.

One test is hardly enough to provide siginificant evidence, however this should give us some insights in the nature of the Moving Median indicator.

The first insights being no increase in robustness and a drop in performance when comparing total returns. The opposite is Mediocristan: No single observation can meaningfully affect the aggregate e. The trading range bound markets in forex pdf curve is grounded in Mediocristan. There is a qualitative difference between Gaussians and scalable laws, much like gas and water. I have never heard of the Moving Median before! Why use the same values for the averages and the means?

I think the Moving Average is the oldest technical indicator, and it is easy to use and understand. But whether it is the best indicator for our systems remains to barclays stock brokers in uk seen…I suspect it is more of a relic….

Your results are going to be skewed by high performing systems that make tons of money because they reinvest their profits. Even if you do this with actual trading, I scottrade stock options during the development it is better to use a fixed dollar position size. This allows us to understand what is happening without the distorting effect of exponential growth.

For example, the standard deviation of a set of systems that reinvest profits will always be much greater what are partners in binary option brokers systems that use a fixed position size. I think that it is easier to trading range bound markets in forex pdf what is happening without this exaggerated effect. I agree that the reason that the Moving Median club penguin coin money maker did not perform as well is because of the signals generated that did not precede a movement in price.

Basically, the question I wanted to answer was: As a related test I demonstrated the superiority of the MMDI vs the MACD by using a median for the MMDI. However the concept there was to use the median for the short term and the moving average for the long term. You may wish to try this on the futures markets. Keep up the great work. Great idea regarding the MMDI. Especially since a concept i am considering is using a higher-timeframe MACD filter to enter trend following trades — ie go with the major trend only.

If MMDI can be better at filtering noise out, that sounds like a perfect prosperity independent financial advisors and stockbrokers Do you have a link to a blog post of yours covering that by any chance?

The most intriguing element for me is looking at things a little differently. Folks in signal processing like to use median filters. Consider for instance processing an image from a digital camera. We can take the data and use an MA filter, but this will just smooth out the image, making it blurry. Since the camera is digital the errors are pretty all or nothing. Dead pixels, as an example, can give black or white spots in the image. This empirically looks good. Robustness must always be in reference to some disturbance or uncertainty.

One should not generalize to think of this as good for return or variance. Since you are using daily settle prices, these are already typically the average of the last few trades of the day. Michael, Thanks for dropping by and weighing in. This is an old article indeed. I just re-read it and I agree with your point that robustness does not mean low variance.

I actually think David Druz said that robust systems tend to be volatile.

Properly testing for robustness would be evaluating the system under slight variations as you mention: Thanks for the suggestion though. I might decided to check it out in a back-test. Andrew — short answer: Assume the market is going sideways and an upward trend is starting. Compare it to the mean.

There each value has an influence. You can use these tags: Notify me of followup comments via e-mail. Sy blog, Systematic Trading research and development, with a flavour of Trend Following. Past performance is not necessarily indicative of future results. Futures trading is complex and presents the risk of substantial losses; as such, it may not be suitable for all investors. The content on this site is provided as general information only and should not be taken as investment advice.

All site content, shall not be construed as a recommendation to buy or sell any security or financial instrument, or to participate in any particular trading or investment strategy.

The ideas expressed on this site are solely the opinions of the author. The author may or may not have a position in any financial instrument or strategy referenced above.

Any action that you take as a result of information or analysis on this site is ultimately your sole responsibility. Sy blog — Automated trading System — Sitemap — Powered by Wordpress. Sy blog — Au tomated Tra ding Sy stem.

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Wisdom Tradinga Futures Broker who can Execute your Trading System and provide access to Global Markets and CTA's — all at great rates. Sy recommends CSI Data. Crossovers for Cocoa Zoomed-in portion of Cocoa chart. But whether it is the best indicator for our systems remains to be seen…I suspect it is more of a relic… 3.

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