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The moving averages demystified

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  • Vandewalle, N
  • Ausloos, M
  • Boveroux, Ph

Abstract

A common method in technical analysis is the construction of moving averages along time series of stock prices. We show that they present a practical interest for physicists, and raise new questions on fundamental ground. Indeed, self-affine signals characterized by a defined roughness exponent H can be investigated through moving averages. The density ρ of crossing points between two moving averages is shown to be a measure of long-range power-law correlations in a signal. Finally, we present a specific transform with which various structures in a signal, e.g. trends, cycles, noise, etc. can be investigated in a systematic way.

Suggested Citation

  • Vandewalle, N & Ausloos, M & Boveroux, Ph, 1999. "The moving averages demystified," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 269(1), pages 170-176.
    • Handle: RePEc:eee:phsmap:v:269:y:1999:i:1:p:170-176
    DOI: 10.1016/S0378-4371(99)00090-4
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    Cited by:

    1. Li, Jin & Chen, Chen & Yao, Qin & Zhang, Peng & Wang, Jun & Hu, Jing & Feng, Feilong, 2018. "The effect of circadian rhythm on the correlation and multifractality of heart rate signals during exercise," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 509(C), pages 1207-1213.
    2. Matheus José Silva de Souza & Danilo Guimarães Franco Ramos & Marina Garcia Pena & Vinicius Amorim Sobreiro & Herbert Kimura, 2018. "Examination of the profitability of technical analysis based on moving average strategies in BRICS," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 4(1), pages 1-18, December.
    3. Itami, A.S. & Antonio, F.J. & Mendes, R.S., 2015. "Very prolonged practice in block of trials: Scaling of fitness, universality and persistence," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 424(C), pages 82-89.
    4. Papailias, Fotis & Thomakos, Dimitrios D., 2015. "An improved moving average technical trading rule," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 428(C), pages 458-469.
    5. Farias Nazário, Rodolfo Toríbio & e Silva, Jéssica Lima & Sobreiro, Vinicius Amorim & Kimura, Herbert, 2017. "A literature review of technical analysis on stock markets," The Quarterly Review of Economics and Finance, Elsevier, vol. 66(C), pages 115-126.
    6. Ausloos, Marcel & Cerqueti, Roy & Lupi, Claudio, 2017. "Long-range properties and data validity for hydrogeological time series: The case of the Paglia river," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 470(C), pages 39-50.

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    Keywords

    Econophysics; Moving averages;

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