Stocks & Commodities V. 34:01 (18–21): Aliasing by John F. Ehlers

Stocks & Commodities V. 34:01 (18–21): Aliasing by John F. Ehlers
Item# V34C01_128EHLE
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Aliasing by John F. Ehlers

Since you are likely using sampled data when trading, there is a chance that there could be some distortions in the data. Here’s what you can do to avoid those distortions.

I imagine that most traders consider the price data they use for analysis to be a continuous function. Nothing could be further from the truth. And, depending on your trading style, the impact of this assumption can range from trivial to dramatic. The fact is that the data is sampled data. The sample rate is once per day on daily bars, once per hour on hourly bars, and so on. It doesn’t matter if you average the high, low, and close; you still only have one sample per day on daily bars.

One impact of sampled data is that it can lead to aliasing. In my youth, the old cowboy movies had a sample rate of only 16 frames per second, letting the eye integrate those individual still photographs to produce motion, albeit with a little flicker. Aliasing at this slow sample rate made the wagon wheels look like they were turning backwards, and the effect was really weird. Aliasing can also produce some weird effects on your market data...

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