LETTERS TO S&C
MOVING AVERAGE WINDOW
I have been reading S&C now for about a year and have spent a lot of time understanding some of the trading
systems presented in the magazine. I have also spent time actually setting them up with data in Excel. In your April
1995 issue was a really interesting program submitted by Alex Saitta for range breakout trading in Treasury bonds. I
hope to try it in real-time trading soon.
My question is actually a rather generic one having to do with comparing current trading data to some historical
calculation. Mr. Saitta defines how he determines if the market is trading in a narrow, tight window, Rule 1a. A long
position is to be established (and several other rules also met) if the current day range is 125% of the average daily
price range of the last eight days. My question in calculating the eight-day average is: Does the calculation of the
eight-day average include today or the eight days prior to today?
I have always had the same question in relation to a current day closing being above or below some moving average.
Is the current day excluded or included in calculating the moving average?
This is a fundamental question that I have never seen a discussion on but is key to setting up many formulas. I would
appreciate your comments.
To answer your first question, yes, today's data is included in the calculation of the eight-day moving average. The
answer to your second question depends on how the trading system is designed and what your specific goals are.
Most trading methods include the current day's activity when calculating today's indicator values, such as in a
moving average. A trading system can be designed such that price levels for entry and exit can be estimated, and if
today's closing price is above or below the estimated level, then the system will enter the appropriate position on the
close that day. However, if you plan to perform market analysis after the close each day, then the trading system
should reflect this fact. Test the system so that data analysis is based on today's closing price with today's indicator
values, but assume the position will be established based on the following day's opening price.-Editor