A wave smoothing algorithm and applications to the financial markets

In this paper we present an algorithm that can be implemented recursively or iteratively, to smooth waves by filtering out "noise" until the base case is reached, a canonical form that we call the wave's imprint. Unlike other wave smoothing algorithms that consider extrema as outliers...

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Bibliographic Details
Published in:Aestimatio (Madrid) 2014-01 (8), p.114
Main Authors: Hellal, Omar Ait, Meyer, Gerald H
Format: Article
Language:English
Subjects:
Algorithms
Market structure
Noise
Securities markets
Securities trading
Studies
Online Access:Get full text
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Summary:In this paper we present an algorithm that can be implemented recursively or iteratively, to smooth waves by filtering out "noise" until the base case is reached, a canonical form that we call the wave's imprint. Unlike other wave smoothing algorithms that consider extrema as outliers or noise, our wave smoothing algorithm considers extrema to be essential data as is the case with seismic activity, epileptic seizures, and daily highs and lows of the DJIA. It is applicable to any wave structure that has a fixed time period during which a high and low are recorded. We limit the scope of this paper to the analysis of financial markets, demonstrating commonality over a broad spectrum of financial markets including indexes, equities, commodities and currencies. As an application of the algorithm, we devise a simple trading system that is profitable over multiple markets.
ISSN:2173-0164
2173-1926