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Seeing a pattern in a chart is the finance equivalence of a Rorschach test---the discerned pattern says more about the person than the image. And really, if you want to trade that way, you may as well use astrology. Your real question seems to be: How can I accept or reject the hypothesis that Bollinger bands are an acceptable trading signal? For ...


You can either reuse the last computed EMA, or fill-forward the previous period's sample data and recompute the EMA. I generally prefer the second option, which should cause a decay. Only go for the first option if your application won't change its logic based on missing data.


Just like everyone else that's been down this path, you'll have to prove this stuff to yourself. Make sure that one of your competing tests is a "noise test" where the decision to go long or short is driven by a meaningless random number generator. If your method can't statistically outperform noise, then your method is not doing anything meaningful.


In fact there is an exhaustive paper on this issue available now: "The Trend is not Your Friend! Why Empirical Timing Success is Determined by the Underlying’s Price Characteristics and Market Efficiency is Irrelevant" by Peter Scholz and Ursula Walther, Frankfurt School Working Paper, CPQF No. 29, 2011 Fascinating read - highly recommended!


You should look into inhomogeneous time series operators. The original reference for this work is Zumbach and Muller (2001). An excellent introduction to the material can be found in An Introduction to High-Frequency Finance, starting on page 59. I also found online a book chapter from Modeling Financial Time Series with S-PLUS that includes code for the ...


Let's approach the answer to your question from a pure trading and risk management perspective because looking at it from a mathematical standpoint nor quant standpoint does not yield you much here: 1) Bollinger bands are nothing else than standard deviation envelopes around the mean of past prices of the underlying. So, as far as simple probabilities go, ...


Two good starting points are here: Allen, Helen, and Mark Taylor. “The Use of Technical Analysis in the Foreign Exchange Market.” The Journal of International Money and Finance, June 1992, pp. 304-314. Lui, Y.H., and D. Mole. “The Use of Fundamental and Technical Analyses by Foreign Exchange Dealers: Hong Kong Evidence.” The Journal of International Money ...


A simple solution to what you may be looking for is: Bollinger Bands: It is an a channel with the center being an MA with a roof of being K Stddevs and a floor of -K stdves. See also: http://en.wikipedia.org/wiki/Bollinger_Bands You can use this to see "how far outside of the channel of "reality" does your model go, i.e. by creating a tight band around ...


Apparently in Forex markets, technical analysis is becoming less and less effective: http://forextradingtipsdaily.com/fed-paper-power-of-technical-analysis-in-forex-is-declining/ I wonder if this is also the case for equity.

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