I inspired myself from the to present a different oscillator aiming to show more reactive/predictive information. The originally show the relationship between two moving averages by subtracting one of fast period and another one of slow period. In my indicator i will use a similar concept, i will subtract a quadratic with a linear of same period, since the quadratic is faster than the linear one and both methods have low-lag this will result in a reactive oscillator.
LQCD In Details
A quadratic try to fit a quadratic function (parabola) to the price by using the method of least squares, the linear try to fit a line. Non-linear fit tend to minimize the sum of squares in non-linear data, this is why a quadratic method is more reactive. The difference of both filters give us an oscillator, then we apply a to this oscillator to provide the signal line, subtracting the oscillator and its signal line give us the histogram, those two last steps are the same used in the .
Length control the period of the quadratic/linear moving average. While the use a signal line for plotting the histogram i also added the option to plot the momentum of the quadratic moving average instead, the result is smoother and reduce irregularities, in order to do so just check the differential option in the parameter box.
The period of the signal line and the momentum are both controlled by the signal parameter.
A predictive approach can be made by subtracting the histogram with the signal line, this process make the histogram way more predictive, in order to do so just check the predictive histogram option in the parameter box.
Predictive histogram with simple histogram option. The differential mode can also be used with the predictive parameter, this result in a smoother but less reactive prediction.
The amount of information the can give us is high. We can use the histogram as signal generator, or the if the oscillator is over/under 0, combine the oscillator/signal line with histogram, combinations can provide various systems. Some traders use the histogram as signal generator and use the cross between the histogram and the signal line as a stop signal, this method can avoid some whipsaw trades. The study of divergences with the price is also another method.
This oscillator aim to show the same amount of information as the with a similar calculation method but using different kind of filters as well as eliminating the need to use two separates periods for the moving averages calculation, its still possible to use different periods for the quadratic/linear moving average but the results can be less accurate. This indicator can be used like the .
« Je prendrai l’essor et je m’envolerai vers la mer.
« Je connaîtrai le goût des brises du large. J’entendrai les grands cris de la tempête.
In theory it would be possible to simplify any regression calculation using the rescaling i method i showed in my previous articles, the only thing to do is to compute the function of the polynomial and rescale it to the price. I tried this by rescaling a parabola to the price but it wasn't working well. I will consider searching a way to compute higher order polynomials.