Hysteresis trading, Hysteresis (economics) - Wikipedia

Indicators and Strategies

For example, the market is bearish or bullish. The common analogy to help understand the concept of Hysteresis is to imagine how a thermostat works.

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When the temperature falls below our critical threshold the heaters turn on and begin blowing warm air into the room. Taking this literally as soon as the temperature moves to Once the temperature reaches In a short time the room begins to cool and our heaters must turn on again. What we have is a system that is constantly turning off and on to keep the temperature at 70 degrees.

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This is inefficient as it hysteresis trading a lot of wear on the mechanical components and wastes fuel. As you might have guessed, hysteresis is a way to correct this issue.

I will occasionally hedge using an ETF ultra. FYI I am a retired entrepreneur formerly in the real estate and insurance businesses. Newthugger There are a lot of us that have been here a long time and we all learn something everyday.

More in just a moment. The purpose of this business plan how to make money is to improve our market mode filter. This is similar to our thermostat example.

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Instead of turning on the furnace to heat a room we are going to open a new position when a critical threshold SMA is crossed.

In order to keep things simple, there is no shorting.

Updated Dec 21, What Is Hysteresis? Hysteresis in the field of economics refers to an event in the economy that persists even after the factors that led to that event have been removed or otherwise run their course.

How do we reduce the number of signals? Hysteresis trading zone will turn on the heaters when the temperature reaches 69 degrees and turn off when the temperature reaches 71 degrees.

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Our ideal temperature is in the middle of a band with the upper band at 71 and the lower band at The lower band is when we turn on the furnace and the upper band is when we turn off the furnace.

The zone in the middle is our hysteresis.

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There are many ways to create hysteresis trading bands. That is, for our upper band we will use the SMA of the daily highs and for the lower band we will use the SMA of the daily lows. This band floats around our ideal point which is the SMA.

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Both the upper and lower bands vary based upon the recent past. In short, our system has memory and adjusts to expanding or contracting volatility.

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The EasyLanguage code for our new system look something like this:.