Adaptors Introduction

What exactly is an adaptive indicator and an adaptor?

The most common question asked is: What is the difference between an adaptive indicator and a non adaptive indicator and why are adaptive indicators better? The answer is simple and we will use a simple moving average to illustrate it. The standard 2- day simple moving average will average the price over the past 20 days and do this for each bar of data you have. The problem with this is that when the market is trending you may want to use a 30 day moving average to keep you on the trend as long as possible and when market conditions become volatile and trends are short and fast you may want to use a 15 day moving average to get you into and out of trades fast. This is exectly what an adaptive indicator can do. The adaptor will most likely be some measure of volatility or market trend and return a value between 0 and 1. 0 representing a very volatile and fast market and 1 being a strong trending market. This value is then used to select how many periods should be used in the moving average calculation for each day if the adaptors value is 0 then the moving average will use 15 days in it's calculation and if it is 0.5 it will used about 23 days in the calculation and so forth. The resulting moving average will not be stuck with using a fixed look back for its calculation but instead will change according to market conditions. The Periods Minimum in this case will be 15 and the Periods Maximum will be 30.

The other types of adaptors in the toolbox do not return a value between 0 and 1 but instead return something in the range of 15 to 60. These adaptors are fed straight into the indicator without further processing. Other adaptors return a positive or negative value which is then added onto the indicator's normal period to produce an array of adjusted periods.

The default indicators included in Amibroker cannot accept a variable look back that is why only the indicators included in the toolbox can be adaptive.

Parameters:

The adaptive indicators included in the plugin have a choice of the following different adaptors:

Trend Filter VHF

Statistical

Homodyne Discriminator

Hilbert Transform

Dominant Cycle

SNR

Enhanced SNR

R Squared

When you go to parameters for an adaptive indicator, the following options are specific to the adaptor:

Adaptor

Adaptor Periods

Number of Periods

Periods Maximum

Periods Minimum

Adaptor - Shows the different adaptors to choose from.

Adaptor Periods - If R Squared, Statistical or Trend Filter VHF is chosen, then this parameter will decide the number of look-back periods used by the adaptor to calculate market trend, volatility etc.

Number of Periods - If the Adaptor is set to None , then this is the number of periods used for the indicator. If it is set too SNR or Enhanced SNR, then Number of Periods will be increased or decreased by the adaptor.

Periods Maximum and Periods Minimum - These two Parameters are used as the minimum and maximum number of periods that will be inputted into the chosen indicator. These parameters only apply when R Squared, Statistical or Trend Filter VHF is chosen. These adaptors will vary the periods between the minimum and maximum value.

For example, if you applied the Adaptive Smoothed RSI and the adaptor was set to None, then the number of periods for the indicator can be adjusted using the Number of Periods parameter. If you then changed the adaptor to R Squared, then the number of look-back periods for the adaptor will be equal to Number of Periods and the periods to the indicator will be varied between Periods Maximum and Periods Minimum.

Adaptor Information:

Trend Filter VHF - Vertical Horizontal Filter (VHF) was created by Adam White to identify trending and ranging markets. VHF measures the level of trend activity, similar to ADX in the Directional Movement System. Returns a value between 0 and 1.

Statistical - This method measures the statistical correlation of the current price to a linear regression and compares it to previous values to determine if the market is becoming more volatile or less volatile. Returns a value between 0 and 1.

Homodyne Discriminator, Hilbert Transform and Dominant Cycle - All measure cycles in the market using different methods and adapt the indicator to different market cycles. Returns the indicator period directly.

SNR and Enhanced SNR - Measure noise in the market. When the market has a lot of noise present, the value is positive and when the market has less noise, the value is negative. Returns an array of positive and negative values.

R Squared - Measures the strength of the current trend using the statistical measure R Squared. Returns a value between 0 and 1

Fractal - Calculates the optimal period based on pivot high and pivot low. This adaptor is designed for RSI type oscillators.