4. Systems Analysis

To time the markets using technical analysis of economic data, you must first understand how to develop a system, how to test it for reliability, and how to utilize it in the future. Systems are a set of rules with specific variables. One moving average system, for example, is a system in which the price crosses a moving average to give a buy or sell signal. It has one variable: the length of the average. In a moving average system, you could have an additional requirement. For example, you could require that the price cross the moving average by a certain percentage to get a signal. This is called a “filtered” moving average system. Your system now has two variables: the percentage filter and the moving average length.

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