Visualize an indicator and guess its purpose - I
Now you will visualize these indicators to understand why you might want to use the indicator and what it may represent. Recall that a trend indicator attempts to predict whether a price will continue in its current direction, whereas a reversion indicator attempts to predict whether an increasing price will soon decrease, or the opposite.
In this exercise, you will revisit the 200-day SMA. As a refresher, this indicator attempts to smooth out prices, but comes with a tradeoff - a lag. You will plot the prices of SPY and plot a 200-day SMA on top of the price series. Using this information, you will determine if it is a trend indicator or reversion indicator.
The quantmod and TTR packages and price series SPY have been loaded into your workspace.
This exercise is part of the course
Financial Trading in R
Exercise instructions
- Plot the closing prices of
SPY. - Overlay a 200-day SMA of the closing prices using the
lines()function and color it red. - Is the 200-day SMA a trend or a reversion indicator? Print your answer as either
"trend"or"reversion"in the console.
Hands-on interactive exercise
Have a go at this exercise by completing this sample code.
# Plot the closing prices of SPY
___(___(___))
# Overlay a 200-day SMA
lines(___(___(___), n = ___), col = ___)
# What kind of indicator?
___