Abstract
In this paper, a new indicator - WARS (Weighted Accumulated Reconstruction Series) at classifying the state of financial market, either trending state or mean-reverting state, was presented. Originated from the computation of Entropy, this new indicator was found to be able to reflect the market behavior accurately and easily. The algorithm of generating WARSand its meaning related to Entropy were introduced and some comparison results between WARSand the Daily Profit Curvewere listed. As a new indicator, WARS also can be used to build a trading system - to provide buy, sell and hold signals. Through the application on S&P 500 index, it was verified to be effective and was a promising indicator.
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Shen, L., Tay, 2.E.H. (2000). Classifying Market States with WARS. In: Leung, K.S., Chan, LW., Meng, H. (eds) Intelligent Data Engineering and Automated Learning — IDEAL 2000. Data Mining, Financial Engineering, and Intelligent Agents. IDEAL 2000. Lecture Notes in Computer Science, vol 1983. Springer, Berlin, Heidelberg. https://doi.org/10.1007/3-540-44491-2_40
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DOI: https://doi.org/10.1007/3-540-44491-2_40
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