The Nadaraya-Watson estimator, introduced by Nadaraya and Watson back in 1964, is a nifty tool for traders looking to estimate values through a locally weighted average. It employs a kernel as a weighting function to smooth out price data.
This indicator gives you a non-causal (re-calculating) smoothed value, which can serve as an estimate for potential trends in future values. However, it’s important to note that this indicator does not include extrapolation. This design choice is intentional to prevent any confusion that may arise from misusing it as a signal generator. The Nadaraya-Watson estimator is based on the innovative work of luxAlgo tailored for various trading platforms.
Recommendations:
- Use it for discretionary estimates only.
- Never rely on it for generating trade signals.
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