Level: 2 Background John F. Ehlers introduced Autocorrelation Indicator in his "Cycle Analytics for Traders" chapter 8 on 2013. Function If we correlate a waveform composed of perfectly random numbers by itself, the correlation will be perfect. However, if we lag one of the data streams by just one bar, the correlation will be dramatically reduced. In a long...
Level: 2 Background John F. Ehlers create Synthetic Prices Using Random Numbers with Memory in his "Cycle Analytics for Traders" chapter 8 on 2013. Function Peter Swerling is best known for the class of statistically “fluctuating target” scattering models he developed in the early 1950s to characterize the performance of pulsed radar systems, referred to as...
Level: 2 Background John F. Ehlers introuced Modified RSI Indicator in his "Cycle Analytics for Traders" chapter 7 on 2013. Function The RSI is the percentage of the sum of the delta closes up to the sum of all the delta closes over the observation period. The only variable here is the observation period. To have maximum effectiveness the observation period...
Level: 2 Background John F. Ehlers introuced Modified Stochastic Indicator in his "Cycle Analytics for Traders" chapter 7 on 2013. Function Conventional indicators are not immune to the effects of spectral dilation. For example, a Stochastic indicator remains near its upper bound when the market is in an uptrend even though a relatively short lookback period...
Level: 2 Background John F. Ehlers introuced Roofing Filter Indicator in his "Cycle Analytics for Traders" chapter 7 on 2013. Function The roofing filter does an excellent job of using only the frequency components between its upper and lower critical periods. All that needs to be done to create an indicator from the roofing filter is to add more generality...
Level: 2 Background John F. Ehlers introuced Zero Mean Roofing Filter in his "Cycle Analytics for Traders" chapter 7 on 2013. Function The HP-LP Roofing Filter output still contains all of these frequency components. The only way we can reduce the effect of these lower-frequency components is to introduce another high-pass filter, adding an additional 6 dB...
Level: 2 Background John F. Ehlers introuced HP-LP Roofing Filter in his "Cycle Analytics for Traders" chapter 7 on 2013. Function A “roofing filter” can be used to limit the frequency content of an input before proceeding to construct an indicator. The roofing filter is composed of a highpass filter that passes only frequency components whose periods are...
Level: 2 Background John F. Ehlers introuced Hurst Coefficient Indicator in his "Cycle Analytics for Traders" chapter 6 on 2013. Function The Hurst coefficient is one way to attempt to get a handle on the slope of the power density of market data. The Hurst coefficient varies between 0 and 1, and is related to the α power coefficient as H = 1 − α/2. The Hurst...
Level: 2 Background John F. Ehlers introuced Zero Crossings Period Measurer in his "Cycle Analytics for Traders" chapter 5 on 2004. Function The band-pass filter can be used as a relatively simple measurement of the dominant cycle. A cycle is complete when the waveform crosses zero two times from the last zero crossing. Therefore, each successive zero...
Level: 2 Background John F. Ehlers introuced Bandpass Filter in his "Cycle Analytics for Traders" chapter 5 on 2004. Function After declaring variables, the band-pass filter calculation is preceded by a high-pass filter whose cutoff frequency is one half-bandwidth octave below the lower-frequency critical frequency of the band-pass filter to avoid...
Level: 2 Background John F. Ehlers introuced Decycler Oscillator in his "Cycle Analytics for Traders" chapter 4 on 2004. Function A decycler oscillator is created by subtracting the output of a high-pass filter having a shorter cutoff period from the output of another high-pass filter having a longer cutoff period. This way, both elements have a zero in their...
Level: 2 Background John F. Ehlers introuced Decycler in his "Cycle Analytics for Traders" chapter 4 on 2004. Function The concept of a decycler is really pretty simple. The cyclic components are removed by the process of cancellation. If the high-pass filter output is subtracted from the input data, the residual only contains the low-frequency components....
Level: 2 Background John F. Ehlers introuced Leading Indicator in his "Cybernetic Analysis for Stocks and Futures" chapter 16 on 2004. Function The leading characteristic is present in the net filte.As predicted, the lead is one bar at very low frequencies. That is, the trend indication will lead by one bar. However, the net filter has a lag of approximately...
Level: 2 Background John F. Ehlers introuced Laguerre RSI Indicator in his "Cybernetic Analysis for Stocks and Futures" chapter 14 on 2004. Function “Truth and science always triumph over ignorance and superstition.” said by Dr. Ehlers. We can generate superior smoothing with very short filters, it follows that we should be able to create superior indicators...
Level: 2 Background John F. Ehlers introuced Laguerre Filter in his "Cybernetic Analysis for Stocks and Futures" chapter 14 on 2004. Function The Laguerre transform can be represented as an exponential moving average (EMA) low-pass filter (the first term) followed by a succession of allpass elements instead of unit delays (the k − 1 terms). All terms have...
Level: 2 Background John F. Ehlers introuced Three Pole Super Smoother in his "Cybernetic Analysis for Stocks and Futures" chapter 13 on 2004. Function The Super Smoother filter is formed by retaining the IIR part of a Butterworth digital filter. The order of Super Smoother filters can be increased indefinitely to increase the sharpness of the filter...
Level: 2 Background John F. Ehlers introuced Two Pole Super Smoother in his "Cybernetic Analysis for Stocks and Futures" chapter 13 on 2004. Function The transfer response of the two-pole Super Smoother is almost identical to the transfer response of the Regularized filter. The difference between the two is that the characteristics of the Super Smoother are...
Level: 2 Background John F. Ehlers introuced Three-Pole Butterworth Filter in his "Cybernetic Analysis for Stocks and Futures" chapter 13 on 2004. Function The transfer responses of Butterworth filters have polynomials in both the numerator and denominator. There is a polynomial in the numerator as well as the denominator. The significance of the polynomial...