Bandpass Cycle Indicator [Ehlers]

2019年1月31日

This indicator is NOT used for entry and exit conditions when trading. Instead, it's purpose is to tell you what the state of the market is: trending or cyclical.

>WHO IS THIS FOR?
This is especially useful for strategies that use scalping or martingale betting to turn a profit. You don't want to be caught in a bullish trend with several open short orders. Algo traders welcome.

>HOW DOES IT WORK?
I'm glad you asked. It's based on Ehlers' work regarding signal filtering. Essentially, it uses a bandpass filter to reduce noise that is inherent in the market and display the underlying frequency.

First, we get rid of the high-frequency noise - think jitters, long wicks, etc... price action that usually effects EMAs and other MAs. We don't want any of that.

Next, we get rid of low-frequency noise - this is a little more difficult to picture, but we're essentially ignoring cycles (Elliot waves) from other longer time frames. We don't care if the Daily bars are just about to reverse if it doesn't affect our scalping strategy.

Finally, we find the root mean square (RMS) of the high and low points of our newly created signal (red) and plot them (black). These will act as triggers to tell us if a market is in cycle or trending.

>HOW DO YOU READ IT?
Background colors:
-Blue is cycle - you're safe.
-Red is trending down
-Green is trending up

Crossovers:
-Red above Upper Black: Uptrend
-Red below Lower Black: Downtrend
-Red in the middle: Cycle

>IS IT PREDICTIVE?
Momentum tends to pick up quickly and decline quickly, so if you'll often see a small Red or Green strip before a large price movement.
After long periods of cyclic movement (or consolidation), there isn't much momentum in the system, so any small price action will be considered a trend -> these small movements are picked up by other human traders and bots. Trading volume increases more and more until you have a swing in one direction.

So yes, it can be predictive due to the nature of signals and oscillation. Maybe not necessarily predictive of which direction price will go, but when volatility is about to increase.

2019年1月31日

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Updated default settings.

2019年2月20日

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Much faster execution and simpler inputs.
Also you have the option of showing crosses as trigger points.