Level: 2 Background John F. Ehlers introduced Even Better sinwave Indicator in his "Cycle Analytics for Traders" chapter 12 on 2013. Function The original Sinewave Indicator was created by seeking the dominant cycle phase angle that had the best correlation between the price data and a theoretical dominant cycle sine wave. The Even Better Sinewave Indicator...

80

Level: 2 Background John F. Ehlers introduced Adaptive CCI 2013 in his "Cycle Analytics for Traders" chapter 11 on 2013. Function The time length to be used for the channel in the calculations is widely varied in the literature. In all cases, the length is rather arbitrarily established to fit the indicator to some preconceived event. It seems to me that it...

29

Level: 2 Background John F. Ehlers introduced Adaptive RSI 2013 in his "Cycle Analytics for Traders" chapter 11 on 2013. Function The adaptive RSI starts with the computation of the dominant cycle using the autocorrelation periodogram approach. The identification of the RSI indicator itself following the dominant cycle calculation is noted by the comment near...

24

Level: 2 Background John F. Ehlers introduced Autocorrelation Reversals in his "Cycle Analytics for Traders" chapter 8 on 2013. Function One of the distinctive characteristics of autocorrelation is that the autocorrelation shifts from yelow to red or from red to yellow at all values of lag at the cyclic reversals of the price. Therefore, all we need do to...

58

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...

39

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...

86

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...

43

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...

65

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...

18

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...

14

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...

19

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...

39

Level: 2 Background John F. Ehlers introuced Two Pole Butterworth Filter in his "Cybernetic Analysis for Stocks and Futures" chapter 13 on 2004. Function Dr. Ehlers translated analog Butterworth filters to their digital approximations. The transfer response is characterized by a single variable—the cutoff frequency. The cutoff frequency is that frequency...

42

Level: 2 Background John F. Ehlers introuced Smoothed Adaptive Momentum in his "Cybernetic Analysis for Stocks and Futures" chapter 12 on 2004. Function Smoothed Adaptive Momentum is to measure the Dominant Cycle period and then use that measured period to take a onecycle momentum. It really does matter if you measure the Dominant Cycle. The trend component...

41

Level: 2 Background John F. Ehlers introuced Relative Vigor Index in his "Cybernetic Analysis for Stocks and Futures" chapter 6 on 2004. Function Relative Vigor Index (RVI) uses concepts dating back over three decades and also uses modern filter and digital signal processing theory to realize those concepts as a practical and useful indicator. The RVI merges...

41

Level: 2 Background John F. Ehlers introuced Cyber Cycle Trading Strategy in his "Cybernetic Analysis for Stocks and Futures" chapter 4 on 2004. Function With cyber cycle alone, the Trigger lags the Cycle by one bar, so that their crossing introduces at least another bar of lag. Finally, Dr Ehler concluded that we can’t execute the trade until the bar after...

27

Level: 2 Background John F. Ehlers introuced Cyber Cycle Indicator in his "Cybernetic Analysis for Stocks and Futures" chapter 4 on 2004. Function Trading the Cyber Cycle Indicator is straightforward. Buy when the at this point. Sell when the Cycle line crosses under the Trigger line. You are at the bottom of the cycle at this point. Sell when the Cycle line...

31

Level: 2 Background John F. Ehlers introuced Fisher Transform of Normalize Price to a N-Day Channel in his "Cybernetic Analysis for Stocks and Futures" chapter 1 on 2004. Function The Fisher transform changes the PDF of any waveform so that the transformed output has an approximately Gaussian PDF. So what does this mean for trading? If the prices are...

30