Empirical Mode Decomposition
The article by John F. Ehlers and Ric Way in this issue, “Empirical Mode Decomposition”, demonstrates a unique approach to market research based on the cycling and trend modes as well as to trading accordingly after the market mode has been identified.
Using Tradecision’s Indicator Builder, one needs to create several indicators:
BANDPASS FILTER indicator:
input
Price:"Enter the Price:", MedianPrice;
Period:"Enter the Period:", 20;
Delta:"Enter the Delta:", 0.1;
end_input
var
gamma:=0;
alpha:=0;
beta:=0;
BP1:=0;
BP2:=0;
BP:=0;
end_var
if HistorySize < period + 2 then return 0;
beta:=Cos(360 / Period);
gamma:=1 / Cos(720 * delta / Period);
alpha:=gamma - SquareRoot(gamma * gamma - 1);
BP1:=0.5 * (1 - alpha) * (Price - Price\2\);
BP2:=BP1 + beta * (1 + alpha) * BP1\1\ ;
BP:=BP2 - alpha * BP1\2\;
return BP;
EXTRACTING THE TREND indicator:
input
Price:"Enter the Price:", MedianPrice;
Period:"Enter the Period:", 20;
Delta:"Enter the Delta:", 0.1;
end_input
var
gamma:=0;
alpha:=0;
beta:=0;
BP1:=0;
BP2:=0;
BP:=0;
Trend:=0;
end_var
if HistorySize < period + 2 then return 0;
beta:=Cos(360 / Period);
gamma:=1 / Cos(720 * delta / Period);
alpha:=gamma - SquareRoot(gamma * gamma - 1);
BP1:=0.5 * (1 - alpha) * (Price - Price\2\);
BP2:=BP1 + beta * (1 + alpha) * BP1\1\ ;
BP:=BP2 - alpha * BP1\2\;
Trend:=SMA(BP, 2 * Period);
return Trend;
EMPIRICAL MODE DECOMPOSITION PEAK indicator:
input
Price:"Enter the Price:", MedianPrice;
Period:"Enter the Period:", 20;
Delta:"Enter the Delta:", 0.5;
Fraction:"Enter the Fraction:", 0.1;
end_input
var
alpha:=0;
beta:=0;
gamma:=0;
BP1:=0;
BP2:=0;
BP:=0;
Peak:=0;
AvgPeak:=0;
end_var
beta:=Cos(360 / Period);
gamma:=1 / Cos(720 * delta / Period);
alpha:=gamma - SquareRoot(gamma * gamma - 1);
BP1:=0.5 * (1 - alpha) * (Price - Price\2\);
BP2:=BP1 + beta * (1 + alpha) * BP1\1\ ;
BP:=BP2 - alpha * BP1\2\;
if BP\1\ > BP and BP\1\ > BP\2\ then Peak:=BP\1\;
AvgPeak:=SMA(Peak, 50);
return Fraction * AvgPeak;
EMPIRICAL MODE DECOMPOSITION VALLEY indicator:
input
Price:"Enter the Price:", MedianPrice;
Period:"Enter the Period:", 20;
Delta:"Enter the Delta:", 0.5;
Fraction:"Enter the Fraction:", 0.1;
end_input
var
alpha:=0;
beta:=0;
gamma:=0;
BP1:=0;
BP2:=0;
BP:=0;
Valley:=0;
AvgValley:=0;
end_var
if HistorySize < period + 2 then return 0;
beta:=Cos(360 / Period);
gamma:=1 / Cos(720 * delta / Period);
alpha:=gamma - SquareRoot(gamma * gamma - 1);
BP1:=0.5 * (1 - alpha) * (Price - Price\2\);
BP2:=BP1 + beta * (1 + alpha) * BP1\1\ ;
BP:=BP2 - alpha * BP1\2\;
if BP\1\ < BP and BP\1\ < BP\2\ then Valley:=BP\1\;
AvgValley:=SMA(Valley, 50);
return Fraction * AvgValley;
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