In his article “Modeling the Market = Building Trading Strategies”, John F. Ehlers illustrates the value of modeling the market while developing comprehensive trading strategies. By using the Tradecision Indicator Builder, one can create the Cyclic Component, Instantaneous Trendline, and Market Model indicators and use them to build trading strategies that combine the techniques with other indicator-based and money-management rules.
Note: You can use the Tradecision Optimization wizard to find the best parameters for your trading system.
The following is the code for the above indicators.
Cyclic Component
Input
Price: "Price", (H + l) / 2;
Length: "Length", 20;
end_input
var
Alpha := (1 – Sin (360 / Length)) / Cos (360 / Length);
HP := 0;
SmoothHP := 0;
end_var
if (HistorySize > 1) then
HP := 0.5 * (1 + alpha) * (Price - Price\1\) + Alpha * HP\1\;
else
HP := 0;
if (HistorySize + 1) < 4 then
SmoothHP := Price - Price\1\;
else
SmoothHP := (HP + 2 * HP\1\ + 2 * HP\2\ + HP\3\) / 6;
if HistorySize = 0 then
SmoothHP := 0;
return SmoothHP;
Instantaneous Trendline
Input
Price: "Price", (H + l) / 2;
Length: "Length", 20;
end_input
var
SMA := SMA(Price, Length);
Slope := Price - Price\Length - 1\;
SmoothSlope := (Slope + 2 * Slope\1\ + 2 * Slope\2\ + Slope\3\) / 6;
ITrend := SMA + 0.5 * SmoothSlope;
end_var
return ITrend;
Market Model
Input
Price: "Price",(H +l) /2 ;
Length: "Length", 20;
end_input
var
Sma := SMA(Price, Length);
Slope := Price - Price\Length - 1\;
SmoothSlope := (Slope + 2 * Slope\1\ + 2 * Slope\2\ + Slope\3\) / 6;
ITrend := SMA + 0.5 * SmoothSlope;
Alpha := (1 - Sin(360 / Length)) / Cos(360 / Length);
HP := 0;
SmoothHP := 0;
end_var
if (HistorySize > 1) then
HP := 0.5 * (1 + alpha) * (Price - Price\1\) + Alpha * HP\1\;
else
HP := 0;
if (HistorySize + 1) < 4 then
SmoothHP := Price - Price\1\;
else
SmoothHP := (HP + 2 * HP\1\ + 2 * HP\2\ + HP\3\) / 6;
if HistorySize = 0 then
SmoothHP := 0;
return ITrend + SmoothHP;
