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Empirical Mode Decomposition

The article by John F. Ehlers and Ric Way in this issue, ďEmpirical Mode DecompositionĒ, 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 Tradecisionís 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;



Download to import into Tradecision.

How to use this indicator in Tradecision:
  1. Click Download.
  2. Save this indicator in a safe location on your hard drive.
  3. Open Tradecision and in the Tools menu click Indicator Builder.
  4. In the Indicator Builder dialog, click Import, locate the saved file and then click OK.
The indicator will be added to the Custom Indicators list.
 
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