Theory:
John Ehlers introduced what he calls the nonlinear Kalman filter, which can be understood through a few straightforward steps:
- Start by calculating the EMA (Exponential Moving Average) of the price, but a 3 Pole filter works even better.
- Next, find the difference (delta) between the Price and its EMA.
- Now, compute an EMA of this delta (or use a 3 Pole filter):
- Smoothing will help cut down on those pesky whipsaws.
- The goal here is to ensure that the smoothing doesn’t introduce significant lag since delta is already detrended.
- Add the smoothed delta back to the EMA for a zero lag curve.
- For an even smoother predictive line, add 2 times the smoothed delta to the EMA.
To enhance signal generation beyond just simple slope direction changes, this version offers three types of color changes:
- Color change on slope
- Color change when crossing outer (floating) levels
- Color change on middle (floating) level, which acts like a
Comments 0