V.6:7 (250-252): Moving averages Part 2 Ehlers Leading Indicator (ELI) by John Ehlers

V.6:7 (250-252): Moving averages Part 2 Ehlers Leading Indicator (ELI) by John Ehlers
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Moving averages Part 2 Ehlers Leading Indicator (ELI) by John Ehlers

Most technical indicators use a moving average of some kind, and this usually dooms the indicator to lag price. Some indicators use momentum, or rate of change, to generate a leading function. However, this is similar to taking the derivative of a continuous function, and it results in a very noisy signal. The noise is usually reduced by smoothing or averaging. This averaging delays the indicator so that, at best, it runs even with price, without lag or lead.

I have developed a new indicator that provides leading signals when cycles are present in the data. This indicator uses only exponential moving averages (EMA), which I described and compared to simple moving averages in Part 1 (see S&C, June 1988). The indicator's parameters may be optimized so you can use it in a turnkey fashion. If you want to examine these parameters in greater detail, a source listing in PC BASIC is provided in Figure 5.

I modestly refer to this new indicator as ELI, the Ehlers Leading Indicator.

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