What If Linear Filters Won’t Work For Your Tradable?
Nonlinear Ehlers Filters
Linear filters like moving averages
are great for slow, “stationary” data.
Unfortunately, prices aren’t slow or
By John Ehlers
The most common filters
that traders use are
moving averages —
either simple moving
averages (SMA) or
averages (EMA). These
are linear filters. Linear filters are
best for smoothing stationary, slowly
varying signals that are corrupted
with high-frequency noise. In this
instance, “stationary” means that the
rules that dictate the underlying
process do not change and remain
stable; the underlying process that
generates prices doesn’t change.
Unfortunately, price data is not
stationary most of the time.