LETTERS TO S&C
Fast Fourier Transforms
I am a current user of the technical analysis software CompuTrac and have been recently introduced (two
months) to your theory on FFT (Fast Fourier Transform). However, I am puzzled by the fact that Fourier
transforms can be used in technical analysis. As an engineer, I have used Fourier transforms but from an
engineering perspective. I would appreciate it if you could send me more information on FFT as I would
like to seriously study this new form of analysis.
As In engineering, Fourier Analysis is used to locate possible poles and zeros within historical data. The
common procedure is to pick a low spot, a zero, then exit to large highs, the poles of large magnitude
cycles, and use the low as a cut-off frequency. The cut-off frequency is then used to tune or optimize a
filter such as a moving average.
Assuming the future will act a little like the past, we can quickly produce optimum trade timing tools
such as moving averages or crossovers. The "Fast Fourier Transform with Data Preprocessing"
published in our Volume One properly preprocesses your historical data and gives a clear picture of any
cycles. This routine is included in the CompuTrac system.