Stocks & Commodities V. 24:1 (28-31, 50-53): Swiss Army Knife Indicator by John F. Ehlers
Youíve probably never heard of this indicator, but it has all the common functions such as smoothing and
momentum generation. Find out why itís going to be your new best friend.
This indicator does some unusual things, such as
band-stop and band reject filtering. Once you program
this indicator into your trading platform, you can perform virtually any technical analysis technique with it. This unique general indicator results from general digital
signal processing (DSP) concepts for discrete signal networks that appear in various forms in technical analysis.
The description of this indicator involves Z-transforms. Z-transforms are a convenient way of solving difficult
difference equations in much the same way that LaPlace transforms are used to solve differential equations in calculus. Difference equations arise from
the use of sampled data, the way we have in technical analysis: Daily bars sample price data once a day. Intraday bars sample price data every minute, hour, or whatever. The concept is the same regardless of the sampling rate. In Z-transforms, Z-1 stands for one
sample period of delay. For simplicity, I will always refer to daily bars as the sample rate.