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Investor/RT Tour ( more on Technical Indicators )
Empirical Decomposition Mode Indicator

The Formula . . . 

. . .more on Formulas 

beta = COS(360/Period)
gamma = 1 / COS(720*delta / Period)
alpha = gamma - SQRT(gamma * gamma - 1)
bandpass = BP = 0.5 * (1 - alpha) * (Price - Price.2) + beta * (1 + alpha) * BP.1 - alpha * BP.2
trendComponent = AVG(BP, 2 * Period)
avgPeak = average of last 50 peaks of BP (BP.1 > BP AND BP.1 > BP.2)
avgValley = average of last 50 valleys of BP (BP.1< BP AND BP.1 < BP.2)
 
 
The Presentation . . . 

. . . more on Charts 

The chart above is a Daily chart of MSFT showing the EMD Indicator in the lower pane using the settings below.

 
The Preferences . . . 

. . . more on Preferences 

  • Price - Price used in the calculation of Alpha or Beta.
  • Period - Period used in the calculation the Bandpass Filter (Cycle Mode) - defaults to 20.
  • Delta - Should be set to half the bandwidth with common values of 0.1 to 0.5.
  • Fraction - The fraction of the average peaks and valleys used to display the upper and lower limits for the trend component - defaults to 0.25.
  • Bandpass Filter - Cycle component.
  • Trend Component - Trend component.
  • Average Peaks - Average of the peaks of the Bandpass Filter (Cycle Component)
  • Average Valleys - Average of the valleys of the Bandpass Filter (Cycle Component)
 
The Description . . .

The Empirical Mode Decomposition Indicator (EMD) helps identify whether a market is in a cycle or trend mode.  This indicator is discussed in the article titled "Empirical Mode Decomposition" in the March 2010 Issue of Stocks and Commodities magazine, by John F. Ehlers and Ric Way.  According to the article, when the Trend Component rises above the Average Peaks, the market is in an uptrend, when it is below the Average Valleys, the market is in a downtrend, and when it's between the two, the market is in cycle mode.

The EMD indicator has 4 optional components: the Bandpass Filter (or cycle component), the Trend Component, the Average Peaks, and the Average Valleys.  The inputs include price, period, delta, and fraction.  The price defaults to High + Low / 2.  The period should reflect the cycle period (or frequency) of the market being studied and defaults to 20 bars.  The delta should be set to half the bandwidth with common values of 0.1 to 0.5.  The fraction is the fraction of the average peaks and valleys used to display the upper and lower limits for the trend component.  This value is subjective and can be adjusted to fit your trading style.  For swing trades that prefer to trade in cycle mode, a larger fraction might be used such as 0.25.

For more information on this indicator, please refer to the March 2010 Issue of Stocks and Commodities magazine, by John F. Ehlers and Ric Way.  You may also import a chart definition involving the EMD from our shared charts section by clicking here.

 
RTL Token . . . ALPHA / BETA ( more )

The RTL token for the Alpha Indicator is EMD.  To get an any given component of the EMD, check only that component within the EMD preferences.

Keyboard Adjustment . . .
N/A

For more information on technical indicator adjustment, click here.

User Strategies . . . 
 
If you have a User Strategy involving this or any other indicator that you'd like to share, please email to support@linnsoft.com