Trading Techniques | APR 2001
Nonlinear Ehlers Filters by John F. Ehlers
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 stationary. By John Ehlers The most common filters that traders use are moving averages — either simple moving averages (SMA) or exponential moving 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.
by John F. Ehlers
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