Trading Systems | MAR 2010
Empirical Mode Decomposition by John F. Ehlers and Ric Way
Empirical Mode Decomposition by John F. Ehlers and Ric Way Is the market trending or is it in a cycle mode? Identify the mode of the market and trade accordingly. Even the most casual chart reader will be able to spot the times when the market is cycling and other times when longer-term trends are in play. Cycling markets are ideal for swing trading. However, attempting to trade the swing in a trending market can be a recipe for disaster. Similarly, applying trend trading techniques during a cycling market can equally wreak havoc in your account. Cycle or trend modes can be identified in hindsight. But it would be useful to have an objective scientific approach to guide you to the current market mode. A number of tools are already available to differentiate between cycle and trend modes; measuring the trend slope over the cycle period to the amplitude of the cyclic swing is one possibility. However, this article describes a unique approach to determining the market mode. CYCLE MODE We begin by thinking of cycle mode in terms of frequency or its inverse, periodicity. The markets are fractal, so daily, weekly, and intraday charts are indistinguishable when time scales are removed. Thus, it is useful to think of the cycle period in terms of its bar count. For example, a 20-bar cycle using daily data corresponds to a cycle period of approximately one month.
by John F. Ehlers and Ric Way
Technical Analysis of STOCKS & COMMODITIES
The Traders’ Magazine since 1982
has had over 1,226,237 subscribers from 174 different countries.
37,000 Page Traders’ Archive for $89.99
To continue reading, sign-up for trial access to Traders.com and the S&C Archive — 37,000 pages of trading ideas!
After verifying your email address, you will have limited access to the S&C Archive, as well as access to a Digital Edition of S&C, and access to Traders.com Advantage and Working Money for 30 days.
Not a subscriber to Technical Analysis of
STOCKS & COMMODITIES magazine?
Click
here to subscribe, or request
a trial subscription.
Log-in now to view articles from the S&C Archive.
Your Subscriber ID is located at the top of your magazine label, highlighted here in red.
Your last name can be found on the second line, highlighted here in blue.
*If you have a company name on the label, that can also be used. It will appear below your name on the label.
If you do not have a Subscriber ID on your label, you can find it on your statement or renewal form.
For help locating your Subscriber ID number, please call us at 1-800-832-4642 or send an email to Survey@Traders.com. If sending an email, please include your name and mailing address.