The Adaptive Bandpass Filter was created by John Ehlers
(Cycle Analytics For Traders pgs
153-156) and this uses his autocorrelation code to provide the adaptive lengths to use for the underlying bandpass filter. The bandpass filter is a common way in digital signal processing to filter out the underlying noise in the data. It can actually be turned into a leading indicator by changing the bw
variable to a smaller amount. Since this indicator is adaptive using the cycle period, the buy and sell signals are different compared to the normal bandpass filter. Buy signals for this indicator according to Ehlers
are when the line is red and the line is under the oversold line (also red) then you buy when the indicator line turns green and then you exit when the indicator line turns red and is above the overbought line. This indicator doesn't provide clear buy and sell signals in all circumstances but generally speaking buy when the indicator line turns green and sell when it turns red. Feel free to experiment with this one.
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