As I’ve mentioned in the blog comments recently, I’m going to start releasing some indicators here for free.
Today’s indicator is: The Laguerre ECO!
Idea Behind the Indicator
Most indicators out there run on bars. Let’s take a 3-period moving average. You compute it on the Close, the previous Close, and the Close before that. Well, what if you used 3 other values in your average, instead of the last three prices? Like, what if you used the current value of the 2-EMA, 5-EMA, and 8-EMA and computed the average of those instead?
Well, that’s kind of what Ehlers was wondering in his book, Cybernetic Analysis for Stocks and Futures. His example “time-warps” the data with an all-pass filter based on Laguerre Polynomials, but I think it’s easier for mere mortals to visualize the concept in terms of the EMA’s I described above.
Ehlers uses the 4-RSI as an example application of the Laguerre treatment. Instead of the last 4 Closes, he uses 4 Laguerre values. Using only four values makes the indicator turn quickly, but you can adjust the overall speed of the output via the gamma input to the transform. Pretty neat!
In July, I looked around briefly to see what other Laguerre indicators were out there. Surprisingly, I couldn’t find any. I thought that was strange, because all you have to do is plug in the Laguerre values you need and see what happens. I coded up a few, and found the the Ergodic Candle Oscillator looked pretty good Laguerre-ized.
Some Screenshots
Here’s the Laguerre ECO next to the standard ECO with similar settings. The first thing that impressed me was that, finally, you could use the ECO the way it was intended! If you read Blau’s book, the “safe” long entries are when the ECO is above zero and heading up. In practice, I’ve always found that waiting for the zero cross took too long. The Laguerre version seems to get over the zero line much quicker in some cases (click to enlarge):
With the gamma input, you have nice control over the speed of Laguerre indicators. Here’s the ECO running at speeds 0.3, 0.6, and 0.9. What’s cool is that, in all cases, it’s a 4-bar ECO… it’s just time warped by different amounts:
Here’s the indicator on a 1 tick, 3-box reversal PnF chart, with a 0.3 and 0.7 Laguerre ECO. I use the longer 0.7 ECO as a filter for zero-cross trades on the 0.3 ECO. The 0.7 ECO (red line) has to be above its trigger line (yellow line) to go long. I marked the filtered trades with blue arrows, and marked a potential early trade (with no 0.7 ECO confirmation) in magenta:
Download Links
The first one is available for ninjatrader, eSignal, multicharts, and Tradestation. If anyone converts it to their favorite platform, I’ll be happy to post it here with credit to the author.
- Ninjatrader: 20090924_LaguerreECO.zip (updated 2009/09/24 for COBC=False)
- Multicharts: 20090923_LaguerreECO.pla
- Tradestation: 20090923_LAGUERREECO.ELD
- eSignal: laguerreECO.efs (updated 2009/09/27 to remove EOTPro dependency)
- ThinkOrSwim: eLaguerreECOSTUDY.ts (this one provided by Eternum)
Be sure to check the free-stuff tag for all posts giving away stuff for free.
A great start in giving back to the community! Creativity like this is what got me viewing your videos of yore. An Idea, mashing a few things around that idea and viola, something! :)
Personally I’d consider just dropping the text of why its free or not. Its not an issue that has truly been raised so why create one? :) If someone bandersnipes or snarks, meh, let em, its just bits right?
The issue actually gets raised constantly, though probably not the way you are thinking about it. Every week people ask me if I am trying to sell them something that they could get for free on some forums or whatever. Then if you go look out in forums you’ll see people guessing (even accusing!) that our indicators are simple variants of common stuff we found.
So, I want the text to be a quiet reminder that we actually have pretty high standards for what we consider releasable for money. Some of the things I’m going to release for free are pretty useful and interesting… just not up to snuff for one reason for another. I think it’s a good message to put out there. So, I’m going to keep doing it.
You can skip the section if you want!
Richard, I agree with you addressing the issue. I have seen some of those threads where people guessed and accused…..
Surely, you shouldn’t mind them. But that is easier said than done. I think people have gotten used to the web 2.0 era where everything is free. To a great extent it’s good , but I don’t think that should take away from the traditional side of business where people pay for a service that can’t be found elsewhere.
It’s good to know that EOTpro is keeping up its standard–it would be a shame if its clients were to see otherwise.
“What’s cool is that, in all cases, it’s a 4-bar ECO… it’s just time warped by different amounts” That is pretty neat! You revamped the osc. simply, but its still far better than most of what you get “out-of-the-box” from a regular trading platform.
Maybe I came off too strong in the post… In my view this is a very passive way to express the truth of the situation, while providing EVEN MORE value to people. So everyone wins. It’s not about me minding whatever criticism there is, but doing something positive about it.
Not to mention: If anyone didn’t know about the commercial indicators, this subtly lets them know. If anyone wondered to themselves, “how does he decide which to release for free” this explains that.
Richard,
This is what I get in eSignal when I run the Laguerre ECO:
Line 48: Formula file not found: EOTPro\EOTHullMA.efs
Thanks
Dave
Thanks Dave… I am having a problem with my eSignal on vista64, and have seen it on one of our client’s machines as well. I save a file in the Formulas directory, and even though eSignal can see it, I can’t get to it from the filesystem/explorer. It’s very bizarre.
Anyway, that caused me to accidentally upload the wrong version for eSignal. I’ve corrected it now. Thanks!
Very cool indicator Richard. Thanks for the work and and constant creativity. I added paintbars to the ninja version if anyone wants to give it a spin.
http://www.filefactory.com/file/a0cfb09/n/Z20090712LaguerreECO_cs
Thanks, Chris! On Monday, my TICK interpretation indicator will be released. That’s an indicator I use every day, so I’m glad to get it into more people’s hands.
Flashback theater moment.. what if those emas were holtema’s? :)
(takes a look into the code)
Is this indicator available in MT4 format?
Not from here, but maybe someone made an MT4 version and didn’t tell me.
Richard,
For a few years I have dropped into your blog. While I believe I have read all of it over time, I certainly won’t remember every sentence. I’m wondering of your overall philosophy of trading. it is certainly clear that indicators are a major part of your trading plan. This of course, would make sense, since you are a programmer and theoritical type of guy. You like to explore, create, and attempt to solve or apply tools.
I am wondering if you had ever thought about just tossing all that out and just trade strictly off price action and support and resistance. I do know they play a big part of your daily routine. But had you ever just tried it alone?
I also don’t recall you talking about Market profiling. What’s your thoughts on that approach?
Well, the first question is: What would be the point of “tossing all that out?” Do I get some kind of PA dinner jacket? Do they teach me the PA secret handshake?
There’s a rash of superior-sounding posts on the internet nowadays, from people very proud to not use any indicators. Try to see through the bravado… tons of people proudly “toss out” their indicators only to proudly lose their accounts. It’s your understanding of the markets that will make or break you, and not the particulars of your chart setup. Mark my words.
I’ve never seriously used market profile. I know some swear by it.
I should add that (as MtM Team members well know): in practice, I use very few indicators. System 2, for example, just has the price proxy and holt-ema. Much of my recent trading is based solely on measured moves and trendlines, which some supporting evidence from cumulative delta.
But, I don’t use few indicators out of “indicator shame” or whatever. I like to boil things down to simple concepts… the market is either going up, down, or sideways, and usually there’s no reason to make it out to be more difficult than that.
Indicator shame.. lol. I like that. :)
Obviously I’m struggling with what to focus upon. While I have mostly done 80% price action, I cannot help but check a few things along the way. There are far few times where HAD I looked at the indicators I used I would have not entered and lost at that time.
I think it’s a lot more difficult in ES using indicators in ES over stocks, since there are so few trends days. I’ve gotten to the point where I’m good on ‘doji’ days but poor on the rare trend days.
What a tangled web of information this business can be. :)
Thanks for your thoughts.
You know, I think for starters you pick something that seems sensible to you, and you STICK WITH IT. That’s more important than getting the optimal screen… you need to keep on watching it and not fussing with the settings until you understand the nuances.
So, if you want to go 100% PA, there’s nothing wrong with that. If you want to add a CCI or a MACD or a delta indicator or whatever, that’s fine too. Just don’t overdo it, and then get to know the chart you settle on. As you gain experience you’ll start to realize what you are missing and add it with confidence then.
One piece of advice might be to start with long-term indicators. That is: the localized action in the last couple bars is staring you right in the face,… so rather than a CCI(6) maybe you want to see the CCI(89) or CCI(200) or something… let the indicators tell you about the longer-term picture which may not be so obvious. But, that’s just an idea I had and wanted to share… there are no truly wrong answers in the beginning as long as you have a chart you are comfortable watching.
I’d greatly appreciate if any one can write the Laguerre ECO indicator for Metastock. Or post it , if one has already been written.
many thanks
sean
Richard, I know you are a TS expert. I’m trying to apply the Laguerre over top a CCI indicator to find divergences. Since the CCI is in the ‘200′ range and the Laguerre is in the ‘30′ range, the Laguerre doesn’t show much movement. Playing with the scale range doesn’t seem to help. How can I get them to work just as they do independently yet within the same axis? if you don’t mind and have a moment. :)
Hi John,
You can set one of them to scale on the left, or set one of them to no scale. Then, both will fill the screen space that they have. If they both scale on the right then one will look squashed.
Richard, so simple, thank you. Is the same option not in Ninja? Got stumped there doing the same thing.
Definitely can’t do it on NT6.5. NT7 can do it.