HOWTO: Signal filtering, the better way.
It is hard to find a trading system that does not employ signal filtering through use of sma, ema, wma and the likes. I’m not going to dive in detail on the inner workings of these filters as this info is widely available.
Filters that prioritize recent data are more suitable taking market dynamics into account, however but implementing these filters using a for loop in Matlab is anything but efficient. Luckily, Matlab provides the filter function, that can be used to calculate all types of moving averages and even more.
In the code attached to this post I’m going to show how to filter signals based on an excellent article written by John F.Ehlers. Please read it before playing with the code. I’ve implemented the different filter mentioned to compare their characteristics.
Looking at the data, I must draw a conclusion that the hybrid filter provides an improvement in terms of lag over the standard ema.
Source: demoFilter.m, data: price.mat
Source:
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