One of the most unpleasant moments in trading in the application of technical analysis is the balance between smoothing and delay in the testimony of indicators. In order to filter out sharp noises necessary to increase the smoothing period, but then when changing the trend will be delayed signal. The smaller the smoothing, the more false signals will be occur. How to minimize the effect of noise and do not miss the beginning of a new trend? This will help us to Laguerre Indicator, which will be discussed in this article.
Characteristics of Laguerre Indicator
- Platform: Metatrader4
- Currency pairs: Any currency pairs
- Trading Time: Depends on your strategy
- Timeframe: Any (recommended H4 and higher)
- Recommended broker: Alpari
Laguerre Indicator became widely known in the beginning of - 2000s, when John Ehlers told an interesting algorithm of smoothing prices in his book "Cybernetic analysis of the stock and futures markets". Ehlers an engineer and in the 70s of the last century, he worked on the creation of equipment for processing of aerospace signals. It is these achievements were the basis for the creation Laguerre Indicator.
John Ehlers is a proponent of the theory of cycles and for developing of the Laguerre Indicator used the spectral analysis of maximum entropy, developed by geophysicists. In short, the formula used to calculate the indicator Ehlers are reduced to the estimation of future spectrums on the basis of a minimum set of data. According to another theory, the appearance of the indicator associated with the equation of the famous French mathematician Laguerre. Anyway, let's check it out in action.
Laguerre Indicator is an excellent indicator for use in trade with the trend. Traders like it because it shows the market cycles in the selected period of graph better than most standard indicators of a set of MT4 platform. This indicator shows a great start and end micro trends, which means that the indicator will be primarily interesting for scalpers. Of course, the indicator itself is not on your nelly can not be an independent trading system! But in combination with other indicators and methods of technical analysis Laguerre Indicator able to give a good result.
Settings of Laguerre Indicator
gamma (default = 0.7) - the coefficient for calculating the level of the indicator. The higher the ‘gamma’, the smoother the line will be at the output.
CountBars (default = 950) - the maximum number of bar of graph on which the indicator will be calculated.
Using the Laguerre Indicator in trade
Despite the fact that the Laguerre Indicator is considered trend indicator, it was built on the principle of the oscillator, where total values are within certain limits. In our case it is the interval from 0 to 1.
The simplest option of using:
Long Trade when crossing of line 0.2 from the bottom up.
Shot Trade when crossing of line 0.8 from the top down.
You can also use the line of the smoothed indicator 0.5 for filtering of transactions in the system: if the Laguerre below 0.5, consider only the Long entry; if above - only a Short entry.
Exit of Long position if the Laguerre Indicator crossed the line 0.5 or 0.8 from the top down.
Exit of Short position when crossing of line 0.2 or 0.5 from the bottom up.
Let us consider a simple example of the practical use of the Laguerre Indicator in trading strategies in the Forex market. John Ehlers noted that the cycles of the financial markets must be used in combination with trend methodologies, so for example, I'll take two moving averages. You can experiment with the trend lines, channels and other trend indicators.
We use two moving averages, and we will open a position at their intersection. Filters for opening positions will serve two indicators Laguerre: one with gamma = 0.5 (Blue), and the second 0.9 (Orchid). If the fastest MA (Blue) crosses the slow MA (Orchid) from the bottom up, fast Laguerre (Blue) is higher than 0.9, and a slow (Orchid) started to grow and has crossed below the level of 0.1, to open Long position. Exit of Long positions can be carried out at the crossing of slow Laguerre Indicator of level 0.9 from top to bottom:
For Short positions opposite:
Such a strategy in tandem with trailing stop can work quite well on the period H4.
Laguerre Indicator is a trend indicator, which displays a trend line in a separate window. It can be used as a confirmation signal to enter the market, as well as a separate trading system. This indicator is very simple to use. It can equally well be used for exit of market, and as a signal to enter.
The author was not able to completely eliminate the biggest problem of all indicators - the problem of delay. Nevertheless, Laguerre Indicator produces signals more and accurately of most standard oscillators, the number of false alarms is markedly lower than that of the same stochastic.
In the archive Laguerre_Indicator.rar:
Free Download Laguerre Indicator