By employing a Hann windowed finite impulse response filter (FIR), John Ehlers has enhanced the Moving Average Difference (MAD) to provide an oscillator with exceptional smoothness.
Of notable mention, the wave form of MADH resembles Ehlers' "Reverse EMA" Indicator, formerly revealed in the September 2017 issue of TASC. Many variations of the "Reverse EMA" were published in TradingView's Public Library.
█ FEATURES
Three values in the script's "Settings/Inputs" provide control over the oscillators behavior: • The price source • A "Short Length" with a default of 8, to manage the lower band edge of the oscillator • The "Dominant Cycle", originally set at 27, which appears to be a placeholder for an adaptive control mechanism
Two coloring options are provided for the line's fill: • "ZeroCross", the default, uses the line's position above/below the zero level. This is the mode used in the top version of MADH on this chart. • "Momentum" uses the line's up/down state, as shown in the bottom version of the indicator on the chart.
█ NOTES
Calculations The source price is used in two independent Hann windowed FIR filters having two different periods (lengths) of historical observation for calculation, one being a "Short Length" and the other termed "Dominant Cycle". These are then passed to a "rate of change" calculation and then returned by the reusable function. The secret sauce is that a "windowed Hann FIR filter" is superior tp a generic SMA filter, and that ultimately reveals Ehlers' clever enhancement. We'll have to wait and see what ingenuities Ehlers has next to unleash. Stay tuned...
The `madh()` function code was optimized for computational efficiency in Pine, differing visibly from Ehlers' original formula, but yielding the same results as Ehlers' version.
Background This indicator has a sibling indicator discussed in the "The MAD Indicator, Enhanced" article by Ehlers. MADH is an evolutionary update from the prior MAD indicator code published in the October 2021 issue of TASC.
@eliyoungtrad, Thx. Appreciate. Publications will continue for sure. A small team of three rock-solid Pine Wizards is putting these together.
sguthivari
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Excellent, Thanks for the effort..As I don't have access to the " November 2021 issue of Trader's Tips by Technical Analysis of Stocks & Commodities (TASC) magazine" article, can you please tell me what are the buy and sell rules?
PineCodersTASC
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@sguthivari, have you ever heard about the mean-reversion strategies?