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TASC 2010-11 | Zero-Lag EC Filter (Ehlers, Way)

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Traders' Tip text

We hope that the zero-lag EC filter becomes a good addition to the trader's arsenal. To be employed in a Wealth-Lab Strategy, all it takes is to install (or update if you haven't done that already) the TASCIndicators library from the wealth-lab.com site. Our tests of the always-in-market system mentioned in the article on several diversified portfolios showed that it has potential but may benefit from further optimization and refinement.


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Figure 1. A Wealth-Lab Developer 6.0 chart showing the EC filter applied to Crude Oil, October 2010 (60-minute).


It's pleasing to see how this responsive, leading indicator tracks trends, but traders should never underestimate the amount of time spent by markets in range-trading and consolidation phases. As can be noticed on the Crude Oil chart above (the green line in its upper half), the Least Error filter is doing a good job ruling out the low-probability signals, yet it misses some here and there. To improve performance, adding some other filter to detect non-trending conditions might be appropriate.

WealthScript Code (C#)

using System;
using System.Collections.Generic;
using System.Text;
using System.Drawing;
using WealthLab;
using WealthLab.Indicators;
using TASCIndicators;	// The EC filter and Least Error

namespace WealthLab.Strategies { public class ZeroLag1011 : WealthScript { private StrategyParameter paramLength; private StrategyParameter paramGain; private StrategyParameter paramThresh; public ZeroLag1011() { paramLength = CreateParameter("Length", 32, 2, 100, 1); paramGain = CreateParameter("Gain Limit", 22, 2, 100, 1); paramThresh = CreateParameter("Threshold", 0.75, 0.5, 2, 0.25); } protected override void Execute() { int Length = paramLength.ValueInt; int GainLimit = paramGain.ValueInt; double Thresh = paramThresh.Value; // Data series EMA ema = EMA.Series( Close, Length, EMACalculation.Modern ); EC ec = EC.Series( Close, Length, GainLimit ); LeastError le = LeastError.Series( Close, Length, GainLimit ); SetBarColors( Color.LimeGreen, Color.OrangeRed ); // This EMA-based indicator is "unstable": allow it to stabilize for(int bar = Length * 3; bar < Bars.Count; bar++) { SetBackgroundColor( bar, Color.Black ); // Detect crossover/crossunder and LeastError above threshold bool maXo = CrossOver( bar, ec, ema ) & ( le[bar] > Thresh ); bool maXu = CrossUnder( bar, ec, ema ) & ( le[bar] > Thresh ); // The initial trade if (Positions.Count == 0){ if ( maXo ) BuyAtMarket( bar + 1 ); else if( maXu ) ShortAtMarket( bar + 1 ); } // All subsequent trades of the SAR system else { Position p = LastPosition; if ( p.PositionType == PositionType.Long ) { if ( maXu ) { SellAtMarket( bar + 1, p ); ShortAtMarket( bar + 1 ); } } else { if ( maXo ) { CoverAtMarket( bar + 1, p ); BuyAtMarket( bar + 1 ); } } } } // Plotting the EC, EMA, and Least Error WealthLab.LineStyle solid = LineStyle.Solid; PlotSeries( PricePane, ec, Color.Gold, solid, 1 ); PlotSeries( PricePane, ema, Color.Red, solid, 1 ); ChartPane lePane = CreatePane( 30,true,true ); PlotSeries( lePane, le, Color.LimeGreen, solid, 2 ); DrawHorzLine( lePane, Thresh, Color.Blue, LineStyle.Dashed, 2 ); HideVolume(); } } }

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