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TASC 2010-03 | Empirical Mode Decomposition (Ehlers, Way)

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Traders' Tip text

We combined the ideas and indicators from the article into a single script with a sample strategy in C# for Wealth-Lab 6. While you can probably think of a dozen ways to use the cycle mode indicator and its thresholds, the sample strategy enters long trades when the cycle turns up within the threshold zone and exits on a closing profit of 4% or after 5 bars. The time-based exit was chosen purposely to be a ¼ cycle to exit before the next turn down. The Strategy produced a slightly-positive win rate and raw profit factor for the last 6 years of trading on the Dow 30 and Nasdaq 100 index components.


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Figure 1. Representative trades from the sample Strategy.


WealthScript Code (C#)

using System;
using System.Collections.Generic;
using System.Text;
using System.Drawing;
using WealthLab;
using WealthLab.Indicators;

namespace WealthLab.Strategies { public class EmpiricalModeDecomp : WealthScript { StrategyParameter _period; StrategyParameter _delta; StrategyParameter _fraction; public EmpiricalModeDecomp() { _period = CreateParameter("Period", 20, 5, 50, 1); _delta = CreateParameter("Delta", 0.5, 0.05, 1, 0.05); _fraction = CreateParameter("Fraction", 0.25, 0.1, 1, 0.05); }

public DataSeries BandPassSeries(DataSeries ds, int period, double delta) { DataSeries res = new DataSeries(ds, "BandPassSeries(" + ds.Description + "," + period + "," + delta + ")"); double beta = Math.Cos(2 * Math.PI / period); double gamma = 1/ Math.Cos(4 * Math.PI * delta / period); double alpha = gamma - Math.Sqrt(gamma * gamma - 1d); for (int bar = 2; bar < ds.Count; bar++) { res[bar] = 0.5 * (1 - alpha) * (ds[bar] - ds[bar - 2]) + beta * (1 + alpha) * res[bar - 1] - alpha * res[bar - 2]; } return res; } protected override void Execute() { int per = _period.ValueInt; double delta = _delta.Value; double fraction = _fraction.Value; DataSeries bp = BandPassSeries(AveragePrice.Series(Bars), per, delta); DataSeries ema = EMA.Series(Close, 100, EMACalculation.Modern); DataSeries mean = SMA.Series(bp, 2 * per); mean.Description = "SMA(" + bp.Description + "," + 2 * per + ")"; DataSeries peak = new DataSeries(Bars, "peak()"); DataSeries valley = new DataSeries(Bars, "valley()"); double pk = 0d; double v = 0d; for(int bar = 2; bar < Bars.Count; bar++) { if( bp[bar-1] > bp[bar] && bp[bar-1] > bp[bar-2] ) pk = bp[bar - 1]; if( bp[bar-1] < bp[bar] && bp[bar-1] < bp[bar-2] ) v = bp[bar-1]; peak[bar] = pk; valley[bar] = v; } int avgPer = (int)(2.5 * per); DataSeries avgPeak = fraction * SMA.Series(peak, avgPer); DataSeries avgValley = fraction * SMA.Series(valley, avgPer); ChartPane cp = CreatePane( 40, true, false ); DrawHorzLine(cp, 0d, Color.Black, LineStyle.Dashed, 1); PlotSeries(PricePane, ema, Color.Black, LineStyle.Solid, 1); PlotSeries(cp, avgPeak, Color.DodgerBlue, LineStyle.Solid, 1); PlotSeries(cp, avgValley, Color.DodgerBlue, LineStyle.Solid, 1); PlotSeries(cp, mean, Color.Orange, LineStyle.Solid, 2); /* Sample Trading Strategy */ for (int bar = 2 * 100; bar < Bars.Count; bar++) { bool setup = mean[bar] > avgValley[bar] && mean[bar] < avgPeak[bar] && ema[bar] > ema[bar-1]; if (IsLastPositionActive) { Position p = LastPosition; if (bar - p.EntryBar > 4) SellAtMarket(bar + 1, p, "Time Based"); else if (Close[bar] > p.EntryPrice * 1.04) SellAtClose(bar, p, "Profit Target"); } else if ( setup && TurnUp(bar, mean) ) { SetBackgroundColor(bar, Color.LightCyan); BuyAtMarket(bar + 1); } } } } }

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