Ehlers Adaptive Trend Indicator [Alpha Extract]

Ehlers Adaptive Trend Indicator

The Ehlers Adaptive Trend Indicator combines Ehlers' advanced digital signal processing techniques with dynamic volatility bands to identify robust trend conditions and potential reversals. This powerful tool helps traders visualize trend strength, adaptive support/resistance levels, and momentum shifts across various market conditions.

🔶 CALCULATION

The indicator employs a sophisticated adaptive algorithm that responds to changing market conditions:
• Ehlers Filter: Calculates a weighted average based on momentum differences to create an adaptive trend baseline.
• Dynamic Bands: Volatility-adjusted bands that expand and contract based on recent price action.
• Trend Level: A dynamic support/resistance level that adapts to the current trend direction.
• Smoothed Volatility: Market volatility measured and smoothed to provide reliable band width.

Formula:
• Ehlers Basis = Weighted average of price, with weights determined by momentum differences
• Volatility = Standard deviation of price over Ehlers Length period
• Smoothed Volatility = EMA of volatility over Smoothing Length
• Upper Band = Ehlers Basis + Smoothed Volatility × Sensitivity
• Lower Band = Ehlers Basis - Smoothed Volatility × Sensitivity
• Trend Level = Adaptive support in uptrends, resistance in downtrends

🔶 DETAILS

Visual Features:

• Ehlers Basis Line (Yellow): The core adaptive trend reference that serves as the primary trend indicator.
• Trend Level Line (Dynamic Color): Changes between green (bullish) and red (bearish) based on the current trend state.
• Fill Areas: Transparent green fill during bullish trends and transparent red fill during bearish trends for clear visual identification.
• Bar Coloring: Optional price bar coloring that reflects the current trend direction for enhanced visualization.

Interpretation:
• **Bullish Signal**: Price crosses above the upper band, triggering a trend change with the Trend Level becoming dynamic support.
• **Bearish Signal**: Price drops below the lower band, confirming a trend change with the Trend Level becoming dynamic resistance.
• **Trend Continuation**: Trend Level rises in bullish markets and falls in bearish markets, providing adaptive trailing support/resistance.

🔶 EXAMPLES

The chart demonstrates:
• Bullish Trend Identification: When price breaks above the upper band, the indicator shifts to bullish mode with green trend level and fill.
• Bearish Trend Identification: When price falls below the lower band, the indicator shifts to bearish mode with red trend level and fill.
• Trend Persistence: Trend Level adapts to market movement, rising during uptrends to provide dynamic support and falling during downtrends to act as resistance.

Example Snapshots:
• During a strong uptrend, the Trend Level continuously adjusts upward, keeping traders in the trend while filtering out minor retracements.


• During trend reversals, clear color changes and Trend Level shifts provide early warning of potential direction changes.


🔶 SETTINGS

Customization Options:

• Ehlers Length (p1) (Default: 30): Controls the primary adaptive calculation period, balancing responsiveness with stability.
• Momentum Length (p2) (Default: 25): Determines the lag for momentum calculations used in the adaptive weighting.
• Smoothing Length (Default: 10): Adjusts the volatility smoothing period—higher values provide more stable bands.
• Sensitivity (Default: 1.0): Multiplier for band width—higher values increase distance between bands, lower values tighten them.
• Visual Settings: Customizable colors for bullish and bearish trends, basis line, and optional bar coloring.

The Ehlers Adaptive Trend Indicator combines John Ehlers' digital signal processing expertise with modern volatility analysis to create a robust trend-following system that adapts to changing market conditions, helping traders stay on the right side of the market.