[blackcat] L2 Ehlers Pairs Rotation

17 Jun 2022

Level 2

Background

John Ehlers’ articles in the July issues on 2022,“Pairs Rotation With Ehlers Loops, Part 2”

Function

In part 1 of his article in the June 2022 issue (“Ehlers Loops”), John Ehlers uses a relationship of price and volume to determine if any predictive value can be obtained. His technique, called Ehlers Loops, aid in visualizing the performance of one datastream against another. In part 2 appearing in this issue (“Pairs Rotation With Ehlers Loops”), the author demonstrates Ehlers Loops in action with a pairs trading example. This pairs rotation strategy is aimed at minimizing drawdown while simultaneously maximizing return on capital.

Remarks

Feedbacks are appreciated.

Nota Keluaran

OVERVIEW
The [blackcat] L2 Ehlers Pairs Rotation indicator is designed to help traders analyze the relative strength between two assets using advanced filtering techniques developed by John F. Ehlers. This script applies high-pass and super-smoother filters to the closing prices of two symbols, scaling them in terms of standard deviations. By plotting these scaled prices, traders can visualize the rotation between the two assets, identifying potential opportunities for pairs trading strategies 📈💹.

FEATURES

Utilizes Ehlers' High-Pass Filter and Super-Smoother Filter for advanced signal processing:
High-Pass Filter: Removes low-frequency components from the price data.
Super-Smoother Filter: Smoothes the filtered data while preserving important trends.
Scales prices in terms of Root Mean Squared (RMS) for standardized comparison.
Allows users to select two different symbols for comparative analysis.
Plots scaled prices of both symbols on a single chart with distinct colors:
Symbol 1: Yellow area plot.
Symbol 2: Fuchsia line plot.
Includes a zero line for reference to easily identify rotations between the two assets.
HOW TO USE

Add the indicator to your TradingView chart by selecting it from the indicators list.
Set the desired Long Period and Short Period values for the filters ⚙️.
Enter the symbol for the second asset (Symbol2) you want to compare against the primary asset.
Monitor the chart for rotations between the yellow and fuchsia plots, indicating shifts in relative strength.
Use these rotations as signals for potential buy or sell opportunities in pairs trading strategies.
LIMITATIONS

The effectiveness of the indicator depends on the chosen periods and symbols.
Users should test various combinations of periods and symbols to find optimal settings.
The indicator may not perform well in highly correlated or uncorrelated markets 🌪️.
Combine this indicator with other forms of analysis for more reliable trading decisions.
NOTES

Ensure that you have sufficient historical data available for accurate calculations.
Test the indicator thoroughly on demo accounts before applying it to live trading 🔍.
Customize the appearance and parameters as needed to fit your trading strategy.