Ehlers Elegant Oscillator

The Elegant Oscillator was created by John Ehlers (Stocks and Commodities Feb 2022 p.21) The Elegant Oscillator is founded on the idea that price tend to return to “normal”, or average levels of its historical mean. It calculates the inverse Fisher transform of price and then applies the SuperSmoother to filter market noise and create a signal line.
Manufacturer: nt8indicators

The Inverse Fisher Transform is used in the Elegant Oscillator to convert a normalized derivative of a price series to the +/-1 range. The normalization is done by dividing by the square root of the sum of squares, a sort of N-dimensional distance. Using the Inverse Fisher Transform is supposedly a better method than simply clipping the data. The result is smoothed by Ehlers’ ‘SuperSmoother’, a low-lag lowpass filter.

According to Ehlers, its peaks and valleys that exceed a threshold can be used for mean reversion trading.

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