A Smoothed Price-Delta Method for a Low-Lag Predictive Line

Summary

This short note describes a price-smoothing construction attributed to John Ehlers. First, it computes an exponential moving average of price, with a three-pole filter offered as an alternative. It then measures the difference between price and that smoothed baseline. Because this delta is detrended relative to the baseline, the note proposes smoothing it to reduce whipsaws without adding substantial lag in the trend mode.

Adding the smoothed delta back to the original average produces a curve described as zero lag; adding twice the smoothed delta produces a smoother predictive line. The note gives a conceptual recipe rather than parameter choices, implementation details, charts, or performance evidence. It does not establish that the resulting lines predict future prices reliably, and the predictive description should be treated as a proposed indicator interpretation rather than a demonstrated forecasting result.

Key ideas

• The method begins with an exponential moving average of price or a three-pole filter.
• It calculates the deviation of price from that smoothed baseline.
• Smoothing the deviation is intended to reduce whipsaws while limiting additional trend lag.
• Adding the smoothed deviation to the baseline creates a line described as zero lag.
• Doubling the smoothed deviation before adding it to the baseline creates a more predictive line, though no evidence is provided.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.