Trend Signals from an Ehlers Three-Pole Butterworth Filter Crossover

Summary

This document describes a trend-following strategy built around John Ehlers’ three-pole Butterworth low-pass filter. A recursive calculation smooths price data and produces a trigger line from the prior filter value. The strategy enters long when the filter crosses above the trigger and short when it crosses below, then closes the corresponding position on the reverse crossover. It also discusses divergence detection as a possible signal source, though the supplied strategy code does not implement divergence rules in detail.

The material explains the filter’s noise-reduction rationale and identifies potential drawbacks: lag, false signals in ranging markets, sensitivity to the period setting, and reliance on a single indicator. It gives no performance results. Published backtest settings specify ETH/USDT futures on Binance over a stated period, but no returns or other findings are reported. Suggested refinements include volatility-adaptive periods, confirmation across timeframes, auxiliary indicators, and explicit stop and position sizing rules.

Key ideas

• The filter smooths price data to emphasize longer-term movement while reducing short-term fluctuations.
• A crossover above the prior-value trigger generates a long entry, while a crossover below it generates a short entry.
• Reverse crossovers close the corresponding positions, so the same signal marks both entry and exit conditions.
• The document flags lag, range-bound false signals, and parameter sensitivity as risks.
• The supplied code does not detail the divergence detection mentioned in the discussion.

Tags

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