The Ehlers Simple Decycler study is a virtually zero-lag technical indicator proposed by John F. Ehlers. The original idea behind this study (and several others created by John F. Ehlers) is that market data can be considered a continuum of cycle periods with different cycle amplitudes. Thus, trending periods can be considered segments of longer cycles, or, in other words, low-frequency segments. Applying the right filter might help identifying these segments.
The main principle of the simple decycler is subtracting the high-pass filter output from the price data input. This eliminates high-frequency components from the price data, while the low-frequency ones, i.e., trends, are kept intact. Given that high-pass filters are virtually lag-free, the simple decycler outputs the low-frequency components with little to no lag.
The main plot of the Ehlers Simple Decycler study is accompanied by two lines that are plus and minus 0.5 percent from it by default. These lines form a so-called hysteresis band which might prove helpful in trend identification. Theoretically, prices that are above the upper hysteresis line are in uptrend and, vice versa, those below the lower line are in downtrend. Prices within the hysteresis band are believed to be trend-neutral.
||Defines the price on which the calculations are performed.|
||Defines the maximum cycle length in bars. Cycles with greater lengths will be eliminated.|
||Defines the offset of the upper hysteresis line from the main plot, in percent.|
Defines the offset of the lower hysteresis line from the main plot, in percent.
||The Ehlers Simple Decycler plot.|
||The upper hysteresis line.|
||The lower hysteresis line.|
1. "Decyclers" by John F. Ehlers. Technical Analysis of Stocks & Commodities, September 2015.
*For illustrative purposes only. Not a recommendation of a specific security or investment strategy.