The Universal Oscillator continues the series of technical indicators proposed by John Ehlers, based upon signal processing techniques. In his article, "Whiter is Brighter," Dr. Ehlers discusses that market data is akin to "pink noise" (a scientific term that refers to a type of noise where the power spectral density is stronger at lower frequencies). Isolating the white spectrum (whose power spectral density is the same at all frequencies) is said to output data that can be transformed into a zero-lag oscillator.
The isolation of the white spectrum data is done via a momentum-based equation. This data is further subjected to EhlersSuperSmootherFilter so that undesirable wave components are eliminated. The filtered data is then transformed into an oscillator by using the automatic gain control algorithm.
As with many other oscillators, the trading strategy can be based upon the indicator's behavior in relation to the zero line. Normally, it is the passings from negative to positive values and vice versa that indicate trading possibilities. This approach is implemented in the Universal Oscillator strategy, based upon the current technical indicator.
Used in the calculation of EhlersSuperSmootherFilter; defines the maximum period for a wave to be considered undesirable noise.
||The Universal Oscillator plot.|
The zero level.
1. "Whiter is Brighter" by John Ehlers, PhD. Technical Analysis of Stocks & Commodities, January 2015.
*For illustrative purposes only. Not a recommendation of a specific security or investment strategy.