This is a four element Laguerre Filter as described by John Ehlers in his paper “Time Warp – Without Space Travel”.
Indicator Description
The Laguerre Filter is a smoothing filter based on Laguerre polynomials. Its first term is an EMA, which is then further smoothened with a damping factor. The damping factor may take any value between 0 and 1. When the damping factor is set to 0, the indicator becomes a finite impulse response (FIR) filter. When the damping factor is set to a value close to 1, the filter becomes smoother. However, that will in turn produce a significant lag.
The indicator that can be downloaded here is a four element Laguerre Filter. The damping factor has been replaced with a synthetic lookback period which allows for adjusting smoothness and lag. A lookback period of 1 corresponds to a simple 4-period triangular moving average.
Ehlers introduces the background for the “Time Warp – Without Space Travel” papers as follows: “One of the most frustrating aspects of technical analysis is trying to avoid whipsaw trades. When the moving averages are made smoother to avoid these whipsaws, the lag produced by the smoothing often renders the signals to be ineffective. The dilemma is therefore how to strike a balance between the amount of smoothing that can be obtained and the amount of lag that can be tolerated. In this article, I introduce a new tool to address the smoothing versus lag problem more effectively.”
Other Library indicators
Other than the Laguerre Filter, this category includes the Adaptive Laguerre Filter, the Butterworth Filter, the Coral Filter, the Distant Coefficient Filter, the Gaussian Filter and the MAAF. You may also review our indicators from the moving averages or the trend analysis categories, such as the Directional Movement Index, Zerolag TEMA, Zerolag HATEMA, Triple Weighted Moving Average, Sine WMA, Range Weighted Moving Average or the Efficiency Ratio. The Indicator Spotlight newsletter furthermore discussed the Efficiency Ratio here.
The Laguerre Filter is available for NinjaTrader 8.