If you’d like to follow along with the e-book version of the blog, click on the play button in the audio player below (at the bottom of the page).
Revisiting An Old Friend
We’re going back to the indicator source of an “old friend” of ours, John Ehlers. We’ve profiled a few indicators from this financial genius, and we thought to ourselves; “why not do more”? After all, he did put out some great stuff. Granted, others have modified his work by placing their own “spin” on his work; which is not uncommon. Some very current indicators are newer versions of those which have been around for years. Totally cool and always appreciated.
Connecting The Dots
The search began heading in a totally different direction then, as we started down that particular rabbit hole, something else just kind of popped up. So naturally, we put it in reverse to check it out. That being said, this week we’re going with an indicator called Ehlers DELI (Detrended Ehlers Leading Indicator) – a below chart zero line cross confirmation indicator. The indicator itself is not the direct work of Mr. Ehlers, but its descendant. It was modified through the work of Bill Mars and subsequently coded into our world in 2015.
For the technical analysis video, we brightened up the signal line and added a zero line for easy signal identification, but left the default value for the video. We opted to include both the line and histogram versions of the indicator, so you can decide which version you prefer. They’ll both be available in the indicator library when you’re ready to try them out for yourself.
Thanks For The Memories
We were getting so many suggestions, we had to create a list. Some were already profiled in past blogs, some were very mainstream, and some were unheard of. Last week we profiled a user suggestion, so we’ll hold off on the next suggestion, as we have a few in the chute, ready for production. But, that doesn’t mean stop sending them. No way. In fact, keep on sending them. If you have a specific insight, story, or personal experience you’d like to share surrounding your indicator suggestion, include that as well. We love a good backstory, especially if it involves massive profits. Send them to firstname.lastname@example.org.
How it All Started
The original source of this concept began in John Ehlers 2002 book “MESA and Trading Market Cycles” which takes a deep dive into the subject of MESA – Maximum Entropy Spectrum Analysis; a topic highlighting that markets, like nature, experience cycles which can be measured. From these noble beginnings, the DELI indicator was based off of the detrended synthetic price, which is based off of Mr. Ehlers work with MACD flavoring and comes to us as the following process;
1. Using “highs, previous highs, lows, previous lows and feedback to create two EMAs.
2. Then, Detrended Synthetic Price (DSP) is plotted as the difference of the two EMAs.
3. Finally, a third exponential moving average is created from the DSP and the DELI (Detrended Ehlers Leading Indicator) is plotted from those differences.
Bada bing, bada boom…
We’ve seen multiple versions across various trading platforms which had two lines, colors, and histograms, but we’re going with the single line version. We’re all about easy over here.
Gotta Love It
As noted in the video production notes, we’ve brightened up the signal line and added a zero line for easy signal identification. We left the original colors as they were pretty easy to see. We went back to white candles for this, as the action is below price, where we want you to focus.
Before we get into the signal screen, we’ll take a look at the settings.
If it were any more simple, it would be unusable. The only option we have for this indicator is just the period. Straightforward and elementary, my friends.
period: The number of periods used to calculate the signal line. The default value is 14.
* Based on solid work from an old favorite.
* Easy to test.
* Simple signal identification.
Signals “Я” Us
Notice how smoothly the signal moves, even on the default settings. Signals were easy to identify and provided acceptable entries. On occasion, exits were a bit late, especially if price action reversed with any degree of momentum, which may have resulted in a loss.
How We Use It
Long signal: When the signal line crosses and closes above the zero line. Entry is on the open of the next period.
Short signal: When the signal line crosses and closes below the zero line. Entry is on the open of the next period.
We Got Tested
If you’re new to these studies, we recommend looking at some of the older blogs to understand how we conduct our testing.
The six pairs we recommend testing are…
The markets we test our indicators are the:
EUR/USD (Euro/US Dollar)
BTC/USD (Bitcoin/US Dollar)
XAU/USD (Gold/US Dollar)
SPX500 (S&P500 Index)
Timeframes and Results
We’ll run the Ehlers DELI indicator on the EUR/USD, BTC/USD, XAU/USD, and the SPX500 using the default and tweaked settings across the daily and 4-hour timeframes on the MT4 strategy tester.
We focus on three metrics;
ROI (return on investment)
Results Make The World Go Around
Below, you’ll find the testing results from our testing efforts.
Alright, Alright, Alright…
Interesting results, for sure. Some were pretty heady, some mediocre, and some, “meh”. But, that’s okay. It’s what we can expect from indicators across varying markets. Depending on the state of that particular market, indicators will react differently. Gold (and sometimes BTC) have been posting amazing results lately, while others were somewhat less awe-inspiring; but still acceptable. Totally normal, and totally expected. This is why we advocate trading across multiple pairs. Always look for opportunity and do not discount a “so-so” indicator because of questionable results on just one pair. Your research and effort will pay off.
Money management is based on the NNFX risk profile. That information can be learned in the Advanced Course.
We’ve made the Ehlers DELI indicator available for download on our site from the indicator library. When you’re ready to get it, click HERE.
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BTW – Any information communicated by Stonehill Forex Limited is solely for educational purposes. The information contained within the courses and on the website neither constitutes investment advice nor a general recommendation on investments. It is not intended to be and should not be interpreted as investment advice or a general recommendation on investment. Any person who places trades, orders or makes other types of trades and investments etc. is responsible for their own investment decisions and does so at their own risk. It is recommended that any person taking investment decisions consults with an independent financial advisor. Stonehill Forex Limited training courses and blogs are for educational purposes only, not a financial advisory service, and does not give financial advice or make general recommendations on investment.