Ehler’s Unique Correlation Trend Indicator CTI

v10.3
Ehler’s Unique Correlation Trend Indicator CTI

John Ehlers, Correlation Trend Indicator, Stocks & Commodities Magazine (05/2020) :

“The basic idea of the Correlation Trend Indicator (CTI) is quite simple. The ideal trend curve is a straight upwards line. So the CTI just measures the correlation of the price curve with this ideal trend line. 

X represents the price curve, Y the trend line, and correlation is measured with the Spearman algorithm. (As Nicolas pointed out it is in fact based on the R-squared correlation coefficient formula which is a statistical measure of how close data is fitted to a regression line).

This is how the Correlation Trend Indicator (CTI) looks when applied to SPY (red = 10 days period, blue = 40 days).

We can see that the lines reproduce rather well the price curve trend. And we can also see that the blue line, the 40-days trend, is not just a smoothed version of the red 10-days trend – it looks entirely different. This is an interesting feature of a trend indicator – it separates long-term and short-term trend perfectly…”

The article goes on to mention that ‘trading on CTI crossovers would be difficult. A somewhat predictive power of the CTI(SPY,20) exists – but it is too weak for being directly exploited in a crossover trading system.'” 

From my own analysis I’d be inclined to suggest that a relationship does exit that is not random. Please see the link below showing a system with a 5 and 10 day CTI crossover on mean reverting major currency pairs: https://www.prorealcode.com/topic/very-latest-ehlers-correlation-trend-indicator-2/#post-129552

The system ITF code is in the very next comment after the link above. If time allows I will apply Machine Learning code to the CTI periods and the crossover thresholds. The current CTI system buys when the 5 day CTI crosses over the 10 day CTO when both values are below -0.5 threshold and vice versa for the short entry. Exits are provided by the Kase Dev Stop (v3).

 

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