The Convolution Indicator was created by John Ehlers
(Cycle Analytics For Traders pgs
170-174) and this is version of an indicator to find potential reversal points. The idea behind this indicator is to use a variation of his AutoCorrelation Indicator
that transforms the data using digital signal processing and as you can see it looks very similar to his BandPass Filter
. The idea is that when this indicator peaks then it has reached a potential reversal point and so the stock may continue in the current direction but most of the time this indicator correctly points out the reversal points. I have included normal buy and sell signals but generally speaking you would want to buy when the indicator is around 0. 05
to 0.10 and moving up and sell when it reaches its peak and is starting to move down.
Let me know if you have any other scripts you would like to see me publish!