Kalman filter

Attached is a Kalman filter for trend analysis. Kalman filters behave similarly to moving averagers, except that they give information about the current state rather than the state as it was half your averaging period ago, and are more sensitive to transitions in the state, so they "lock on" to the trend faster, but without lots of overshoot or or Gibbs (i.e. ringing). They are also "smart" in the sense that they keep track of their errors, and correct the next step forward to account for that. (Very loosely speaking). It's set up as a custom indicator. Notes on its use are in the top of the file; feedback welcome. It should be fast (at least an order of magnitude faster than the least squares estimator). GL/GT.

Attached is an image of Eurusd, taken since last march, using 3 Kalman followers.

Yellow solid line = normal sensitivity (trend)
Light Blue line = more sensitive to accelerations (like a short averager)
Dark blue line = less sensitive to accelerations (like a long averager)
Dashed yellow line is 1 deviation from the normal follower
Dashed red line is two deviations from the normal follower
Solid red line is two deviations taken off the highs and lows only, normal follower.

http://gammarat.com/Forex/30070420/eurusd200704292.gif

What settings are you using on this indicator?

Looks good, can you show us your rules for trading this?

Lol - I wish I could, but I'm learning them myself as I go along. Kalman filters are basically trend followers, but whereas in a moving average you set the length of the averager, in a filter you set the level of noise suppression. What I'm doing right now is running 3 followers on trending type pairs (mostly Aud/USD, USD/CAD, and EUR/JPY) USD/JPY is definitely ruled out for now, unless I want to work o monthly charts
What I do is set one follower with it's trend line fairly smooth along the trend - rather like averagers, where you have to pick out the averaging length, on this you try and set the AccDegain (acceleration de-gain) at around 0. With that one I also leave on the deviation channels, which give me an idea of the channel that the trend should follow - if indeed it is a trend - and pick up longs (if the trend is up) usually at the bottom dashed yellow line, and at the top one if the trend is down, and then - as one would do with a moving average, wait for a failure at the next yellow line, or set a stop-loss at the red ones.

With the other two followers one is set to be more sensitive to noise (which acts like a short term average) by setting it's degain to 1 below the de-gain of the center line, which makes it about 10 times more sensitive to the noise. while another that is usually about 10 times less sensitive by setting the de-gain one above that of the trend. (I'm changing that to dB's so it is easier for me to think about....). So the faster one (which I have in light blue) provides warnings of changes in direction, while the slowest one (in dark blue) gives a reasonable floor to work against.

FWIW, it gave a really nice buy signal shortly after the Asia open on eurjpy, I'll post it in a sec.


In both of the secondary followers ( the +1 and -1) I turn off the deviation lines because I hate clutter on my screen....

Sorry, I got a little busy - but I'm mostly watching the center line of eurjpy ATM, and of it fails there, I'll close. I realize it was an easy call, but ya gotta start somewhere And sorry for the endless spelling mistakes...
Anyway, below is the chart:
http://gammarat.com/Forex/30070420/eurjpy200704293.gif

I chickened out and closed, it was looking a little iffy on the 15 minutes. Well 22 pips will buy a a few beers, anyway...

Anyway, I've tried to scale the filter so that you get roughly the same lines across various chart frames (the way one would say, increase a 20 point averager to 80 points, going from a 1 hour to a 15 minute frame), though it doesn't always work as well as one would like. But the relationships between the three seem to hold ok.

Cheers...

On my indicator the light blue and dark blue lines aren't there...What happened?

Hi Rick - do you just have one filter running? If so, just start up two more, then go to their properties windows, set the DevLevels both to zero, and the AccDegain to +1 on one and -1 on the other. (running 3 isn't a prob, because they aren't computationally intensive). Then go to the "colors" on each, and set Color 0 to Aqua, and on the other set Color 0 to Blue.

Just be aware that this is very prototype, has some bugs, and shouldn't be trusted.

I am newbee in this forex trading. I am very exicted to know about the kalman filters which is used to detect the trends in the forex markets. I want to see the implementation of KF in forex market using Matlab or C/C++.

Does anyone have this? Please help.

Thanks.

v.anandv

I know it's a bit late for this thread, but I have just posted some Octave code for the application of a Kalman filter to price action on my blog here http://dekalogblog.blogspot.com/2012...completed.html

If you like price action scalping, try putting a 100 period Kalman on the 1M. It serves as a nice filter - no pun intended.

Look for longs when price is above the line AND line is sloping up.
Look for shorts when price is below the line AND line is sloping down.

Nice work, HalifaxCB. Like your filter!

Compiling in strict mode (MT4, build 765) showed several compiler errors and warnings, so I applied following changes:

1. property strict applied
2. passed all arrays by reference to fix compiler errors
3. commented out one line (zk[1][0] = get_avg(i) - get_avg(i + 1);) to fix compile error in strict mode. That value was never used. I also checked declaring array zk[2][2] instead of zk[1][1]. Seemed to work also, but I was not sure about that matrix addition in line 307 in didn't want to dig in so deeply and possibly apply changes to the matrix lib.
4. declared LookAhead as integer to fix compiler warning
5. reformatted code using uncrustify script

See attachment of the new version.

Have fun!