I’ve been given the privilege to share some of my insights and experience with the use of bandpass filters in applying the Hurst methods. Instead of a long winded dissertation, I thought it best to begin with an example.
The chart below is a daily chart of Russell 2000 futures. The indicator at the bottom shows the 10 week (56 day) wave cleanly extracted using a bandpass filter. I’ve also included the highpass data which I have slightly smoothed. In Profit Magic Hurst referred to output of a highpass filter as an “inverse moving average”, a description I found a bit misleading. Nevertheless it is a great technique for isolating a dominate wave. The envelope I’ve drawn around the price action is a variation of Hurst’s classic “constant width” envelope. The bands expand and contract with the amplitude of the shorter waves inside, a “variable width” envelope. The centerline represents, in Hurst speak, the sum of the waves longer than the 20 week wave. While I don’t use them for phasing (obsolete remember?), the bands provide an excellent indication that the contained dominant wave has reached an extreme, particularly at lows.
On the chart below I’ve zoomed in and added the familiar 20 day FLD and the output of the 20 day bandpass filter.
With the 10 week and 20 day waves at extreme lows and the price action at the bottom of the envelope, barring an unforeseen duration fluctuation or straddle, it is a high probability the markets are at or approaching a 10 week low.