Studies: Ergodic

The Ergodic formula is a ratio of two double averages.   The numerator is an average of an average of the Net.  The denominator is an average of an average of the Absolute value of the Net.  The Net is the difference between a bar's close and the prior bar's close.

   Ergodic = (Average (Average (Net, parameter 1), parameter 2) / (Average (Average (Abs(Net), parameter 1), parameter 2)

The plotted Ergodic study line is not much different than just plotting a small period moving average of the bar's close price.  Let me illustrate with this comparison.

I have used parameters that are smaller than are typically used for Ergodic so that the comparison of similarity to the small period moving average would be more obvious.  You can see the waves are the same, and the turns are identically aligned.   So, in essence the Ergodic is just another moving average.  But, because the Ergodic is a ratio it cannot be plotted on a price scale.  Ergodic has its own scale, and the range for this scale will fluctuate.

The Simple Average (blue line) is using a 2 bar parameter.  The parameters for the two averages in the Ergodic (cyan line) are 26 and 3.

One way to use the Ergodic indicator is as a qualifier for the CCI indicator.  The blue line is the Ergodic study superimposed on the Commodity Channel Index study.  Ergodic confirms the CCI extreme trades very well. We used to get a 50/50% win/loss ratio on these trades.  The last few days it is running more like 80% winners.  This method is only used for reversals when the CCI is in the extreme range.  Thought you'd like to see what some are doing with Ensign Windows.

Editor's Note:  The study parameters were not provided with the example chart.  Therefore, I used Playback for ES020816 to recreate the 3-minute chart.  I adjusted the CCI and Ergodic study parameters until I was able to recreate the example chart with enough similarities to be close.  Here are the parameters I think were used in the example.