Center of Gravity

by: Bill Zimmer Tuesday, February 23rd, 2010 at 10:24 am

Around the first of this month the PrudentTrader released a mean reversion system utilizing Welles Wilders Relative Strength Indicator.  R.S.I. is an oscillator that vacillates between 0 and 100.  Normally on a 14 period R.S.I. a reading below 30 is considered oversold and a reading above 70 is considered overbought.  When an ETF reaches a severe oversold level as defined in that system you buy.

When dealing with mean reversion systems any oscillator can be used. R.S.I., Stochastics, or Commodity Channel Index (CCI) and so on.  Is one better than the other? Probably not, but each will have its own idiosyncrasies, which traders incorporate into their trading.

John Ehlers describes an indicator he calls the Center of Gravity Oscillator in Cybernetic Analysis for Stocks and Futures.  The chart below shows the oscillator with some very simple entries and exits.

Just another oscillator? Perhaps – I’ve not fooled with the parameters at all either.

Interested? More Information: The CG Oscillator [Fisher Transform]

- By John Ehlers