EHLERS ITREND Trading Guide

The Ehlers Instantaneous Trendline is a smooth, low-lag overlay indicator designed by the legendary trader and physicist John Ehlers. Unlike traditional moving averages, it uses a second-order Infinite Impulse Response (IIR) filter to isolate the underlying trend line of the price while eliminating high-frequency cycle noise with minimal lag.

How it works

The Instantaneous Trendline filters price data using a second-order mathematical equation:

iTrend = (alpha - 0.25 * alpha^2) * Close + 0.5 * alpha^2 * Close[t-1] - (alpha - 0.75 * alpha^2) * Close[t-2] + 2 * (1 - alpha) * iTrend[t-1] - (1 - alpha)^2 * iTrend[t-2]

Where alpha = 2 / (Period + 1). This specific mathematical structure removes cyclical components that are shorter than the configured Period, leaving only the instantaneous trend direction. The trend is classified as bullish when the trendline is rising, and bearish when the trendline is falling.

What does the indicator show?

• iTrend Line: A smooth overlay line drawn directly on the price chart:
  • Green Line: The Instantaneous Trendline is rising, indicating a Bullish Trend.
  • Red Line: The Instantaneous Trendline is falling, indicating a Bearish Trend.
• Trend State: A binary strategy output (1 for bullish, -1 for bearish).
• Direction Signal: Triggers a value of 1 when the trend flips from bearish to bullish, and -1 when the trend flips from bullish to bearish.

Trading Strategies

• Trend Following: Buy when the iTrend line changes color to Green, and sell/short when it changes color to Red.
• Trend Confirmation Filter: Use the binary trend state output to filter trading signals from oscillators (only take long signals when iTrend is Green, and short signals when iTrend is Red).