Truncated Bandpass Filter

The performance of some, but not all, indicators can be greatly enhanced by truncation. There are two fundamentally different types of digital filters, FIR and IIR. FIR stands for Finite Impulse Response, which means a fixed window of data is used to calculate a point of the filter output. That window slides across the data, and the output points are connected to provide the indicator. A Simple Moving Average (SMA) is an example of such a filter. RSI and Stochastic are examples of indicators that use this principle. FIR filters and indicators can only be degraded by truncation. IIR stands for Infinite Impulse Response, where the computation of the filter or indicator depends on a previous calculation of that filter. The Exponential Moving Average (EMA), and consequently the MACD and other indicators, are IIR types. Of course, the computation of an IIR filter does not extend to infinity. The filter computation can only start at the beginning of the data being used.

This is a companion discussion topic for the original entry at