First Indy...The Lag

One of the technical indicator that i loved to apply in my everyday trading is the laguerre RSI. Laguerre RSI simply known as lag was introduced by John in his book “Cybernetic Analysis for stocks and futures”. It uses a lag filter to provide a “timewrap” so that the low frequency components are delayed more than the high frequency components, enabling much smother filters to be created using less data.
Normally I overlay two lag indicators one on top of the other and change the settings on the second one which I used as my trend indicator.
Below is 1 min USDJPY chart showing the 2 lag indicators overlayed. The red lag is the fastest setting lag and the blue is the slower setting lag. The orange line on the chart is the lag filter line with the same setting as the blue or fast lag.

The settings are as follows:
Inputs: Gamma 0.8 (red or slow lag), 0.55 (blue or fast lag)
Levels: 0.85, 0.45 and 0.15
Filter line setting gamma: 0.55
The filter line creates a good visual aid to enter a trade as it easy to see when the bars open above or below the filter line. As the gamma setting on the lag filter line is the same as the blue lag indicator, the candles cross above or below the filter line at the same time.

The chart show that at 2:21 the fast or blue lag crosses below the 0.85 level and the candles open below the lag filter as we go short. If the fast or blue lag cross from zero above the 0,15 level and the candles cross above the lag filter we get the signal to enter long.


Typically when there a strong trend in either direction the lag flatten at the top or bottom indicating that the trend is is in tact.
When the slow or red lag crosses above 0.15 or below 0.85 it generally confirms the long term direction.
Note: When the red slow lag is heading lnog and the blue slow lag crosses short this is most likely a pull back as the red line generally signals the overall trend.