EdgeWare FastGraph Version 3 - Manual (Page 44)

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When the chart starts on the left the dominant period is fifty days, and therefore a trend
mode. In this case it is a down trend and the NAV drops below the trend line shortly af-
ter the chart begins. Approximately three months into the chart the dominant period
drops to a cyclic mode with a period of about 18 days, however, the length of the domi-
nant period turns up almost instantly and the NAV goes above the trend line. An aggres-
sive trader may want to buy the fund at this point. A more conservative trader would
wait until the trend is more obvious. This happens when the dominate period goes to 50
days. The upward trend continues with little indication of changing until the dominate
period drops to about 12 days and the trend line moves toward the NAV quite dramati-
cally. This is an indication that the upward trend may be ending and the fund is entering
a cyclic mode. Other indicators should be looked at to help make a trading decision.
In this particular case the upward trend was ending and the fund dropped significantly.
Will this happen in every case? NO! There are no perfect indicators or guarantees. This
is another tool to put in your tool box.
A Note on Picking MEM Parameters
We recommend that the Max Period parameter be left to the default of 50 days. This is
the value recommended by Ehlers. The selection of the # of Poles parameter is a little
more difficult. The higher this number the more “spikes” that will appear in the spec-
trum. A recommend value is 40% of the Max Period parameter. Therefore, if using 50
days then 20 poles is a good starting point. We have very little experience with using the
MEM and are in an experimental mode ourselves.