Adaptive Two-Pole Super Smoother Entropy MACD

The Adaptive Two-Pole Super Smoother Entropy (Math) MACD indicator provides a responsive momentum oscillator that combines John Ehlers' SuperSmoother filter with entropy-based mathematics to filter market noise and identify trend transitions with minimal lag. By transforming price data into an entropy-based MACD and applying adaptive smoothing, it helps traders visualize the strength and direction of market momentum more effectively than standard moving average oscillators.

Usage

The Usage section describes how the script can be used to identify market trends and potential reversal points:

• Trend Identification: When the main oscillator line (ATPSSEMACD) crosses above the Upper DSL (Discontinued Signal Line), it indicates a bullish trend. Conversely, a cross below the Lower DSL indicates a bearish trend.
• Signal Generation: Bullish "L" labels appear when the oscillator crosses above the upper level, while bearish "S" labels appear when it crosses below the lower level.
• Neutral Zones: When the oscillator is between the upper and lower DSL levels, the market is considered to be in a neutral or consolidating state.
• Bar Coloring: The indicator can color the chart bars based on the current momentum state (green for bullish, red for bearish, neutral for consolidation).

Details

The script utilizes a Two-Pole SuperSmoother filter, which John Ehlers designed to provide superior noise reduction with significantly less lag compared to traditional Simple Moving Averages (SMAs). While a 5-bar SMA has approximately 2 bars of lag, a SuperSmoother filter with a 10-bar cutoff typically has only about 1.5 bars of lag.

The "Entropy (Math)" component refers to the transformation of price changes into a logarithmic probability space, which is then processed by the filter. The Discontinued Signal Lines (DSL) further enhance the signal quality. Unlike a standard signal line that always follows the oscillator, a DSL "freezes" its value when the oscillator moves in the opposite direction, creating a dynamic support/resistance level that reduces whipsaws in sideways markets.

Settings

Source Settings

• Heikin-Ashi Better Calculation Type: Selects the smoothing method (AMA, T3, or Kaufman) used when using HAB source types.
• Source: Provides a wide variety of price inputs, including standard sources and expanded types like Heikin-Ashi and Trend-Biased calculations.

Basic Settings

• Period: Sets the primary lookback period for the entropy calculation.
• Adapting Period: Determines the window used for the adaptive volatility calculation.

Signal/DSL Settings

• Signal Period: Adjusts the smoothing length of the Discontinued Signal Lines.
• Signal/DSL Smoothing: Chooses between standard EMA or a Fast EMA for the signal line calculation.

UI Options

• Color bars?: Toggles price bar coloring based on the indicator state.
• Show signals?: Toggles the visibility of the Long/Short labels on the chart.

Moving Average Inputs

• Kaufman's / Adaptive Moving Average inputs: These settings specifically control the behavior of the adaptive moving averages if they are selected as the calculation type.

FAQ

How do I interpret the Upper and Lower DSL lines?

The Upper and Lower DSL lines act as dynamic thresholds. When the oscillator is above the upper line, momentum is strong; when it is below the lower line, momentum is weak. If the oscillator is trapped between them, it signifies a lack of clear trend.

What makes this different from a regular MACD?

Standard MACDs use two EMAs which can introduce significant lag. This tool uses a Two-Pole SuperSmoother for lower lag and an entropy-based calculation to better identify the signal-to-noise ratio in price movements.

How do I access this indicator?

You can get access on the LuxAlgo Library for charting platforms like TradingView, MetaTrader (MT4/MT5), and NinjaTrader for free.