Investing & Trading

FM Demodulator 2 Study

By Samantha Baltodano


TL;DR:

The FM Demodulator 2 is a technical analysis tool used to detect potential turning points in market data. It calculates a hard limiter filter based on the two-bar price momentum and then applies a simple moving average to that result, using the rate of change of the moving average as the resulting indicator. 


Traders can use the resulting indicator to identify potential entry and exit points in the market by looking for crossovers of the ROC plot. However, it's important to note that the FM Demodulator 2 should be used in conjunction with other tools and strategies, and that trading always carries risk.


What Is The FM Demodulator 2 Study?

The FM Demodulator 2 study is a technical analysis tool that helps traders identify potential turning points in market data. It uses a method called signal processing, which involves using math to identify patterns and trends in the data.


One of the key differences between the FM Demodulator 2 and the original FM Demodulator is that it calculates the hard limiter filter based on the two-bar price momentum instead of the difference between the close and open.


The FM Demodulator 2 is calculated by applying a hard limiter to the two-bar close price momentum, finding the sum of the last four hard limiter values, calculating a simple moving average of that sum, and then using the rate of change of the moving average as the resulting indicator.


The crossovers of the resulting indicator can help traders identify potential entry and exit points in the market.


How Does the FM Demodulator 2 Study Work?

The FM Demodulator 2 study is calculated using the following steps:


  1. Hard limiter is applied to the two-bar close price momentum: the momentum times two is divided by its root mean square, and the results are cut off to fit the -1 to +1 range.
  2. The sum of the four last hard limiter values is found (plot Timing).
  3. A simple moving average of the previous result is calculated (plot Signal).
  4. The rate of change of the moving average is the resulting indicator (plot ROC).


Using the FM Demodulator 2 to Identify Potential Turning Points

The FM Demodulator 2 can help traders identify potential turning points in the market by looking for crossovers of the resulting indicator.


When the ROC plot crosses above the zero line, it can be an indication that the market is turning bullish and that it might be a good time to enter a long position. Conversely, when the ROC plot crosses below the zero line, it can be an indication that the market is turning bearish and that it might be a good time to enter a short position.


Additionally, the FM Demodulator 2 can help traders identify potential exit points. When the ROC plot crosses back below the zero line after a bullish crossover, it might be a signal to exit the long position. When the ROC plot crosses back above the zero line after a bearish crossover, it might be a signal to exit the short position.


Limitations of the FM Demodulator 2 Study

It's important to note that the FM Demodulator 2 study is not foolproof and should be used in conjunction with other tools and strategies. Traders should also keep in mind that past performance is not indicative of future results, and that trading always carries a certain level of risk.


Summary

  • The FM Demodulator 2 study is a technical analysis tool that helps traders identify potential turning points in market data.
  • It calculates the hard limiter filter based on the two-bar price momentum instead of the difference between the close and open.
  • The resulting indicator is calculated using a hard limiter on the two-bar close price momentum, finding the sum of the last four hard limiter values, calculating a simple moving average of that sum, and then using the rate of change of the moving average.
  • Traders can use crossovers of the resulting indicator to identify potential entry and exit points in the market.
  • The FM Demodulator 2 can help traders identify potential turning points in the market and can also be used to identify potential exit points.


FM Demodulator 2 is just one of many studies that Archaide automates. For a full list of strategies and studies available click here.


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