Category: Advanced Indicator Set 2

Input parameters

Calculations

The Center of Gravity Oscillator (CG), suggested by John Ehlers (see reference below), is defined as:

CG = - Sum(Time Series[i] * (i + 1)) / Sum(Time Series[i])

Here the sum ranges from  i=0 to Period-1, where the current bar is i=0, the previous bar is i=1, etc.

Discussion

CG shows the position of the balance point of the Time Series values within the lookback window. For a constant time series (for example, sideways markets) the center of gravity is located around the middle point of the window, so CG generates values around -(Period/2+1). If time series rises within the window, the CG shifts from the middle point to the right in the window  (to lower negative values). If time series drops within the window, the CG shifts from the middle point to the left (to higher negative values). The sharper the rise (drop) of the time series, the stronger the CG shifts from its middle point. Trending markets can then be identified using CG.

For example, given Period=10, a constant time series (sideway markets) will produce CG output equal to -5.5. Rising time series then produces CG values in the range [-5.5, 0], and dropping time series produces CG values in the range [-11, -5.5].

For practical purposes it might be more convenient to convert CG position values into percent changes relatively to the middle point. Then the middle point would be 0% (sideways market), rising markets would have CG values from 0% to 100%, and falling markets would have CG values from 0% to -100%. We have build a modified CG indicator to do this called Center Of Gravity Index.

Reference

John F. Ehlers, “The Center Of Gravity Oscillator”, Technical Analysis of Stocks & Commodities, May 2002, pp.20-24