QuanTAlib/lib/volatility/etherm/Etherm.md

ETHERM: Elder's Thermometer

Markets run a fever before they crash. The thermometer tells you when to reach for the aspirin.

Property	Value
Category	Volatility
Inputs	OHLCV bar (TBar)
Parameters	period (default 22)
Outputs	Temperature + Signal (EMA)
Output range	\geq 0
Warmup	period bars
PineScript	etherm.pine

• Elder's Thermometer (ETHERM) measures how far today's price bar protrudes beyond yesterday's range, capturing the maximum outward extension in either direction.
• Similar: ATR | Complementary: Trend detection | Trading note: Elder Thermometer; measures current bar's range vs previous.
• Validated against TA-Lib, Skender, and Tulip reference implementations where available.

Elder's Thermometer (ETHERM) measures bar-to-bar range extension — the maximum outward protrusion of the current bar beyond the previous bar's high or low. Developed by Dr. Alexander Elder, it captures only outward expansions; inward contractions clamp to zero. An EMA signal line with bias compensation provides a smoothed reference for detecting explosive moves (temperature significantly exceeding the signal).

Historical Context

Dr. Alexander Elder introduced the Market Thermometer in Come Into My Trading Room (2002) as part of his Triple Screen trading system refinements. Elder observed that bars extending well beyond the prior bar's range signaled heightened volatility — the market "running a fever." The thermometer provides a simple, bar-level volatility measure that distinguishes between outward breakouts and inward consolidation, making it ideal for stop placement and position sizing decisions.

Architecture & Physics

ETHERM is a two-stage pipeline: a per-bar range-extension measurement followed by an exponential smoother.

Stage 1 — Temperature: For each bar, compute how far the high protrudes above the previous high and how far the low protrudes below the previous low. Only outward extensions count; inward contractions clamp to zero. The temperature is the larger of the two protrusions.

Stage 2 — Signal: A bias-compensated EMA of the temperature provides a smoothed baseline. The bias compensation ensures accuracy from the first bar by dividing out the geometric decay factor e_t, converging to a standard EMA as e_t \to 0.

Transfer Function

The signal line is a standard EMA applied to the temperature series:

H(z) = \frac{\alpha}{1 - \beta z^{-1}}, \quad \alpha = \frac{2}{N+1}, \quad \beta = 1 - \alpha

Half-Life

t_{1/2} = \frac{-\ln 2}{\ln \beta}

For period = 22: \beta \approx 0.913, t_{1/2} \approx 7.6 bars.

Warmup Period

QuanTAlib uses bias-compensated EMA, which converges after approximately period bars. During warmup, outputs are produced but IsHot returns false until the compensator e_t \leq 0.05.

Mathematical Foundation

Step 1: Outward Protrusions

\text{highDiff}_t = \max(H_t - H_{t-1},\; 0) \text{lowDiff}_t = \max(L_{t-1} - L_t,\; 0)

Step 2: Temperature

T_t = \max(\text{highDiff}_t,\; \text{lowDiff}_t)

Step 3: EMA Signal with Bias Compensation

\text{ema}_t = \beta \cdot \text{ema}_{t-1} + \alpha \cdot T_t e_t = \beta \cdot e_{t-1}, \quad e_0 = 1 \text{Signal}_t = \begin{cases} \frac{\text{ema}_t}{1 - e_t} & \text{if } e_t > \epsilon \\ \text{ema}_t & \text{otherwise} \end{cases}

where N = period, H_t = High, L_t = Low, \epsilon = 10^{-10}.

Performance Profile

Operation Count (per bar)

Operation	Count	Notes
Subtract	2	High/low diffs
Max	3	Clamp to 0 (×2), final max
FMA	1	EMA update
Multiply	2	\alpha \cdot T, \beta \cdot e
Division	1	Bias compensation
Compare/branch	2	Finite check, bias threshold
Total	~11	O(1) per bar, no allocations

SIMD Applicability

Not beneficial — the recursive EMA dependency prevents vectorization. Each bar depends on the previous bar's state.

Memory Layout

Field	Type	Bytes	Purpose
PrevHigh	double	8	Previous bar's high
PrevLow	double	8	Previous bar's low
Ema	double	8	Running EMA of temperature
E	double	8	Bias compensator
LastValidHigh	double	8	NaN fallback for high
LastValidLow	double	8	NaN fallback for low
LastValidTemp	double	8	NaN fallback for temperature
Count	int	4	Bar counter
Total		60	Single cache line

Validation

Library	Match	Notes
TA-Lib	—	No Elder Thermometer function
Skender	—	No direct equivalent
Tulip	—	No direct equivalent
Self	✓	Batch ⟷ streaming ⟷ span consistency
Pine	✓	etherm.pine matches C# output

Common Pitfalls

1. Using close-only data — ETHERM requires High and Low prices. When fed a single value (TValue), it treats H=L, producing zero temperature. Always use Update(TBar).
2. Confusing temperature with signal — The Value property returns the raw temperature (current bar only); the Signal property returns the smoothed EMA. Use signal for trend comparisons.
3. Inside bars — Both protrusions clamp to zero, so inside bars always produce temperature = 0. This is by design, not a bug.
4. First bar — No previous bar exists, so temperature = 0. The EMA signal starts building from the second bar.
5. Explosive threshold — A common strategy is to flag bars where temperature exceeds Signal × multiplier (e.g., 3×) as explosive moves.

References

• Elder, Alexander (2002). Come Into My Trading Room: A Complete Guide to Trading, Wiley. p. 162.
• Elder, Alexander (1993). Trading for a Living, Wiley. (Earlier discussion of volatility-based stops.)