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Figure 9.  Frequency Response of a Predictive FIR filter

Now, lets examine what happens when we create a Hybrid filter as

Hybrid = .33*Filt + .67*Hybrid[1]

The FIR part of the Hybrid filter has a 1-bar lead at all frequencies and the IIR part of the filter has a 2 bar low frequency lag.  Our guess is that we should expect a 1-bar lag low frequency component and perhaps some lead at higher frequencies.  But first, let’s examine the frequency response behavior of this Hybrid filter.  Its frequency response is shown in Figure 10.  While the smoothing obtained by this filter is modest, at least it does not amplify the higher frequency components.  The lag of the filter, shown in Figure 11, has the expected 1-bar lag at low frequencies and quickly drops to near zero across most of the frequency band.

{$image10 caption="Figure 10.  Frequency Response of a Zero Lag Hybrid Filter."

{$image11 caption="Figure 11.  Lag Response of a Zero Lag Hybrid Filter."

The Hybrid filter examples I have shown have either produced a substantial increase in smoothing at a modest cost of delay or have substantially reduced lag while continuing to provide some smoothing.  The formulation of these Hybrid filters is simple and the combinations are endless.  I hope you can find a Hybrid filter combination you can use to advantage in your own trading.  Now that you know how to reduce lag by one bar, you too can make a zillion dollars.