Explaining spectral analysis to a five year old :)

Hi,

The other day I looked into the Signal Processing section in the manual. There are a lot of indicators that seems interesting, although I understand half of it.

For instance, the Spectrum indicator...

I've messed around with it for a while now and I'm looking for some explanation.

The simple code looks like this


and presents a result looking like this:
http://sv.tinypic.com/view.php?pic=4kfjbl&s=8#.UyXLOfl5Mso

Now... I'm curious about the peaks in the chart, for instance like in 5~ of february and 3~ of march and so on.

1.) What do they mean?

"returns the relative amplitude of the spectral component with a cycle given b[...]Can be used to analyze the frequency spectrum of a price curv"

2.) Regarding the quote above from the manual, can anyone please explain what that means, maybe with an example or so?

Thanks alot!

The peaks mean that a 5 bar cycle was detected at that time. Meaning that the prices went up and down every 5 bars. When such a cycle exists for a longer time, you can predict the next highs and lows and use that for trading.