Business and Personal Finance Dictionary

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• MAXIMUM ENTROPY METHOD
  
  More flexible than Fourier analysis, the maximum entropy method is both a tool for spectrum analysis and a method of adaptive filtering and trend forecasting. As a tool for spectrum analysis, the MEM system can provide high resolution spectra for identifying the dominant data cycles within relatively short time series, such as open, high, low, close, volume and open interest, or study results, such as RSI, TRIX, and so on. (Fourier analysis, in contrast, gives best results when applied to time series of six months or longer.) As a forecasting tool, MEM is used in conjunction with moving averages to forecast lower and upper trend channels in the data.
  
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