Online monitoring of high-speed rotating blades has always been a hot topic. Of the various methods, the blade tip timing (BTT) technique, based on eddy current sensors, is considered to be the most promising. However, BTT signals are easily influenced by various factors, which means that the accurate extraction of BTT signals remains a challenge. To try to solve this problem, the causes of measurement error were analyzed. The three main reasons for the error were established: the variation in blade tip clearance, the interference of background noise, and the asymmetry of the blade tip shape. Further, pertinent improvement methods were proposed, and a compensation method was proposed for the errors caused by the variation of tip clearance. A new denoising and shaping algorithm based on ensemble empirical mode decomposition (EEMD) was introduced for the errors caused by background noise. Additionally, an optimal installation position of the sensor was also proposed for the errors caused by the asymmetry of the blade tip shape. Finally, simulations and experiments were used to demonstrate the improved methodology. The results show that the measurement error on vibration amplitude and vibration frequency using the proposed method is less than 2.89% and 0.17%, respectively, which is much lower than the traditional method (24.44% and 0.39%, respectively).