The author of Mesa and Trading Cycles and developer of the
MESA software series presents why you should dynamically
adjust your indicators due to the change in market cycles.
Thereís no doubt about it: Market
cycles can be difficult to identify.
But if they can be measured,
the payoff can be substantial. By
measuring cycles, we have an
independent parameter that frees
us from using static indicators
such as stochastics, the relative
strength indicator (RSI), moving
(MACD) or even moving averages with fixed settings. Mea-suring
cycles enable us to dynamically adjust these indicators
to current market conditions.
Currently, there are three popular methods to identify
market cycles, and these are cycle finders, Fourier trans-forms›
and maximum entropy spectral analysis› (MESA).
Cycle finders, which are included in virtually all indicator
toolbox software programs, basically measure the spacing
between successive lowest lows (or other identifiable places
in the cycle) and in general depend on finding an average
value across a number of cycles.