Stocks & Commodities V. 29:5 (56-59): Product Review: Mesa 9 by Dennis Peterson
Product Description
Product Review: Mesa 9 by Dennis Peterson
esa9 is a set of studies for TradeStation, MultiCharts, and NeuroShell Trader that employs the latest evolution of John Ehlers’s analysis techniques. The indicators are a set of tools, and without a doubt, one of the most powerful approaches that try to predict price behavior. The premise of Ehlers’s approach is unassailable. A price series is nothing more than a time series and therefore subject to signal analysis techniques. The overall approach is to find what Ehlers refers to as the dominant cycle. If price were to move up and down following a perfect sine wave, prediction would be a snap, and of course, the dominant cycle would be that sine wave. But alas, the real world is more complicated. In a perfect world, it’s not difficult to imagine taking the normal up and down price movements and converting them to a sine wave. Borrowing a picture from Ehlers’s user manual, a sine wave superimposed on a straight line (see Figure 1) begins to look like price in a trend. If only it were so easy. A trend following a straight line is, especially if it’s daily data, a highly unlikely event, if not impossible.
DOMINANT CYCLE
The temptation here is to use a Fourier series. Or at least explain what the analysis is doing in terms of a Fourier series. A Fourier series, invented by the French mathematician and physicist Joseph Fourier (1768–1830), employs the linear sum of sine and cosine waves. Amazingly, you can replicate a repeating square waveform with a series of sine and cosine waves in the limiting case. But the answer you get is not one that is tradable, and Ehlers makes that point in his user manual. He employs filtering techniques using a feedforward design to measure the dominant cycle, as opposed to the feedback design he had with Mesa8. When Ehlers talks about a spectrum of frequencies, he is really talking about a set of cycles for which he has calculated their amplitude, and the cycle with the greatest amplitude is the dominant cycle.
esa9 is a set of studies for TradeStation, MultiCharts, and NeuroShell Trader that employs the latest evolution of John Ehlers’s analysis techniques. The indicators are a set of tools, and without a doubt, one of the most powerful approaches that try to predict price behavior. The premise of Ehlers’s approach is unassailable. A price series is nothing more than a time series and therefore subject to signal analysis techniques. The overall approach is to find what Ehlers refers to as the dominant cycle. If price were to move up and down following a perfect sine wave, prediction would be a snap, and of course, the dominant cycle would be that sine wave. But alas, the real world is more complicated. In a perfect world, it’s not difficult to imagine taking the normal up and down price movements and converting them to a sine wave. Borrowing a picture from Ehlers’s user manual, a sine wave superimposed on a straight line (see Figure 1) begins to look like price in a trend. If only it were so easy. A trend following a straight line is, especially if it’s daily data, a highly unlikely event, if not impossible.
DOMINANT CYCLE
The temptation here is to use a Fourier series. Or at least explain what the analysis is doing in terms of a Fourier series. A Fourier series, invented by the French mathematician and physicist Joseph Fourier (1768–1830), employs the linear sum of sine and cosine waves. Amazingly, you can replicate a repeating square waveform with a series of sine and cosine waves in the limiting case. But the answer you get is not one that is tradable, and Ehlers makes that point in his user manual. He employs filtering techniques using a feedforward design to measure the dominant cycle, as opposed to the feedback design he had with Mesa8. When Ehlers talks about a spectrum of frequencies, he is really talking about a set of cycles for which he has calculated their amplitude, and the cycle with the greatest amplitude is the dominant cycle.
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