2015 Stocks & Commodities Readers Choice Award Winner
John F. Ehlers article "Predictive and Successful Indicators" won the Stocks & Commodities award for favorite article of the year.
"If John Ehlers writes it, I read it. He's that brilliant."Larry Williams
"It's refreshing to find new ideas in a business that's become so competitive and often filled with variations on the same themes."Perry Kaufman
"John Ehlers ranks with Art Merrill as the best quantitative technical analyst of the twentieth and, probably, the twenty-first century"John Sweeney
"John is one of those rare breed of analysts who dives into the why and how of things and not the often used superficial approach."Greg Morris
In 1978 Maximum Entropy was an advanced mathematical technique used in the seismic exploration for oil. The advantage of this approach was that only a short amount of data is required to attain a high resolution answer. I recognized this could be important for processing market data because the market cycles are efemerous, and using a short data sample could result in a more accurate measurement of the cycles in the market. Also, I recognized the changing cycles invalidated all the FFT data assumptions. I therefore adapted the Maximum Entropy to develop the MESA (Maximum Entropy Spectrum Analysis) product. In doing this, I scaled the result in terms of cycle period with which traders are familiar instead of the usual frequency axis. I developed MESA for my own use as a private trader, but word soon got out, and before I knew it I was a vendor. MESA is acknowledged to be the leading method of measuring the market spectrum. MESA was used not only as an indicator, but the measured dominant cycle was used to dynamically tune trading strategies such as EPOCH and SIERRA HOTEL.
The R-MESA program was written in 1992. It was an intraday program used for trading the S&P index. R-MESA was rated as one of the top 10 S&P trading systems continuously for over 10 years, as rated by Futures Truth.
The spectral shape of market data is pink noise, as described by Mandelbrot and the slope of the spectral dilation is measured by the Hurst Coefficient. Therefore, accurate measurements of the dominant cycle must include compensating filters to remove the imbalance of cycle amplitudes across the spectrum. While this can be done, I discovered that an autocorrelation periodogram automatically removes the effects of spectral dilation because the correlation function is normalized to swing between -1 and +1, regardless of the cycle period. Therefore, the autocorrelation periodogram is currently the preferred method to measure market cycles. The code to do this is given in my book "Cycle Analytics for Traders.
I have collaborated with master programmer Ric Way to transition my DSP and Information Theory technology from the futures markets to make them available to equity traders. StockSpotter.com is one result of this collaboration. StockSpotter.com is extremely robust, trading over 4500 stocks with no variance in parameters of the strategy. StockSpotter.com trading signals are available by subscription.
MESA Phasor is a brand new trading system, primarily intended for trading index futures. MESA Phasor is easy to trade, using daily data, and typically holds both long or short positions for about two weeks. MESA Phasor is also robust, enabling the trading of portfolios of different index futures in a portfolio or trading a mixed portfolio including Treasury Bond futures. MESA Phasor can also be applied to Metals, Meats, and Grains.