Theory  |  NOV 1997

V.15:11 (505-509) Cycle Measurements by John F. Ehlers

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. There’s 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 average convergence/divergence (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-formsÝ and maximum entropy spectral analysisÝ (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.

by John F. Ehlers