Cybernetic Analysis for Stocks and Futures: Cutting-Edge DSP Technology to Improve Your Trading (Wiley Trading) [Hardcover]

John F. Ehlers (Author)

Book Description

ISBN-10: 0471463078 | ISBN-13: 978-0471463078 | Publication Date: March 29, 2004 | Edition: 1

Cutting-edge insight from the leader in trading technology
In Cybernetic Analysis for Stocks and Futures, noted technical analyst John Ehlers continues to enlighten readers on the art of predicting the market based on tested systems. With application of his engineering expertise, Ehlers explains the latest, most advanced techniques that help traders predict stock and futures markets with surgical precision. Unique new indicators and automatic trading systems are described in text as well as Easy Language and EFS code. The approaches are universal and robust enough to be applied to a full range of market conditions.
John F. Ehlers (Santa Barbara, CA) is President of MESA Software (www.mesasoftware.com) and has also written Rocket Science for Traders (0-471-40567-1) as well as numerous articles for Futures and Technical Analysis of Stocks & Commodities magazines.

Editorial Reviews

From the Inside Flap

"While much of what is covered in this book breaks new ground, it is not simply innovation for innovation’s sake. Rather, it is intended to challenge conventional wisdom and illuminate the shortcomings of many prevailing approaches to systems development."
–From Chapter 1

John Ehlers’s contributions to the art and science of trading have been nothing short of extraordinary. From his pioneering work applying maximum entropy spectral analysis (MESA) software to trading markets, to his definitive tour de force Rocket Science for Traders, Ehlers’s innovative and market-proven approach to cycle analysis and market forecasting has earned him a reputation that is unmatched among technicians and technical traders worldwide.

In Cybernetic Analysis for Stocks and Futures, Ehlers takes the next step, developing and demonstrating profoundly effective new trading tools through the application of modern digital signal processing techniques. Obtaining accurate cycle measurements within five samples with virtually zero lag, these tools have proven in real-time use to consistently provide traders with razor-sharp buy and sell signals in virtually any market–meeting or exceeding the performance of commercial systems which cost hundreds or even thousands of dollars.

To increase the book’s functionality and ease of use, each new technique, indicator, and automatic trading system is defined in both EasyLanguage code (for use in TradeStation™) and eSignal Formula Script (EFS) code. DLLs to work with NeuroShell Trader are also available. Modernizing popular trading procedures to take advantage of the incredible computing speed and power available to today’s trader, Ehlers introduces:

• The Fisher Transform–ensure that the density function of any indicator is Gaussian, creating sharper trading signals
• The Relative Vigor Index–a responsive oscillator in which movement is normalized to the trading range of each bar
• Improved Hilbert Transform–a more responsive method to accurately measure market cycles
• The Sinewave Indicator–a non-causal filter that gives entry and exit signals 1/16 of a cycle period in advance of the turning point
• The Laguerre Transform–a new tool to address the smoothing versus lag problem more effectively and create better smoothing filters
• Super Smoothing Filters–provide more smoothing with less lag
• Simple Moving Average Computations–two new ways to compute the simple moving average with unprecedented ease

Advances made in computer technology in the past two decades have clearly outpaced advances in trading software and practice. Cybernetic Analysis for Stocks and Futures seeks to restore the balance between computational power and user proficiency. Combining new indicators with tested systems for forecasting stock and futures markets with surgical precision, it will drive your systems to new levels of predictive accuracy, trading effectiveness, and overall profitability.

From the Back Cover

Praise for Cybernetic Analysis for Stocks and Futures

"If John Ehlers writes it, I read it. He’s that brilliant."
––Larry Williams
trader and author of Commodity Timing

"Cybernetic Analysis is a treasure of new and innovative ideas. John Ehlers has put aside the traditional mathematics of cycles and written a totally readable, thought-provoking, and user-friendly book on new indicators and trading methods. I particularly liked his work on the Fisher Transform, probability distributions, and true lag, which are a great contribution. This is a must for all analysts."
––Perry Kaufman
author of Trading Systems and Methods and A Short Course in Technical Trading

"John Ehlers ranks with Art Merrill as the best quantitative technical analyst of the twentieth and, probably, the twenty-first century. The success of his insight–employing digital signal analysis–is fully demonstrated in this volume, a worthy addition to his earlier, Rocket Science for Traders. For substantive, fully disclosed techniques you can use every day, this material is the best there is."
––John Sweeney
former editor of Technical Analysis of Stocks & Commodities magazine

Breakthrough Trading Tools–and Updated Applications–for Dramatically Increased Forecasting Accuracy in Every Market

Over the past two decades, John Ehlers has built a worldwide following with his unprecedented ability to combine the scientific knowledge of an engineer with the instincts of a top trader. In Cybernetic Analysis for Stocks and Futures, Ehlers–author of the groundbreaking Rocket Science for Traders–introduces serious traders to all-new methods for applying digital signal processing techniques to market forecasting.

Let Ehlers’s latest book show you how to:

• Obtain accurate cycle measurement within five samples
• Make indicators adaptive to market conditions using the measured cycle period
• Sharpen market turning points by manipulating the Probability Distribution Function using the Fisher Transform
• Discern the onset of trend modes and cycle modes
• Generate dependable buy and sell signals in any market

Cybernetic Analysis for Stocks and Futures combines all-new indicators with innovative uses of proven indicators to give you that rare edge that makes trading more pleasurable and profitable, in virtually every market and environment.

See all Editorial Reviews

Product Details

• Hardcover: 256 pages
• Publisher: Wiley; 1 edition (March 29, 2004)
• Language: English
• ISBN-10: 0471463078
• ISBN-13: 978-0471463078
• Product Dimensions: 9.3 x 6.2 x 0.9 inches
• Shipping Weight: 1.2 pounds (View shipping rates and policies)
• Average Customer Review: 4.7 out of 5 stars  See all reviews (12 customer reviews)
• Amazon Best Sellers Rank: #582,703 in Books (See Top 100 in Books)

More About the Author

Discover books, learn about writers, read author blogs, and more.

Customer Reviews

Most Helpful Customer Reviews

40 of 42 people found the following review helpful:

5.0 out of 5 stars Grown-up Technical Analysis, August 19, 2004

By 

RCS (Europe) - See all my reviews

This review is from: Cybernetic Analysis for Stocks and Futures: Cutting-Edge DSP Technology to Improve Your Trading (Wiley Trading) (Hardcover)

If I had the choice of picking just one book on TA, it would be this one!

The new technical indicators developed in this book are far superior to the traditional indicators like Exponential and Simple Moving Averages, RSI, Stochastics etc.

I don't have TradeStation, but the source-code for the indicators are well explained, so I translated TradeStation code to my Java based system in no time.

Basically the book deals with the marked using fairly advanced math for splitting the data in a trend-mode and cycle-mode. Traditional methods of smoothing the data using Simple/Exponential Moving averages are not bad, but they filter the data relatively poorly, so that there is a "leak" of higher frequencies into the result, giving the familiar whip-saws. To reduce the whip-saws, one is stuck with sometimes an unacceptable lag. For comparison, one of the technical indicators in the book, the Instantaneous Trendline, by applying more advanced mathematical filtering, cuts down on the whip-saws, but has virtually no lag!

This is just one example of the many new (revolutionary, I would say) ways of looking at marked data.


Of the oscillators I have implemented so far the Stochastic CyberCycle, but this togheter with the Instantaneous Trendline are themselves so good that I have dumped my usual EMAs, MACDs,
etc from my charts.

I'm really looking forward to the sequel of the book (if there will be one).

52 of 57 people found the following review helpful:

5.0 out of 5 stars An Outstanding Book On The Market!!, May 31, 2004

By 

Jim Geiger (Rochester Hills, MI USA) - See all my reviews

This review is from: Cybernetic Analysis for Stocks and Futures: Cutting-Edge DSP Technology to Improve Your Trading (Wiley Trading) (Hardcover)

John Ehlers has again written a book that I believe is detined to become an "investment classic".

I have three things I look for in investment books and newsletters:
1) Original Research
2) Explained Methodology
3) Actionable Strategy

Many books deemed "classics" fail to meet one or more of these criteria. Very few meet all three. John Ehlers is rare in achieving all three with his works.

1) Original Research - Original research is key to being successful in the market. A technique that everyone knows is unlikely to work very well for trading or investing. Ehlers is a pioneer in applying advanced cycle measurement theory (MESA - Maximum Entropy Spectral Theory) to the stock market. In Cybernetics he extends and builds on his cycle work by also applying very advanced and sophisticated Digital Signal Processing (DSP) techniques to trading the market. More information on Ehlers MESA work can be found at www.mesasoftware.com. To my knowledge there is no one else using and reporting on the application of DSP to the market.

2) Explained Methodology - In my opinion this is where Ehlers really shines. While these DSP techniques are extremely sophisticated and mathematically intense, Ehlers cuts to the chase in a very concise fashion, explaining the core principles, presenting the math, but leaving the derivations and complication to the textbooks and the engineers. Ehlers makes the techniques acceessible to the trader/investor without trying to turn the reader into an Electrical Engineer.

3) Actionable Strategy - all the tools presented in the book are fully disclosed and accompanied by complete TradeStation Easy Language Code and eSignal Formula Script (EFS). In addition the code can be purchased from www.mesasoftware.com for a modest cost, to save yourself the typing and debugging time (your time is worth something). I use TradeStation. With the fully disclosed code, all of the indicators can be displayed, modified (if desired), combined with one another or other indicators, and your own systems created. Those systems can then be back-tested in TradeStation to see how they performed. They can also be optimized and otherwise worked with to create systems that work for you.

Ehlers has created a "cookbook" of indicators that use some of the most advanced concepts ever applied to the market.

Ehlers states: "... (the) historical performance of these systems is on a par with or exceeds, the performance of systems that would cost you thousands of dollars to purchase". Analysis with TradeStation confirms this.

24 of 26 people found the following review helpful:

5.0 out of 5 stars John Ehlers Does It Again, August 21, 2005

By 

Paul J. Pontillo (Batavia, NY USA) - See all my reviews
(REAL NAME)   

This review is from: Cybernetic Analysis for Stocks and Futures: Cutting-Edge DSP Technology to Improve Your Trading (Wiley Trading) (Hardcover)

John Ehlers new book covers much of the same ground but goes beyond his previous book Rocket Science for Traders. Again the reader is given the explanations and theory for his indicators, smoothers and systems along with the Easy Language code for use in the Tradestation platform.

These indicators can be used as presented or can be easily adapted and combined with countless other indicators that a trader may currently be using. Certainly, the goal of any trader is to identify market tops or bottoms or at least to determine if markets are trending, behaving cyclically or entering a period of sideways or volatile movement. These indicators, alone or combined with others, can help one achieve that goal.

The reviewers of his previous book that had negative comments I believe, for the most part, missed the point entirely as it concerns John Ehlers subject matter and style. Hence, I am concerned that they will also make the same mistake when considering this book. Some believed the analysis was sophmoric while others were concerned with advanced theoretical questions concerning the mathematics presented. Since traders come from all backgrounds books like these need to be written to appeal to as many of them as possible. An electrical engineer will understand the concepts and why they might apply to equity and commodity markets and then can make any changes he/she sees fit with the code. Other readers that understand the problems with trading in trending vs non-trending markets can skip the DSP discussions and immediately use the indicators presented or use the code that determines cycle length to make their own indicators much more responsive to market conditions. Theoretical arguments aside, even the simple indictors included in this book take one way beyond the world of simple moving averages and stationary stochastics.

If nothing more, anyone burning the midnight oil searching for a way to beat the markets will be given endless, state-of-the-art ideas to keep him busy for a long time.