Customer Reviews

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

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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).

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.

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.

Don't bother getting his two previous books--MESA and Trading Market Cycles & Rocket Science for Traders--this book rewrites them both! I've programmed the strategies into AmiBroker with ease and have made custom tweaks with great success. Ehlers is up there with the great Welles Wilder who developed RSI and ADX in the 1970s.

Honestly, I've read the book four times and refer to it often. Since I have a degree in electrical engineering like Ehlers, the book was manageable. If you're not a EE, then it will take much more reading if you want to understand the math behind his indicators. I can't begin to explain how innovative these indicators are. The EasyLanguage code is the most understandable; ignore the EFS code unless you use that software.

Ehlers website ([...]) has several great papers that will lead you to rethink traditional indicators.

I've found the Instantaneous Trend, Adaptive Momentum and Super Smoother to be the best indicators explained in the book. I created three super smoother difference indicators (SS2 - SS3) with 8, 13 and 21 periods--these are awesome (page 246 last paragraph). I also created a super smoother MACD with 8 and 13 periods (third order) with is very good too.

Like any one indicator, there is no "holy grail" with Ehlers, but his indicators make superb inputs to neural networks, which are the holy grail in my opinion. Coupling Ehlers' indicators with cutting edge neural networks solutions like HyperNEAT will give you a "Matrix" moment.

This book, although highly technical, will give you space-age tools in a blacksmith marketplace. Good luck and trade well!

The ideas are great, but not sure if they have practical application. I tried the Smoothed Adaptive Momentum Strategy and it really gives poor results, huge drawdowns for SPY, negative results with DIA, MDY, and SMH, even without transaction costs. If I optimize it for the training dataset, it performs badly on the test dataset. The Fisher Transform of normalized prices has definitely very sharp turning points, but backtesting shows the tendency to overtrade and has negative results for major indexes, without transaction costs.

John Ehlers newest title is sure to make even the brightest of brain surgeons quiver for fear of closing the renal artery prior to completing the operation. Other reviewers may diss this author but his latest book truly reaches for the stars and makes it. The chapters while short, are to the point and exquisitely illustrate the concept being taught. If you are new to trading systems the shortness of the explanations may be too short but for experienced traders and developers of trading systems they are long enough.

Aspects of many indicators are reviewed with fresh insight added for several new systems not talked about in print before. Removing the lag is the traders dream. Many of the indicators shown do work although errata in the code does spoil some of the implementations given. Ehlers has provided for the keener updates on his website that corrects the mistakes, kudos here for doing the right thing.

Overall Ehlers has done it again and this book should be a staple in any traders library. As for the wannabees wanting all the answers and sure fire methods, choose brain surgery as your career option. No one said trading would be easy but Ehlers has given more toolsets that a successful trader can use in a concise to the point book.

This is the most beneficial book I have read. The idea of Fisher Transform, Inverse Fisher Transform, and others in the book are genuine and novel ideas. After reading this book I spent a very long time experimenting with all the different ideas in it, with many variations. I designed many successful systems, but one system in particular had excellent results. It was only in a certain time frame, not all. Since then, this has been my main system for intraday trading. I have not been able to find another system that even comes close to this one.

When you're looking for new technical analysis ideas, this book is a must. Ehlers comes from an engineering background and does a good job in explaining simple, but effective filter indicators. They give trade signals that really work.

On the back side, the book is quite short. Its size is inflated by many lengthy code listings of indicator functions, in two different languages. The listings for the TradeStation would have been enough as they can be easily translated to other platforms. But most of the book is covered by listings in the clumsy eSignal language which are not really needed, or could have been provided on CD.

I have been trading for nearly 10 years now and have spent countless amount of time and money on books, systems, software and must say this the best book I have come across. With little creativity one can easy adopt ideas from this book to come up with a profitable mechanical system.

The purchase of the book was easy and its delivery was prompt, even with the Amazon offer of free but relatively delayed delivery.

This is the second book of John Ehlers, a well-established pioneer in cycles and trend analysis for the technical analysis of stock price behavior. It is for advanced analysis, and it is a sequel to his classic book of "Rocket Science for Traders". You do need a math aptitude and some programming experience to get the maximum benefit of both books. John also offers eratta and corrections for minor typos in the formulas as well at his Mesa website.

Those who find this book of interest might also check on John Bollinger's classic book "Bollinger on Bollinger Bands", Steve Achelis' book on "Technical Analysis from A to Z", Steve Nison's book on "Japanese Candlestick Charting Techniques", and Martin Pring's "Technical Analysis Explained", Paul Murphy's "Technical Analysis of the Financial Markets", and "Technical Analysis of Stock Trends" by Edwards and MaGee. This is not a complete list, but a good start.

Remember that no single book offers the Holy Grail of investment. Stay objective to balancing your background, because investing mistakes can be the most expensive education you will ever have.