Customer Reviews

Rocket Science for Traders: Digital Signal Processing Applications

5 star:		(12)
4 star:		(1)
3 star:		(4)
2 star:		(0)
1 star:		(3)

 

 

Whoever reads the reviews for this book will note the polarity: people either think it's wonderful or it's horrid. I'll try to give a more balanced review here.

* This book is for the mathematically/analytically inclined. If you don't consider yourself in this category, I would not suggest this book. At the VERY least you should have a solid background in trigonometry.

* This book is exactly what is says: Digital-Signal Processing (DSP) applied to stock trading. I myself am an Electrical Engineer who's day-job consists of about 90% DSP-work / 10% other tasks. For this reason, I believe I can fairly say that the DSP concepts presented are done so in a fairly clear and fairly accurate manner (this varies from time-to-time).

* Most of the concepts presented in Ehlers' book would be what I consider "traditional" DSP. There is a problem here (that is almost completely overlooked in the book): "Traditional" DSP is based on a series of assumptions that must be at least approximately fulfilled. Recent academic research has tended to show that stock-market "signals" tend NOT to fulfill these assumptions very well. In some ways, this puts a significant dent (in my view) in the theory used as the basis for the indicators derived.

* The attention to detail at times is very obtrusive to a reader with a keen eye and understanding of what is being described. For example: there is (what I consider to be) a glaring error in the MAMA filter that no one has ever pointed out and that is not corrected on his website. How has this escaped notice for so long? [Side note: be careful about his claim that MAMA's avoid whipsaws - they DON'T at all in ranging markets!]

* Two mechanical systems are described in detail in the book: the SineTrend Automatic System and the ZeroLag Intraday System. I have EXTENSIVELY tested both systems, exactly as described in the book, on a very-wide range of stocks, commodities, and currencies. These simulations were carried out using a test suite I had developed for my own use to simulate trading conditions as realistically as possible. This includes conservative, but realistic allowances for slippage, commissions ($15 round-turn), and signal reaction.

Ehlers results for the SineTrend Automatic System grab your attention in the book (greater than $100,000). However, no initial investment is listed in the book and one should be careful to note that these results are over a 15 year period. Assuming a $10000 initial investment (though this isn't specified in the book), this is a 17% annual return. Not bad, not great.

The REAL problem here is that a more realistic simulation shows that one is hard-pressed to show ANY profit on ANY type of stock/commodity/currency. I've tried the system (unaltered) on dozens of instruments, with a couple rather moderate successes and the rest losing money terribly, even with reasonable stop losses and money management.

* Almost (if not all) of Ehler's graphs in his book are from the same time series: specifically the US96H (March 1996 Treasury Bond contracts). I HAVE been able to reproduce all of the graphs in his book using the indicators: so there is no falsification in them, as implied in other reviews. However, the time period under consideration shows a series with nearly ideal characteristics for Ehlers systems, while almost all other series I've tested his indicators and systems on do not exhibit the same performance.

* MOST ALL of the information presented in his book is available for FREE download on his website as Word DOCs. There is also a lot of other papers he has written available on the site.

* Ehlers is doing what I think needs to be done in the trading industry: trying new techniques and methods. He has a good grasp of the electrical-engineering concepts and how to apply them to trading, but the results presented in his book are NOT indicative of TYPICAL results of the performance of his systems. The ideas and the theory behind them are, generally, good, though he is a bit prone in parts to handwaving and glossing-over of some obvious pitfalls (obvious, at least, to another electrical engineer).

* For the mathematically-inclined who enjoy working on their own ideas and own systems, this book could give you a lot of insight into technical trading and provide some good jumping-off points to developing systems that are TRULY profitable. I have yet to see (or develop) one that I would be willing to risk real money on and I would caution readers from thinking that either of the two systems presented will provide the type of profits described in the book.

To all others (probably the vast majority of those interested in this book!) I would say be very careful before spending your money on this. There is no reliably turn-key system provided in this book, even though there are two that are purported to be such.

Finally a book on trading that is completely different from all the others I have read. If you are getting the unhealthy feeling that 99% of all the indicators and techniques you are using, or came with your charting package, are minor variations on the same tired theme, then you should get this book.

Note: do not be put off by the math in the book. If you just skip what you don't understand, and I skipped a lot, there is enough informative pure text for you to get most of the benefits of the ideas that are put across in this fine text. In addition there are a couple of complete trading systems and a plethora of new and innovative indicators for which you are given the complete TradeStation Easy Language code....

In this day and age of readily available information, super computers and advances in computational tools, the markets are becoming extremely efficient. If a trader or investor wants to keep pace or even "beat the market", he must become more sophisticated. Rocket Science for Traders offers traders the tools necessary to survive in the equity and commodity markets.

The math and accompanying monologue may be difficult but the premise is simple. If the markets are somewhat inefficient then past prices contain information that is exploitable by the trader. But the past prices will also contain unwanted "noise". John Ehlers book provides the tools necessary to eliminate the noise offering traders a clearer picture of where the markets are heading. If someone understands this they can skip the math and derivations and simply copy the code into TradeStation and immediately use the indicators and systems. Or, better yet, use the indicators and cycle length measurements as inputs into other systems and indicators making them truly adaptive and powerful.

I agree with the reviewer who said to "keep it simple." However, we should remember Einstein's recommendation that a model should be "as simple as possible, but not simpler." This book offers traders the ability to use state of the art signal extraction in their simple models. Anyone that develops his or her own trading strategies based on technical analysis must have and USE this book.

This book stands heads and shoulders above the vast majority writings (pabulum) currently available relating to technical analysis. Any serious student of technical analysis can easily determine this in a very short period of time. Although some of the text gets very mathematically technical (probably way too technical for the average trading "bear"), I believe that John Ehlers takes this approach to try to answer the "why" question and to allow the readers to easily develop a rational basis/confidence in the trust worthiness of the methods that John Ehlers' espouses and promotes. I for one would not use any trading system/approach unless I was convinced that it had a valid premise upon on which it was based. John's writings, including Rocket Science, are clear and precise and make the task of validating or invalidating any given approach a straight forward task. My experience has been that even if a system works in actual trading, unless it is founded on valid market premise, its successful trading life will be short lived.

I am in the process of backtesting and "tweaking" my second 100% mechanical trading system and many of the ideas in my second system are based on the concepts that John teaches in Rocket Science.

i fear the writer of this book may well be a charlatain: one finds charlatains in the speculative venues with great regularity these days, and among their many tricks is the mathematics which they use to cover their slight of hand. mr. ehler's mathematics has the selfsame odor: his is a hodgepodge of methods taken from various disciplines and thrown at the reader with little or no coherence, system, or, i fear, understanding. mistakes are made in application--as, for instance, the assertion that bandpass is accomplished by smoothing (the MA), when bandpass filters only tangentially modify noise. mr. ehlers goes to great lengths to explain certain elements of grade school mathmatics, but cavalierly tosses his occasional differential equation forth without adequate, and certainly without clear, exposition of its use and implications for the techniques mr. ehlers is demonstrating. one might suspect that mr. ehlers may himself only understand the former, and be utterly confused about the latter, if he were in an uncharitable mood. is this snake oil? is the reader made uncertain witness at the intellectual equivalent of a revival meeting? shrug with me, for i don't know. as to the application of these techniques, one can only employ them if a. one's grasp of the field of signal processing and its mathematics is adequate to disentangle some useful material and ideas from the presentation (if, that is, one can overcome the impulse to laugh)--although in which case, you probably would not need this book; or b. one is willing to purchase mr.ehler's software to do it for him (surprise, surprise). my advice is, if you wish to have a book with which to convince your friends that indeed, speculation is an honorable venue, perhaps this is it: opening it certainly stuns the unsuspecting, what with our almost reverential ignorance of formulae. if you wish to have a book that WOULD impress your friends, and they were mathematically literate, get mandlebrot's or some such. alas, the truth is, if you wish to apply processes and techniques from the sciences and mathematics to finance, you have to study the science and the math, and do it yourself.

in sum, it may be that mr. ehlers knows whereof he speaks, but the reader will almost certainly not.

Great Book! Reading "Rocket Science for Traders" was like taking a fresh breath of air. I devoured it over one weekend and have read and studied some chapter portions two or three times since my first reading. Over the years I've read most of the best and highly recommended technical analysis books and studied the various indicators that are being used and sometimes touted. However, I have consistently come away feeling that so many people pursuing technical analysis are not very technical at all. For example, a well known and widely used indicator takes the standard deviation of price data and uses it. Price data, however, is not "normal" or Gaussian distributed. Therefore, the standard deviation, as calculated, is mis-applied and what results is not an accurate variance measurement around the price mean or average as it is intended to be.
In his book, John Ehlers has provided us, a set of indicators, systems and concepts that are sound conceptually, mathematically and fundamentally proven. The tools that he presents are accepted, in science and engineering, around the world as some of the best that we have in which to model discrete and sampled data systems like the stock market. His book has helped confirm some of my ideas and I have enhanced the effectiveness of my systems with the use of his little and no lag processes and models.
I have a strong engineering and math background and the book to me was a "God send" because the theory, examples and EasyLanguage code were all given and well presented. However, I believe a beginner and any serious trader or student will likewise significantly benefit from John's book. That's because its easy to read, i.e., the concepts and applications are clearly explained in plain english. You don't have to do any math or understand the math or derivation concepts to use and apply the indicators and systems. Also, as mentioned above, the EasyLanguage code is provided and also easy to read and understand.

John Ehlers is a real-life rocket scientist fascinated by trading the markets. He applies the principles of signal processing in order to find signals (trends and turns) behind the noise of random moves. His book is the exact opposite of 'easy money' slap jobs - it requires attention and some familiarity with math, but the reward is that it takes you from general principles to the exact computer code for finding trading signals.

I'm far from a mathematical genius, so I purchased the book with some concerns about it being too technical. However, I found I could easily understand the end results without having to understand the detailed math. In my view, you only have to find one indicator that is more responsive for you to deem this a prudent purchase. While there are many valuable indicators described in the book (with the requisite Trade Station Easy Language Code included), I found the automatically adaptive stochastic indicator to be the most helpful to me.

John Ehlers has taken important steps in expanding fully mechanical techanical systems. This book is written at several levels, with my appreciation growing each time I go back to get more details in my system development. His book is a great reference to developing indicators and systems that complement your own trading style. As I firmly believe that a trader has to develop a system that he understands and has confidence in, the adaptive philosophy embodied by his systems are necessary in todays constantly changing environment. This book is essential for those involved in system development of their own.

John Ehlers has been applying concepts and learnings from the sciences (electronic cycle and wave theory and physics) to developing trading indicators since the early 80's. Every broker's terminal has Stochastics, developed by George Lane and nearly every "tool box" charting program includes Gerald Appel's MACD, John Bollinger's Bands, Welles Wilder's ADX, RSI, parabolic and so on. These tools can all be useful .... But none come close to matching the originality of John Ehlers' work with cycles and the development of MESA (Maximum Entropy Spectral Analysis) as a market trading tool.

The concepts used by Ehlers are very sophisticated and have never before been applied to trading, which is why they work. While his concepts take some effort to develop a full understanding, in "Rocket Science" Ehlers describes the indicators and systems very concisely, does not belabor useless scientific details, but rather acquaints the reader with the overall concept and then quickly moves to a discussion of how the indicator can be used in trading.

In Rocket Science Ehlers not only provides several cycle-based indicators and a couple trading systems, but he also provides all the TradeStation code (also available for a small charge on his website: www.mesasoftware.com).

Ehlers has also updated his earlier book: "MESA and Trading Market Cycles" which I look forward to receiving soon.