John Ehlers has completely updated his trademark MESA (Maximum Entropy Spectral Analysis) indicators in a new add-on for the NeuroShell Trader called MESA8. The MESA8 indicators measure whether the market is in cycle or trending mode and deliver precise trading signals for either situation.

The MESA8 indicators were developed and programmed by Ehlers, a world renowned expert in applying scientific principles and DSP (digital signal processing) technology to the art of technical trading. Ehlers’ MESA8 add-on is a collection of dynamically tuned indicators based on A low lag, accurate measurement of the dominant cycle is extracted from market data and used to calculate each indicator.
According to Ehlers, a simplified model of the market consists of the combination of a trend and a cycle. Since the cycle period is known, it can be removed from the data to expose the underlying trend. The market is best traded using oscillator-type indicators when it is in a cycle mode and is best traded using moving average-type indicators when it is in trend mode. The MESA8 collection of indicators is not only dynamically adjusted by the dominant cycle, but advanced DSP techniques are used to produce low lag and non-causal signals in time to give users a trading advantage.

The Mesa8 add-on is a joint project between Mesa Software, Inc. and Ward Systems Group, Inc. Mesa developed the theory and programming, and Ward Systems is selling and supporting the add-on. Mesa8 requires NeuroShell Trader Professional release 5.0 or greater and is delivered only by Internet download. The price is $499.00.

MESA8 indicators include:


Amplitude – measures the peak amplitude of the measured dominant cycle.


AvgPeriod (Average Period) – the smoothed version of the MESA8 measured dominant cycle.


BandPass and Band PassTrigger – BandPass filters low and high frequency noise in price data. BandPassTrigger is delayed by one bar. Crossovers of the two provide entry points.


BigLead and BigLeadTrigger – BigLead computes the rate of change of the BandPass indicator. BigLeadTrigger is delayed by one bar and reduced in amplitude by 5%. Crossovers of the two show cyclic turning points by their line crossings.


Crossover Momentum, Plus and Minus Amplitude – The combination of these three indicators can give you entry and exit points based on the dominant cycle.


Cycle – This indicator is a high pass filter that removes the low frequency trending components of the data.


Detrend – Useful for measuring the probability of overbought and oversold conditions.


Market Mode - The Market Mode indicator is zero when a cycle mode is detected and is one when a trend mode is detected. The Tune parameter adjusts the dominant cycle period relative to its measured value.


Momentum and Momentum Trigger - Momentum shows the price relative to the price one dominant cycle period ago, and is displayed as a percentage of price. Momentum in excess of one percent usually implies a substantial trend is occurring. The Momentum Trigger indicator is intended as a line-crossing event with the Momentum indicator to show trade entry points.


Period – Displays the period of the MESA-measured dominant cycle. No averaging or smoothing is used in an effort to minimize lag of this indicator. This indicator is primarily used as an input into other indicators, allowing them to be dynamically tuned to current market conditions.


Quality – Useful in determining the importance of cycles other than the dominant cycle.


Sine and SineLead - The Sine indicator is a noncausal filter (does not directly depend on data) that helps anticipate cyclic turning points. It is intended that the Sine indicator and SineLead indicator are dragged to the same subgraph so their line crossings are a definitive indication of the anticipated cyclic turning point.


Trend – This indicator removes the dominant cycle component from the data, leaving the trend as the other component in a simplified model of the market.


SNR (Signal-to-noise ratio) – Measures whether it is advisable to trade oscillators.


Static HP (Static High Pass Filter) - The Static HP filter is a way to detrend price information by removing its low frequency information.


Static BP (Static Band Pass Filter) - The Static BP indicator is a bandpass filter that is applied with its constant Center Period across the entire data series. This is contrasted with the BP Indicator whose center period is adjusted by the MESA-measured dominant cycle.


Super Smoother (Static Low Pass Filter) – This indicator gives superior smoothing compared to exponential moving averages with only a minor lag penalty. The LP Period (Low Pass Period) parameter adjusts the longest cyclic period that will be passed by the filter.


Price - Returns the average of the high and low values for the bar. Ehlers uses this value in most of his indicators when he is referring to a price data stream.


Highest and Lowest indicators – Computes the highest and lowest value over a period determined by the dominant cycle.

The MESA8 Add-on was reviewed by Dennis Peterson in the July 2006 issue of Technical Analysis of Stocks and Commodities magazine.

Click here to read the full review.