John F. Ehlers
President of Mesa Software, Inc.
Program(s) Developed: eMiniZ Alerts
Interview Date: December, 2008
Interviewed by John F. Gallwas, Founder of Striker Securities, Inc.
This is a follow-up to our April 2007 interview with John Ehlers, President of Mesa Software, Inc., who pioneered the Mesa method of market cycles. Mr. Ehlers is a system software engineer and the co-founder of eminiZ.com, a system resource center and trading system vendor. He and his partners Ric Way, an expert at programming in the dot-net technology and Marty Johnson, who manages the day-to day operations of the eminiZ.com, have developed a new approach to system trading. By using eight of their preferred swing trading strategies, this all new trading system uses next-generation technology to optimize performance by using the one strategy that has proven to be the best for current market conditions.
By way of introduction, John Ehlers, an Electrical Engineer with BSEE and MSEE degrees from the University of Missouri and who did his doctoral studies at George Washington University, has been a private trader since 1976. The work he did as a Senior Engineering Fellow at Raytheon provided the base for his discovery of the Maximum Entropy Spectrum Analysis in 1978, which led to the development of his first computerized trading system. Above all else he is a true student of the markets and has participated in numerous educational programs to help traders improve their performance.
John Gallwas: Our readers appreciated your article "Think like a Gambler to Trade like a Trader" we published in the April 2007 Striker Report, because it gave us all a better way to look at trading systems. How has the information in that article helped in the development of your new trading system?
John Ehlers: As an engineer, my particular expertise has been in the measurement of market cycles. Since the Spring of 2007 I have been researching more in the statistical aspects of trading. This led to my 2008 Charles H. Dow runner-up award from the MTA. This paper, which can be downloaded from the home page at Eminiz.com, is the basis of several of the eight strategies use to generate our new trading signals.
John Gallwas: Even though the program we are discussing is new, I understand it is based on eight of your time-tested proven swing-trading strategies. Please explain how this multi strategy rotation concept came about?
John Ehlers:All system developers depend on backtested hypothetic results and assume that the results can be extrapolated into the future. In a large number of cases the systems are not robust, and the assumption simply is not true. In the past I have tried to make trading systems robust by adapting to measured parameters such as volatility or cycle period. Even with adaptive systems I have seen the system performance ebb and flow. I therefore concluded that the better approach was to create a number of good strategies using different technologies, such as statistics, cycles, etc., and then select the strategy that is currently working the best.
John Gallwas: What methodology does the program use to determine which of the eight strategies are used and how a switch to another strategy is implemented?
John Ehlers: First, each of the eight strategies have been proven to be robust back to the beginning of the S&P contract in 1982 with in-sample results. By robust, I mean the equity curve is relatively smooth and the results typically have 60% winning trades and a Profit Factor in excess of 2:1 across this entire time span using a minimum number of parameters. The parameters of these eight strategies are fixed. We have a massive database on our server that tracks the performance of all eight strategies. Then, we pick the strategy that is currently working best on a symbol-by-symbol basis. The strategy selection is made in the background, so that the trader only sees the resultant trading signals. The signals are easy to trade. All signals are given at the end of the trading day for exercise at the open of the next trading day. We typically hold a position for about two weeks. Stops are provided for the duration of the trade, and if you get stopped out, you reverse on the next open.
John Gallwas: We understand that the program is brand-new. Although you have already started to trade the program personally, what can you tell us about the process that went into testing the program and producing the hypothetical results, which we are obligated to state, may not be an indicator of futures performance?
John Ehlers: The big difference we provide is the confidence the trader can place in our hypothetical results. Since we maintain that massive database I described, the trade results we display on our website Eminiz.com are completely out-of-sample. That is, those trades are as close to one can get to actual results because these are the trades we really would have taken using our technology. There is no backtest, optimization or in-sample results involved.
John Gallwas: Tell us about your EminiZ.com and the many new dynamic features that our traders might be interested in.
John Ehlers: We built Eminiz.com as a complete resource for traders. All resources are free, including our trading signals that are simply delayed 30 days if the visitor is not a subscriber. For example, we provide our exclusive Corona Charts that give a complete indicator picture of the markets from a cycle perspective. Traders can see the cycle period, position within the cyclic swing, signal to noise ratio, and vigor of the trend relative to the measured cycle. I am rather fond of the Monte Carlo analysis that uses the last three years of our trades to simulate 100 years of trading using relevant data. The results are the profit and drawdown statistics that I find highly illuminating. For example, I know how much capitalization my account should have by adding initial margin to the most likely drawdown value. If you are more risk averse, you can check out the 1 and 2 sigma points on the drawdown curve. This computation is vastly superior to a fixed point calculation such as Risk of Ruin. Our trading results can be viewed from several different perspectives, from the overview to minute detail. I like our equity curves that can be viewed over multiple timeframes and can be compared to a simple buy-and-hold strategy.
This interview is for informational purposes only and is not intended to be
a solicitation of any kind. Trade only with risk capital. The risk of
trading can be substantial and each investor and/or trader must consider
whether trading systems are a suitable investment.
There is a risk of loss in trading. It is the nature of commodity and securities trading that where there is the opportunity for profit, there is also the risk of loss. Commodity trading involves a certain degree of risk, and may not be suitable for all investors. Derivative transactions, including futures, are complex and carry the risk of substantial losses. Past performance is not necessarily indicative of future results. Please read additional risk matters on our web site, www.striker.com. It is important you understand all the risks involved with trading, and you should only trade with risk capital. This communication is intended for the sole use of the intended recipient.
About this report The information and links on this website are for informational purposes. The risk of trading can be substantial and each investor and/or trader must consider whether this is a suitable investment. Past performance, whether actual or indicated by simulated historical tests of strategies, is not indicative of future results. Striker is a member of the National Futures Association ("NFA"), the Managed Funds Association ("MFA"), and the National Introducing Broker Association ("NIBA"). Striker is registered with the Commodity Futures Trading Commission ("CFTC"), and was formerly registered with the Securities Exchange Commission ("SEC"). Additionally, Striker is a former member of the Financial Industry Regulatory Authority ("FINRA"), and the Securities Investor Protection Corporation ("SIPC"). FINRA is the largest non-governmental regulator for all securities business in the United States. Please read Striker Disclosure Statement for the additional disclosure.
The trading performance cited throughout our web site is based on actual trading history, unless otherwise noted. The starting account balance is based on the system developer recommendation. Striker tracks actual performance by recording and maintaining each trade ticket for each system generated. The performance information assumes that no additions or withdrawals have been made. The rate of return for all systems disclosed in the Striker Report is cumulative from the day the system actually started trading at Striker. We maintain a "life" track for all 3rd party systems. We do not necessarily base our records on any particular client account. No one particular customer has achieved these results. The percentage returns reflect inclusion of commissions and fees.The actual percentage gains/losses experienced by investors will vary depending on many factors, including, but not limited to: starting account balances, market behavior, the duration and extent of investor participation (whether or not a client takes all signals for a system) in the specified system and money management techniques.
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