Mesa Sine Wave Indicator

Click to Enlarge

Description

The MESA Sinewave indicator was developed by recognized cycle specialist John Ehlers. The MESA Sinewave indicator looks like a sinewave when the market is in a cycle mode and tends to wander when the market is in a trend mode. The MESA Sinewave indicator anticipates cycle mode turning points rather than waiting for confirmation as is done with most oscillators. The MESA Sinewave indicator has the additional advantage that trend mode whipsaw signals are minimized.

The Sine Wave indicator was introduced in the November 1996 issue of Technical Analysis of Stocks & Commodities magazine.

Interpretation

The MESA Sinewave indicator consists of two plots - one displaying the Sine of the measured phase angle over the time period parameter and the other the Sine of the phase angle advanced by 45 degrees (called the Lead Sine). Together, the crossings of the Sine and Lead Sine plots give clear advanced indication of cycle mode turning points.

When the MESA Sinewave indicator resembles an actual sine wave, this suggests the market is in a cycle mode. The indicator lines are not well structured when the market is in a trend mode. A buy signal is given when the Sine plot crosses above the Lead Sine plot. A sell signal is given when the Sine plot crosses below the Lead Sine plot. An obvious advantage that the MESA Sinewave indicator has over its “overbought/oversold” counterparts is that it enters and exits much more precisely without giving up a piece of the market’s movement by waiting for confirmation.

When the market is in a trend mode the MESA Sinewave indicator does not resemble a sine wave. In fact, the Sine and Lead Sine plots typically languish in a sideways pattern around zero, running somewhat parallel and distant from each other. The correct trading strategy in the trend mode is to trade the trend. Basic moving average crossovers are helpful for entering and exiting positions in this type of market.

The MESA Sinewave indicator is sensitive to using the correct time period parameter. You can use the Cycle Lines line study to estimate the best time period to use.