Ehlers’ Roofing-Filtered Stochastic for Countertrend Signals

Summary

The document describes John Ehlers’ MESA Stochastic, a modified stochastic oscillator designed to reduce noise and spectral dilation. It combines a high-pass filter, a SuperSmoother filter, and normalization over a lookback window, then smooths the resulting oscillator. The stated thresholds are 0.2 and 0.8. The source also outlines a countertrend example that buys when the oscillator enters the oversold region and reverses to short when it exceeds the overbought threshold.

The method is presented as an indicator concept and code reference, not as a tested trading system. The document warns that smoothing can introduce lag and suggests using other indicators to confirm signals. It gives no performance data, market-specific validation, or rules for position sizing and risk control, so the thresholds and reversal approach should not be treated as evidence of profitability.

Key ideas

• The oscillator applies high-pass filtering and smoothing before scaling values over a lookback range.
• Its stated oversold and overbought reference levels are 0.2 and 0.8.
• The example countertrend approach buys in the oversold region and reverses to short above the overbought threshold.
• Smoothing may create lag, and the document recommends confirming signals with other indicators.
• No empirical performance evidence is provided.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.