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Cycles – Part One
“There are time cycles in most everything, be it nature, the cosmos,
events, occurrences, prices, and financial markets. There are
cycles in the weather, the economy, the sun, wars, geological
formations, atomic vibrations, climate, human moods, births,
population, female fertility, motions of the planets, populations
of animals, the occurrence of diseases, the prices of stocks
& commodity futures and the large-scale structure of
We direct your attention to the above in order that you may
have the opportunity to become acquainted with the subject of
Cycles. Because Cycles are found in EVERYTHING, including price
behavior, they can provide stocks and commodities futures traders with an edge in timing trades.
To take best advantage of trading market cycles it requires you
either spend a considerable amount of time and expense to learn
how to extract timing signals for yourself, or you take advantage
of a service that provides this information for a nominal fee.
Either way, using cycles to help you time your trades can provide
an edge not found by other means.
There is much information available on the Internet about Cycles
that you may wish to do more cyclic research on the-web. There are
some interesting free articles written by traders about cycles
and how you may be and a hands-on
cycles analyst yourself, involving stocks and commodities
trading-online at the Commodity Traders Club News
So how can Time Cycles give a financial market trader the edge?
It all comes down to ‘timing’. If the trader is
able to determine with accuracy the beginning of a new trend
or perhaps the end of a trend correction, the trader can then
enter the market at a price that presents low risk exposure
with excellent opportunity for gain.
For those of you that trade the futures markets, there are a lot of other things outside the future markets that you should be following. But, I guess my bigger message is for those of you that aren’t in the futures markets, whether you trade them or not, the futures markets have a tremendous impact on what happens in the other markets. That’s why you should soak up every piece of good trading knowledge like a sponge in a quest to clearly see the bigger picture. Click-here for a free service that gives you unlimited access to 4 trading seminars taught by industry legends Dan Gramza, Jack Schwager, Ron Ianieri, and of course John Murphy. Get started learning from market greats in the comfort of your own home, on your schedule at no cost today . . . click-here NOW to take advantage of this FREE offer!
An important reason many traders are not able to profit from
a trending market is because they have been entering trades too
early or getting in too late, as well as not knowing where to
place their protective stop loss orders. If a trader had a very
good idea as to where the market was likely to reverse, there
would be little question as to where to place the protective
stop and where to enter the trade.
Of course having this timing edge is only a part of the overall
scheme of things. Others include managing the trade once it
enters profit territory and have the mental fortitude to stick
to a trading plan. But with that said, determining the likely
direction of the trend and where turns are likely to occur plays
a very important part of the complete trading plan. It is with
Cycles that a trader can anticipate the new trend or end of
a correction better than anything else.
So why aren’t Cycles used commonly among traders? There
are several reasons, none of which reflect negatively on cycles
themselves as a trading tool. Some traders fail to realize market
behavior is not a random event but instead one based on Cycles
(Natural Laws). Others don't want to take the time to fully
understand what Cycles are and how they can benefit from them.
And of course, some simply are not aware of cycles.
For the latter reason, hopefully this multi-part series on
Cycles will be an eye-opener. Because no one can change the
course of market cycles, it does not matter how many are aware
of Cycles or decide to use them. Perhaps it is also Natural
Law that we will continue to have a skeptic majority when it
comes to successful analytical approaches to market timing that
will insure that we will continue to be able to use Cycles in
effectively timing trades. Does it matter?
Before we get deeper into the subject of Cycles in the following
parts of this series, it should be noted that Cycle Analysis
is only a tool for market timing. It is not a complete trading system
or the only tool you may wish to use when planning trades. However,
when it comes to timing, it is perhaps the best timing tool
you can have in your trading arsenal.
This completes Part One.
CYCLES – Part Two
When it comes to the subject of Time Cycles, one thing is for certain…everyone
has a different mental picture of what it means.
Many traders associate the subject of Cycles with individuals
such as Walter Bressert. This is an excerpt from an article
he authored called “Trading and Control”:
“For commodity and futures traders, the trading technique of
using cycles as a trading strategy will undoubtedly bring to
mind trader and analyst Walter Bressert. Bressert, who has been
in the trading industry for nearly 30 years, was the publisher
and editor of the well-regarded newsletter HAL Commodity Cycles
for 12 years.”
How these well-known individuals have presented Cycles over
the years has been in their raw state. What I mean is that Cycles
for years has been taught to be the locating and following of
a fixed interval on the price chart. For example, one might
count the number of price bars from one market top to another
and note that there are 30 bars. Then another 30 bars would
be counted to see if yet another top or bottom has occurred.
If so, the trader would then assume a 30-bar (day/week/month)
cycle is in play and will be in expectation of another turn
when the next 30th bar was formed.
With a strong 30-bar cycle in evidence, you just might get
another turn 30 bars later. But what many have found is that
as soon as you identify the cycle length it would no longer
manifest itself. This has led many to disregard cycles for use
in market timing.
It is a fact that Cycles are indeed repetitive patterns. So
in no way would I suggest that these fixed-length intervals
of tops or bottoms are not true Cycles. However, the reason
many are unable to capitalize on using Cycles in stock or commodities
trading is they have not come to learn what actually makes up
the patterns they see on their price charts. It does not take
long to note that those patterns are not fixed intervals of
tops and bottoms for the whole world to clearly see and trade
on. Instead, what we see are prices making big tops and little
tops, big bottoms and little bottoms, and they are all spaced
at different intervals that has led some to believe it is all
random. However, nothing could be further from the truth!
What I have discovered in sharing my knowledge and experience
in this field of Cycles is that those with backgrounds in Electrical
Engineering, Analog Electronics and those that excel in logic
or the visual arts are quicker to understand what makes up the
charting patterns we see on our price charts when it is explained
to them. This does not mean others cannot of course. Those working
especially in the
Electronic Communications field are well aware of what Cycles
are and are likely to also know what you get when you combine
two or more cycles together of different magnitude and wave-length.
And that is what brings us to the next part of this series on
What makes up the cycle patterns we see on our price charts?
We will cover this in Part Three.
CYCLES – Part Three
And example of a fixed cycle pattern can be found on this daily
Canadian Dollar chart below. Starting from a predominate top
you can see that a market trend change occurs on the daily chart
every 15 days.
If this pattern continues, we should see another turn come
January 30th. But if you notice the pattern leading to the top
where I started this count:
...there was no obvious 15-trading day cycle turning point.
And very soon it will disappear again. Perhaps it will stick
around long enough for a turn on 1/30 before going away, or
perhaps it is as good as gone now. The point is that fixed cycle
counts have very limited use and cannot be considered reliable
in matters of forecasting.
Okay, so up to now we know that there are fixed cycles found
within the market pattern we see on the price chart. Then why
is it that they come and go? And why does the chart patterns
not appear as an even repetition of tops and bottoms?
The answer to these questions can be summed up into one answer:
The market pattern you see on the price chart is the SUMMATION
of multiple fixed cycles of different frequencies.
In analog electronic terms, the resulting output formed by
combining several dissimilar frequencies (cycles per second
– aka Hertz) is called DISTORTION. Although distortion
is very important for creating amplifiers in analog circuitry,
it does make timing tops and bottoms on the price chart much
So where do all these cycles come from? Well, I could go into
the subject of how some planets influence our seas and crops.
I could also go into how they affect our moods (which would
affect buy/sell decisions for example) such as the moon (Latin
for moon is Luna, root for Lunatic).
However, I do not wish to open that can of worms here. Rather,
you should be able to realize that cycles are all around us
and affect everything we do. For instance, our weather goes
through a cycle change. We have the cycle of day and night,
the cycle of seasons, harvest cycles, business cycles, rain
cycle, the yearly cycle, slaughter cycle, inflation cycle, recession
Each of these various cycles has a different time (wave) length
(called frequency). Alone each of these is easy to map and determine
when the next wave will occur. But if you combine them together
(summation), what you get is distortion that looks just like
the patterns found on your price chart.
The reason that each market has a different pattern is some
markets are more sensitive to certain cycles than others. For
instance, weather cycles will have a greater affect on the grains
than it will on the Currencies. Business cycles, inflation cycles
and such will have a greater affect on the Indexes and Currencies
than it will on the Meat markets. But even though the weather
cycles may have a great affect on grains than perhaps the Meats,
the Meats will be also be affected by weather cycles either
directly or indirectly because of the connection between the
Meats and the Grains. Are you starting to see how this works?
To take advantage of this trading knowledge requires you first
acknowledge market cycles exist in the marketplace. It then
requires you learn to de-trend the pattern in order to isolate
the various fixed cycles that make up the composite. We will
continue this in Part Four.
CYCLES – Part Four
The subject of Cycles falls into two camps. You have those
that base their theories on the Random Walk (or the “drunkard’s
walk”). One approach to de-trending involves the use of
Fourier Transforms. Here is a excerpt about the use of Fourier
Transforms found at the website below the quote:
“The Fourier transform, in essence, decomposes or separates
a waveform or function into sinusoids of different frequency
which sum to the original waveform. It identifies or distinguishes
the different frequency sinusoids and their respective amplitudes.”
John Ehlers devised an approach to Cycle Analysis he dubs MESA.
Claimed to be more effective for isolating short-term cycles
over the Fourier Transform. Both these approaches are based
on the assumption that the cycles found in market patterns are
formed by random actions, a theory I have long discovered is
not correct. However, regardless of the base theory to how cycles
have come to exist within market patterns, the fact remains
they exist. And so these varied approaches to exposing these
cycles have proven to be useful to a degree.
Why I am able to say with conviction that market cycles are
not the result of random behavior is based on my own experimentation
in the field of cycles. We became interested in cycles after
having read about them in famous old trader W. D. Gann’s
books. The best of Mr. Gann's writing are excellent, including
Gann's unique W. D. Gann
trading course. These
trader books did not provide us with much details we could
use as far as time-cycles analysis goes, except that Gann started
us looking in the right direction.
Having already discovered a geometric
angles approach to timing market tops and bottoms incorporated
into a trading software program; this was used for comparison
purposes when I started to incorporate my theories about cycles
into its own computer program. Today I use both programs to
confirm their respective results. It is absolutely amazing to
see the relationship between market cycles and market geometry.
They are most definitely related!
My approach to cycle analysis is unique in comparison to those
widely known and advertised. Rather than trying to de-trend
historical market patterns into their individual components
and then re-combined them for forecasting purposes, my approach
is based on locating anchor points in time within the pattern
itself and then moving it forward in time (and in-sync with
the recent past) for the purpose of stock market forecasting.
For instance, at some point in time market patterns will REPEAT
themselves. In its basic form, this is what many ‘technicians’
use to trade the markets. For example, you may have heard of
the ‘M’ pattern or the ‘heads-and-shoulders’
pattern. You’ve no doubt heard of the ‘triangle’,
‘flag’ and others. Technicians have long discovered
that the market will follow a certain behavior more times than
not after these common patterns.
But imagine if you can locate COMPLETE patterns that span beyond
a simple ‘flag’ or ‘heads-and-shoulder’,
etc. Then imagine if you could find this repetitive pattern
in more than one time period in the past. What you will discover
as I have is that the time distance between the chart patterns are
EQUAL in length. So then, once the pattern has been found, you
KNOW where to plot it into the future; the exact distance from
the end of the last cycle you identified.
It takes a very sophisticated
trading software program to do all this comparing, but that's
exactly what I had my program do. And the results continue to
The point here is that what you see on your price charts is
but a small sample of a much larger picture (going all the way
back to when the market started trading). So it is easy to not
be able to see the repeating pattern threads.
To help you further understand the depth of this cycle analysis
and what will make it hard to easily see the patterns is due
to the MAGNITUDE of some of the component cycles.
For example, consider the 2 cycle threads below (these are
dynamic cycles as they the result of several fixed-interval
cycles combined). The spacing between the numbers depicts the
varied distances between the cycle turns (tops and bottoms).
Note these distances vary because we are dealing with patterns
as seen on your chart that are dynamic cycles and not just a
single fixed cycle. The numbers we will call the MAGNITUDE of
the turn. The positive numbers are tops, the negative numbers
are bottoms. The magnitude will range from 1 to 10 for tops,
-1 to –10 for bottoms. Obviously then, the higher the
number positive the higher the top or swing-high, and lower
the number is negative the lower the bottom or swing-low.
The above are 2 exact cycle threads based purely on PATTERN.
Yet, the magnitude of these two threads is different. So if
you rely on your ‘eyes’ to spot the patterns, you
will not likely be able to do so even if you had ALL the data
stretching back years before you on the wall. Thus, it takes
a computer to help here.
Now if we had data covering centuries it may be possible to
find the start of the exact pattern, magnitude and all, that
has occurred since. Well, there just isn’t enough data
to do this. Anyway, it isn’t important for our purposes.
We simply want to determine when a market-turn is most likely. We don’t
need to have the sight of God.