Every trader wants to know when to buy low and when to sell high. Unfortunately the markets rarely
leave many clues as to their intentions so it\u2019s left up to the trader to undertake their own cycle analysis.
Analysis that will hopefully identify potential future market tops and bottoms.
To date traders have had to rely on traditional cycle analysis to locate future reversal points. Prominent cycle analysts will either fit into one of the following schools of analysis, or use a combination. Certainly my summary here of cycle analysis is neither exhaustive nor complete, however I hope it will give you a good overview.
1. Fixed and recurring cycles
2. Proportional cycles and
3. Projected fix bar/day count cycles
Fixed and Recurring Cycles
Many analysts believe cycles are fixed in length and recurring in nature. For example Jim Hurst, a
prominent American cycle analyst in the 1970s, believed market cycles occurred regularly at every 20
and 40 bars. Another example of a fixed and recurring cycle is the 4 year Presidential cycle. Many
believe the US share market completes an up and down swing (cycle) every 4 years.
Astrological based cycle analysis also forms part of this cycle school. There is a strict mathematical
relationship between the planets, moon and sun in our solar system. The times when certain heavenly
bodies align are fixed and recurring in nature. For example the Jupiter/Pluto conjunction occurs once
every 13 years. Now although rare the cycle is fixed (13 years) and is recurring (every 13 years).
Examples of the astrological school of fixed and recurring cycles include:
Another approach believes cycles are proportional (or geometric) to preceding cycles. For example if an
identified cycle was 100 days then a potential future cycle could occur at possibly 62 days (100 days x
0.618, a Fibonacci ratio) or 162 days (100 days x 1.618, another Fibonacci ratio). Within geometry
traders can use either Fibonacci, Harmonic or Arithmetic ratios to project future proportional cycles. Their
belief is the next cycle will be proportional to a preceding cycle. A trader can use any number of ratios
over multiple timeframes to project potential cycle turns. Some ratios include:
Projected Fix Bar/Day Count Cycles
Another approach looks to project a fix number of trading bars or days forward following the completion
of a cycle. For example they could use the Fibonacci sequence and project forward 21, 34, 55, 89 or 144
bars/days/degrees/weeks/months etc from a previous cycle termination point to identify a potential future
turning point. A trader can use any sequence of numbers they choose, for example they could use:
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