Fully asked me to re-publish a Cycles Primer to refresh everyone with a bit of Cycle theory and rationale.
With regards to Price, I use a number of Technical Analysis (TA) tools in my work, including classic Edwards & Magee Chartology. With respect to Time, however, I rely on Cycles.
You can see the Cycle Highs and Cycle Lows on any chart of at least 6 months in duration. Walter Bressert and WD Gann believed that these Cycle Highs and Lows oscillated with Investor sentiment as it swings between overly Bullish to overly Bearish in terms of outlook. While Price reflects Investor Sentiment, Time is also critical to understand regarding potential swings or “Turns” in various markets. Time, therefore, is the missing element from most standard Technical Analysis and is extremely important to track, IMO.
Time alone should not be relied upon for turns as Cycles only give you a timing band for the next Low and are not as reliable for determining Highs. Timing Bands, however, can heighten your senses allowing you to focus TA oscillators and price action near important turn dates.
The most important Cycle I track is the Intermediate Cycle, which for most Assets lasts approximately 5-6 month in duration Low to Low. This seems to be the standard time needed for sentiment to swing from Bearish to Bullish to Bearish again. Each Intermediate Cycle can and does have several shorter term Trading Cycles within it (some refer to these as Daily Cycles).
There are also various types of Cycle Methodologies. What I have described above is Bressert’s “Count Based” methodology in terms of Trading days and weeks. This methodology is fairly reliable in establishing a timing band for the next Low. It is LESS reliable in predicting a Cycle High for a cycle of any length.
This is where my Price Channel work comes into play along with my collaboration on Gann Turn dates with my colleague Norvast. Norvast’s Gann insights have the ability to “Narrow” the timing band down to a much tighter range.
WHY are Cycles important?
- Cycles can provide a trading edge by establishing timing band dates for Cycle turns. While the bands are primarily for Cycle Lows but I’ve got a few tricks in the bag for Cycle Highs as well.
- Don’t underestimate the power of Cycles, as when Cycles turn on important dates, they often will over ride all other Technical Analysis.
- Don’t believe it. How many times has Gold or other markets turned on a dime with little to no warning from conventional TA tools?
Chartology and standard Technical Analysis (TA) are still my bread and butter in understanding markets. Cycles, however, heighten my focus and attention near potential turn dates. In my work the focus is on identifying Turn dates using timing bands. Within the Timing Band, I then focus on various oscillators, including divergences (MACD, RSI, etc.), and price action near key cycle trend lines or price channels. My overall approach is to blend standard TA and Cycles methodology to create a unique Cycle Price Channel to help visualize where the market is likely headed, both short term and longer term.