Cycles Part Two - By Profit Max Trading
When it comes to the subject of 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 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 trading is that 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 especially in the Electronics 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 Cycles.
What makes up the cycle patterns we see on our price charts? We will cover this in Part Three.