trading cycles

8/14/2019 Trading Cycles

1/13

Terminology

T1 Pattern

T1 pattern is an abbreviation for the first technical rule on the home page.

A move followed by a sideways range often precedes another move of almost equal extent inthe same direction as the original move. Generally, when the second move from the sidewaysrange has run its course; a counter move approaching the sideways range may be expected.

Here is an example of a T1 pattern. This is a very long term example but they also occur onmuch shorter time frames.


2/13

1-2-3 reversal

The Sperandeo 1-2-3 reversal is a technical method to determine if the odds are good that atrend whether long, intermediate or short term has changed.

First the trend as defined by a line drawn from the last two preceding low points (for an up trend)must be broken. That constitutes #1 Break of the trend. 2 is the test of the preceding high. 3 is aclose below the initial low and confirmation that the trend has now changed to down. Reversefor down trends.

Sometimes the test will form what is known as a 2b reversal. This is when the stock or indextrades below or above the preceding top or bottom but then closes back above or below thatpoint. This is often a very good sign that buying pressure or selling pressure was not strongenough to continue the trend and it often signals the exact bottom or top.


3/13

4 day rule and 4 day corollary

The 4 day rule and corollary can also be used to spot tops and bottoms of long intermediatetrends.

The 4 day corollary states that after a long intermediate move the first day counter to the trendfollowing 4 or more days in a row often signals a trend change.

The 4 day rule states that 4 or more days in a row counter to a long intermediate trend is oftenconfirmation of a trend change.


4/13

Bollinger Band Crash Trade

The rules of the Bollinger band crash trade are to buy on the open after any day that themarket or stock closes below the lower Bollinger band (10;1.9). Sell on any close thatsprofitable or after 15 days whichever comes first.


5/13

VTO trade

The rules for the VTO trade are as follows. Buy when the 5 day RSI closes at or below 30. Sellwhen the 5 day RSI closes at or above 70. A safer but probably less profitable method wouldbe to sell when the 5 day RSI closes above 50.


6/13

Crawling

This is an example of technical rule #4. Watch for "crawling along" or repeated bumping of minor or major trend lines and prepare to see such trend lines broken.


7/13

CYCLES

What Im mostly concerned with when I talk about cycles is the larger 4 year cycle in equities. Thiscycle runs anywhere from 3-5 years.

As you can see from the chart our last four year cycle ran very long. Often these long cycles willbe followed by a short cycle. The 82-87 cycle was also stretched and it was followed by a shortcycle into the 90 bottom that only lasted three years.


8/13

The next longer cycle is the seasonal cycle.

We have a seasonal cycle low due in Apr. or May. It actually occurred a bit early this year inMarch.


9/13

The next shorter cycle is the weekly cycle. This is the cycle Im most interested in trading. Onaverage this cycle lasts between 18-25 weeks.


10/13

Finally the shortest cycle is the daily cycle lasting roughly 28-43 days.

Usually we will get 3 completed daily cycles in one weekly cycle. Two weekly cycles in a seasonalcycle and four seasonal cycles in one four year cycle.


11/13

Next I want to touch on the concept of left and right translated cycles.

Cycles can take two forms, left or right translated. In the chart below I give and example of both.When I say a cycle is left translated it means that it tops out left of center. Left translated cyclestend to produce the worst declines in total percentage terms. Right translated cycles top out rightof center and tend to produce waterfall type declines but smaller percentage losses. Ive markedthe half way point of the two 4 year cycles with the blue line. You can see the 02 cycle topped leftof that half way point and the last cycle topped to the right of center. The current cycle is the mostleft translated cycle in history.

Since Im mostly concerned with trading the weekly cycle I want to be aware of any weekly cyclesthat are left translated. Since the average duration is 22 weeks any cycle that tops in 11 weeks or less would be considered a left translated cycle.


12/13

Swings

I often talk about swing highs or swing lows, both daily and weekly. A swing low is simply a signthat selling pressure has declined and the stock or index has moved above the previous intradayhigh. A swing high is just the exact opposite. The following charts are examples of a daily swinghigh and low.


13/13

Keep in mind that sometimes it may take several days for a swing to form especially if theprevious intraday range was large. The following is an example of a swing low that took 3 days toform.

trading cycles

Documents