Cycles and patterns can be found everywhere in the universe. This is demonstrably true, as we experience the changes of the seasons, the water cycle, and the cycle of life and death. The work done at askslim.com, championed by chief analyst and site creator, Steve Miller, over 45 years of chart analysis, has been developed around the basic concept that there are repeating patterns throughout the universe and there are repeating patterns that show up in charts of the financial markets.
The particular style of technical analysis employed in the askSlim Method is known as cycle analysis. Cycle analysis involves looking for identifiable market rhythms, otherwise known as “the heartbeat of the market”. Contrary to how most other analysts look at the market, we take advantage of the information gathered through cycle analysis to project in both price and time. This particular approach to trading is much different than most other market analysts, and thus entails the use of language which is unfamiliar to most, as well as various new concepts.
Our purpose in this three-part series is to:
- Give a basic overview of cycle analysis
- Provide definitions on key terms
- Demonstrate how we analyze charts from start to finish
- And lastly, describe the insights we reveal from doing this analysis
Whether you are brand new to our method at askSlim.com, or have been watching us for a while, this series can help you to learn how we use cycle analysis for projecting in both time and price in order to increase our probability of trading success.
So, What Is a Cycle?
In the colloquial sense, it is defined as “a series of events or processes that happen in the same order and are repeated”, or, “A complete repetition of a wave. Where a point of observation returns to its origin”.
In the context of technical analysis, a “cycle” is a pattern on a chart that is “based on a perception of cash flow, in and out of a security”. This cash flow can be broken down further into what are known as “traditional phases of cycles”. These phases all refer to institutional actions around a particular security.
- Traditional Phases of cycles:
- Accumulation – money flows into a security
- Markup – prices start to rise as money comes in and supply is removed
- Distribution – as price peaks, holders distribute to those who are late to the game
- Markdown – various forces cause cash flow out of a security and prices drop
At askSlim.com, we use slightly different terms to refer to these key cycle phases:
- Instead of “Accumulation“, we use “Rising“
- Instead of “Markup“, we use “Peaking“
- Instead of “Distribution”, we use “Declining”
- Instead of “Markdown“, we use “Bottoming”
These concepts are similar, though ours provide much more information and are very visual. Our particular form of technical analysis trading is less about why a phase occurs and more about what it means and how we can use that information to our advantage. More on that later…
The Ideal Cycle
- Amplitude: Strength of the rising or declining phase of a cycle
- Velocity: The rate that price moves versus the amplitude
- Magnitude: The amount that price moves off of the cycle trough
- Crest (Peak): Top of a rising phase of a cycle
- Ideal cycle: Theoretic Cycles that have equal length and peak at exactly the midpoint. The “Cycle Bracket” tool draws ideal cycles.
- Inflection Point: Where the cycle crosses the X axis (curve begins to change)
- Length (Period): Measurement from the point that a cycle begins repeating itself; measurement of the distance between troughs
- Phase: The position of a cycle at a particular point in time. Phases may be described as “rising”, “declining”, “peaking”, or “bottoming”
- Trough (Low): Low price of a declining phase cycle
The “Ideal Cycle”, as shown above, is the starting point for all cycle analysis. For this reason, it is necessary that anyone who wishes to learn this technique becomes very familiar with the ideal cycle and its phases, what they mean to us as traders, and how we can use them to our advantage.
More on that in Part 2…