Projecting in Time
By now, you’ve hopefully come to understand what a “cycle” is and what it means in the context of technical analysis. If not, take a moment and read Part 1 of this series so you’re all caught up.
The next thing we need to do is identify actual historical cycles on a chart, what “cycle phase” a security is currently in, and then project forward in time to estimate when that cycle is set to bottom.
Let’s get started…
Cycle Analysis in Action
In the Silver Futures chart above, there are clear rhythms and even a couple of instances of cycles that are close to ideal. Do you see them?
If not, no sweat, there is a learning curve when it comes to accurately mapping out cycles in the financial markets.
(Our team of analysts has over 70 years of experience in performing cycle analysis. To take advantage of their expertise and use cycle analysis in your own trading strategy, click here for more information on our askSlim.com premium memberships.)
In the chart above, the “cycle brackets” shown at the bottom are hand-drawn by us and demonstrate the ideal cycle progression. The vertical solid lines demonstrate the actual cycle “bottoms” for Silver Futures in the given timeframe.
You may wonder why we even bother to draw the ideal cycle on our charts. The answer, as you’ll begin to see as our analysis progresses, is that there is a wealth of information to be found based on how a symbol’s actual cycles compare to the ideal cycles. More on that to come…
Getting Price Involved
In addition to what was shown on the previous chart, this iteration maps out the historical cycles along with our projection in terms of time and price. The actual historical cycles are demonstrated through the solid diagonal lines, price projections to complete the cycle through the dotted diagonal lines, and the forecasted cycle bottoming timing via the vertical dotted lines.
Assuming that the underlying cycle analysis is accurate, we can deduce that the average cycle duration of Silver Futures, in this timeframe, is 22 days. We can also, then, project that there are only 8 or 9 days until the current cycle is expected to bottom out.
From this, we gather that Silver Futures is likely near or past its peak, and moving into the declining phase. (Remember, the cycle phases are directly associated with cashflow in and out of a security)
The final piece is the forecasted cycle bottoming timing. We are able to find this range based on a concept known as “J.M Hurst’s Principle of Variance”, which is an entire topic for another day. The key takeaway is this:
By being able to project how long the average cycle is, estimate what cycle phase Silver Futures is currently in, and project a range of time when its current cycle will likely bottom out, we gain a sense that this cycle is negative and the highest probability is that it will resolve itself moving to the downside in price.
It’s pretty amazing how much insight can be discovered from what started as a blank chart, isn’t it?
We surely think so, and what’s been discussed so far is only the beginning.
Once we can establish and project the movements of a symbol in time, our next initiative is to unveil further insight by projecting in price.
More on that in Part 3…