It is nothing complicated... the basic idea is watch for lows to trade in the direction of the trend until important high is reached. This lows are cycle lows of different degree - 20 day, 5 week, 10 week and MA10 makes them easy to spot on the chart.
You do not need to be cycle expert, I guess you can count to 20:) and the information you need is below. You can add basic technical analysis some indicator(my favorite is RSI) to watch for oversold/overbought levels or combine it with basic EW - if you see on the hourly chart zig-zag or sideways move this is point 1 below, the same on the daily chart is point 2 below.
The important information you need to know:
1. Shorter cycles like 20 day or 5 week cycle touch MA10 and turn up/down in the direction of the trend. The usual length for the 20 day cycle is 9-13 trading days for the 5 week cycle around 4 weeks +- a few days.
2. Longer cycles like 10 or 20 week cycles - the price breaks below/above MA10, makes a low/high and continues in the direction of the longer cycle like the 18 month cycle. The usual length for the 10 week cycle is 8-9 weeks and 16-18 weeks for the 20 week cycle.
3. Follow the trend from 18 month low to 18 month high and the opposite.... or longer cycles, the shortest which makes sense is the 40 week cycle. The usual length for the 40 week cycle is 32-36 weeks and for the 18 month cycle 15-16 months.
4. Find important inflection points - short said the idea is to find completed pattern(EW) at the right time(cycles) and all this is confirmed by a trigger(MA10 cross).
It is about trading not chasing tops/bottoms so 99% of the time you are interested in points 1-2-3.
Active traders will use all opportunities including point 1 to speculate, those interested in intermediate term time frames are interested more in point 2. Point 3 is to determine the direction of the bigger trend.
With this information you can:
- speculate with low risk especially when the cycle is still young like the first half of it.
- if you have longer time horizon you can build position adding on every low in the first half of the cycle. Nearing the top around months 15-16 start reducing your position.
In the direction of the trend you can be more aggressive like entry at supposed low/high without confirmation(using TA/EW) or wait for close above/below MA10. Stop is two closes below MA10 against the trend.
When you expect reversal or bigger decline like into 40 week low and you want to trade against the trend wait for two closes below MA10.
One more question - what happens when important cycle low/high is reached - sell and run, short, do nothing? - There is no "yes/no" answer you need EW and cycles experience. You need to make your analysis and see how the big picture is looking like. The shortest answer I have is - if the market is trending(like 2009-2018) do not worry to take profits until at least 4 year cycle high is reached, if the market is in corrective phase(like 2018-running) it is a good idea to take your profits at 18 month highs.
Point 4 is simmilar to the thoughts above - you have to make your pattern and cycle analysis this is the important part and MA10 cross is just a trigger that a decline into 10w low is starting. Your analysis should give you the answer if this is part of something bigger or not. For this case you need experience with EW and cycles.
A chart to see what I am talking about.... this is not the perfect example because this move is difficult to analyze both from EW and cycle perspective, but still showing the idea.
Trade in the direction of the trend from 18m low to 18m high point 3 above. The green arrows show the short cycles point 1 above. The yellow arrows the longer cycles point 2 above. The red arrows are showing corrections of higher degree 20 week lows - this are the moments where you should switch on your brain:) and make some basic cycle analysis like count to 15-20 on the weekly chart and notice that it is time for 20 week cycle low which means bigger correction lasting longer...... although if you stick to the trigger rule there is no so many whipsaws.
Again it is easy you just need some experience watching the price playing with MA10 and applying Hurst cycles.
Thank you very much...usefull information
ReplyDeleteThank you... :)
ReplyDeleteI wanna learn more from you.
ReplyDeletePlease keep posting.