Trading Cycles
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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 in the same direction as the original move. Generally, when the second move from the sideways range 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 on much shorter time frames.
12
1-2-3 reversal The Sperandeo 1-2-3 reversal is a technical method to determine if the odds are good that a trend 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 a close below the initial low and confirmation that the trend has now changed to down. Reverse for down trends.
12 Sometimes the test will form what is known as a 2b reversal. This is when the stock or index trades below or above the preceding top or bottom but then closes back above or below that point. This is often a very good sign that buying pressure or selling pressure was not strong enough to continue the trend and it often signals the exact bottom or top.
4 day rule and 4 day corollary The 4 day rule and corollary can also be used to spot tops and bottoms of long intermediate trends. The 4 day corollary states that after a long intermediate move the first day counter to the trend following 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 often confirmation of a trend change.
12
Bollinger Band Crash Trade The rules of the Bollinger band crash trade are to buy on the open after any day that the market or stock closes below the lower Bollinger band (10;1.9). Sell on any close that’s profitable or after 15 days whichever comes first.
12
VTO trade The rules for the VTO trade are as follows. Buy when the 5 day RSI closes at or below 30. Sell when the 5 day RSI closes at or above 70. A safer but probably less profitable method would be to sell when the 5 day RSI closes above 50.
12
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.
12
CYCLES What I’m mostly concerned with when I talk about cycles is the larger 4 year cycle in equities. This cycle runs anywhere from 3-5 years.
12 As you can see from the chart our last four year cycle ran very long. Often these long cycles will be followed by a short cycle. The 82-87 cycle was also stretched and it was followed by a short cycle into the 90 bottom that only lasted three years.
The next longer cycle is the seasonal cycle.
12 We have a seasonal cycle low due in Apr. or May. It actually occurred a bit early this year in March.
The next shorter cycle is the weekly cycle. This is the cycle I’m most interested in trading. On average this cycle lasts between 18-25 weeks.
12
Finally the shortest cycle is the daily cycle lasting roughly 28-43 days.
12 Usually we will get 3 completed daily cycles in one weekly cycle. Two weekly cycles in a seasonal cycle and four seasonal cycles in one four year cycle.
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 cycles tend to produce the worst declines in total percentage terms. Right translated cycles top out right of center and tend to produce waterfall type declines but smaller percentage losses. I’ve marked the half way point of the two 4 year cycles with the blue line. You can see the 02 cycle topped left of that half way point and the last cycle topped to the right of center. The current cycle is the most left translated cycle in history.
12 Since I’m mostly concerned with trading the weekly cycle I want to be aware of any weekly cycles that 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.
Swings I often talk about swing highs or swing lows, both daily and weekly. A swing low is simply a sign that selling pressure has declined and the stock or index has moved above the previous intraday high. A swing high is just the exact opposite. The following charts are examples of a daily swing high and low.
12
Keep in mind that sometimes it may take several days for a swing to form especially if the previous intraday range was large. The following is an example of a swing low that took 3 days to form.
12
12
1-2-3 reversal The Sperandeo 1-2-3 reversal is a technical method to determine if the odds are good that a trend 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 a close below the initial low and confirmation that the trend has now changed to down. Reverse for down trends.
12 Sometimes the test will form what is known as a 2b reversal. This is when the stock or index trades below or above the preceding top or bottom but then closes back above or below that point. This is often a very good sign that buying pressure or selling pressure was not strong enough to continue the trend and it often signals the exact bottom or top.
4 day rule and 4 day corollary The 4 day rule and corollary can also be used to spot tops and bottoms of long intermediate trends. The 4 day corollary states that after a long intermediate move the first day counter to the trend following 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 often confirmation of a trend change.
12
Bollinger Band Crash Trade The rules of the Bollinger band crash trade are to buy on the open after any day that the market or stock closes below the lower Bollinger band (10;1.9). Sell on any close that’s profitable or after 15 days whichever comes first.
12
VTO trade The rules for the VTO trade are as follows. Buy when the 5 day RSI closes at or below 30. Sell when the 5 day RSI closes at or above 70. A safer but probably less profitable method would be to sell when the 5 day RSI closes above 50.
12
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.
12
CYCLES What I’m mostly concerned with when I talk about cycles is the larger 4 year cycle in equities. This cycle runs anywhere from 3-5 years.
12 As you can see from the chart our last four year cycle ran very long. Often these long cycles will be followed by a short cycle. The 82-87 cycle was also stretched and it was followed by a short cycle into the 90 bottom that only lasted three years.
The next longer cycle is the seasonal cycle.
12 We have a seasonal cycle low due in Apr. or May. It actually occurred a bit early this year in March.
The next shorter cycle is the weekly cycle. This is the cycle I’m most interested in trading. On average this cycle lasts between 18-25 weeks.
12
Finally the shortest cycle is the daily cycle lasting roughly 28-43 days.
12 Usually we will get 3 completed daily cycles in one weekly cycle. Two weekly cycles in a seasonal cycle and four seasonal cycles in one four year cycle.
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 cycles tend to produce the worst declines in total percentage terms. Right translated cycles top out right of center and tend to produce waterfall type declines but smaller percentage losses. I’ve marked the half way point of the two 4 year cycles with the blue line. You can see the 02 cycle topped left of that half way point and the last cycle topped to the right of center. The current cycle is the most left translated cycle in history.
12 Since I’m mostly concerned with trading the weekly cycle I want to be aware of any weekly cycles that 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.
Swings I often talk about swing highs or swing lows, both daily and weekly. A swing low is simply a sign that selling pressure has declined and the stock or index has moved above the previous intraday high. A swing high is just the exact opposite. The following charts are examples of a daily swing high and low.
12
Keep in mind that sometimes it may take several days for a swing to form especially if the previous intraday range was large. The following is an example of a swing low that took 3 days to form.
12
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