This page is under construction
Over the years I have gotten many questions about if I have some material about the market cycles I use. I finally realized that since there is so very little written about it, it might be a good thing to break down and describe the terminology and techniques that comes with cycles analysis. It proved to be a bigger task than I anticipated though so I have decided to see this page as a work in progress, adding material when time allows. But even so, it should still give you a good overview and understanding of this very useful tool within the technical analysis field. Cycles analysis gives you an edge when it comes to identifying market trends and market reversals.
The type of market cycles I use are called Bressert cycles and comes from the work of the late Walter Bressert. He wrote a thick book on it long ago that is not an easy read really, and there is also very little written on these cycles besides that work. Therefore I thought I would do a write-up on Bressert market cycles.
CYCLES ARE EVERYWHERE
Cycles exist in all aspects of life and we see them for example in our lives, in nature, in astronomy and also in biology plus financial markets. And in financial markets it is mainly the repeating market psychology that creates the market cycles. Market cycles are the result of market behaviour that repeats endlessly, driven by psychology and emotions (fear/greed to simplify).
ABOUT MARKET CYCLES
The purpose with cycles analysis is to understand where a cycle low will form, then identify entry points at that low. And, one can either wait for full cycles confirmation using certain cycles parameters, or enter with starter position when one thinks the low is in. And once fully positioned, one shifts focus to start looking for and be ready to identify the cycle high.
Cycles are time-based, that is, they are about timing the cycle low. They also help in defining the cycle highs but first and foremost, they are a tool to determine the cycle lows. Cycles are about time, not about price level, meaning that cycles are about determining cycle lows in time, not the price level. And, market cycles are measured in trading days/weeks/months, not calendar days/weeks/months.
The larger time frame cycles affect the outcomes for the lower time frame cycles. And cycles for the same time frame do not overlap but is a long string of repeating waves. Also note that no cycle is exactly similar to another, they are all individual and that needs to be interpreted as unique patterns.
CYCLE LENGTH VARIES
The same analysis approach is used in general with market cycles regardless of which market one is looking at, but different markets/sectors runs on different cycles lengths for the different cycles time frames. If we take the so called daily cycle, we know that crude oil for example has long daily cycles normally running for 50-60 days, while gold has a shorter daily cycle normally running 30-36 days. Cycles can be found in financial markets down to the hourly level, and all cycles time frames are intertwined, from the largest cycles time frame down to the lowest cycles time frame. This means that a series of daily cycles makes up an intermediate cycle, and that a series of intermediate cycles makes up a yearly cycle. Depending on market, three to five daily cycles makes up an intermediate cycle.
I use the daily, weekly (intermediate) and yearly cycle. For some markets though, I also use multiyear cycles. These are the 3 and 15 year US dollar cycles, 8 year gold cycle, and the 4 year cycle for the general stock market.
KEY CYCLES TERMS
As with every theory, we need different defined terms in order to be able to do any meaningful work, and so also with cycles analysis. I have chosen to list all these terms below here so you have them all in one place. Then you can go back here and check for meanings of the terms while reading the different sections further below.
Cycle low = the lowest point after a cycle high, where price turned and cycle bottomed (needs to be confirmed by cycles parameters mentioned further below), the cycle low marks the end of the present cycle plus also the start of the next cycle
Cycle high = the highest point after a cycle low, where price turned and cycle peaked to continue down into a cycle low (needs to be confirmed by cycles parameters mentioned further below)
Swing low = a move above the candle that marks the low (It can take more than one day to make a swing low)
Swing high = a move below the candle that marks the high (It can take more than one day to make a swing high)
Trend Line = shows main trend direction, and support/resistance
Timing band = the average time span when a cycle low can be expected (based on historical cycles statistics)
Failed cycle = occurs when price moves below the previous cycle low (it is a term for this phenomenon, it does not mean the cycle has failed in any way in itself)
Left/Right Translated (LT/RT) = see section below
And if we add that lows and highs of course can occur on different time frames, we also get the terms below:
Daily Cycle Low/High (DCL/DCH) = cycle low/high on daily time frame
Intermediate Cycle Low/High (ICL/ICH) = cycle low/high on weekly time frame
Yearly Cycle Low/High (YCL/YCH) = cycle low/high on monthly time frame
Half Cycle Low/High (HCL/HCH) = a definable low somewhere around halfway through the cycle, on any time frame
Regardless of cycle time frame there are rules for when a cycle low, or cycle high, is confirmed. The rule is that four parameters need to be fulfilled for a cycle low, or high, to be fully confirmed.
For a cycle low, the four parameters are the ones below (often confirmed in this order):
- swing low (a move above the candle that marks the low)
- close above MA10 (after first closing below it)
- clear break above trend line
- MA10 clearly turning up
For a cycle high, the four parameters are inverted (often confirmed in this order):
- swing high (a move below the candle that marks the high)
- close below MA10 (after first closing above it)
- clear break below trend line
- MA10 clearly turning down
When all four parameters are met, the cycle low is confirmed. If one to three parameters are met, it is signaling/indicating that a cycle low is in.
There is an exception to the rule for cycle low confirmation. If a vehicle/market is in a very strong bullish move, then one may not see price close below MA10, then it sometimes just backtests MA10 with a wick and then moves back up again and makes a new high. In those situations it should not make a new high that late in the cycle but it does, and then one can assume that the backtest to MA10 was actually the cycle low. I call these cycle lows stealthy cycle lows.
In a bull, the later price is in its cycle, the more probable it is that a new low is the cycle low. This also means that a swing low that happens late in the cycle is more probable to hold up than a swing low than happens early in a cycle, if one is in a bull. And, a swing low in the cycle´s timing band for a low has better odds for being the cycle low than if not in the timing band.
One useful other parameter for clues about if a vehicle is still in the advancing phase of its weekly/intermediate cycle is the indicator RSI 5. It should reverse quickly once reaching oversold if it is. RSI 5 can only be used when in the timing band for a DCL.
The timing band is the average time spectrum when a cycle low can be expected. This timing band is based on historical cycles statistics and are accurate in about 60-70% of all cycles lows. When the low does not come in the timing band the cycle is either stretched/extended or shortened.
LEFT AND RIGHT TRANSLATED CYCLES, PLUS FAILED CYCLE
A cycle on any time frame is defined by the time plus price action between two cycle lows. And somewhere in-between these two cycle lows there will be a cycle high. This cycle high can be either left translated or right translated. This means that the cycle high/peak can be either to the left or right of the middle of the cycle (it can also have no/a middle translation but that is unusual).
Right translated – Tops after the middle of the cycle as price goes more up than down, which also means price is in an uptrend with higher highs and higher lows. It occurs after the cycle on the larger time frame has had its low/bottom, e.g. the weekly cycle, then one can expect the daily cycle to be right translated since the trend from there is up.
Left translated – Tops before the middle of the cycle as price goes more down than up, which means price is in a downtrend with lower highs and lower lows. It mostly occurs after the cycle on the larger time frame has had its high/peak, e.g. the weekly cycle, then one can expect the daily cycle to be left translated since the trend from there is down.
If price goes below the previous cycle low for the same cycles time frame, e.g. if price for the daily cycle goes below the previous daily cycle low, then that cycle is called a failed cycle. This because it has failed to stay above the previous cycle low. This is important because it confirms that the higher time frame cycle is in decline, and also that it can have its cycle low at any time from that point. The cycle itself or cycles analysis has not failed in any way with this, it is just a term to keep track of when a cycle went below the previous confirmed cycle low.
A left translating daily cycle almost always indicates that the larger intermediate/weekly cycle has topped.
PUTTING IT ALL TOGETHER
Will be text + charts. This section will be added.
Often one can have more than one possible cycle count scenario and often these are also contradictory between themselves. These situations are always resolved as the cycle develops but it is important to be aware of how clear the present cycle count is as it affects trading decisions. Cycle count can become blurry when price is in a longer trading range like for example a narrow triangle.
My main tools include cycles analysis, stage analysis, sentiment, fibonacci and classical technical analysis plus a few other tools, but this page is only about cycles analysis. And besides cycles analysis, I also use what is often called long cycles. These are the on average 54 year Kondratieff wave, the on average 18 year debt/real estate cycle and the on average 15 year broader commodities cycle. But these are not included here since they are so called long cycles, and not part of the field cycles analysis.