Section 11 - Chapter 6 - Cycle Driven Market Approaches

Section 11 – Cycle Analysis
Chapter 6 - Cycle Driven Market Approaches
Presented By :
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Agenda
❖ Diagram the observations of several market
cycle experts
❖ Infer the potential benefits of using time-
based tools with traditional price-based tools

Cycle Driven Market Approaches
Hurst’s conclusions on market cycles, especially in his book The Profit
Magic of Stock Transaction Timing, are foundational for
understanding market behaviors and the fractal nature of cycles. His
work ties into the theory of long-term cycles in markets, particularly how
trends repeat in predictable ways. Below is a summary and cheat sheet
of his key takeaways and conclusions:

Key Takeaways
1. Long-Term Cycles (8 to 18 years): Hurst proposed that markets are
influenced by long-term cycles of around 8 to 18 years. These cycles are
generally more significant than shorter, more obvious cycles (like daily or yearly
patterns). Understanding them helps predict the future trend of the market.
2. Fractal Nature of Markets: The market exhibits fractal-like behavior,
where cycles within cycles are present. Short-term cycles mirror the long-term
cycles, so by analyzing smaller periods (like months or years), you can
potentially forecast longer-term movements.

Key Takeaways
3. Persistence in Trends: Hurst’s major finding was that once a trend begins
(whether upward or downward), it tends to persist. This persistence comes from
the underlying cyclical forces at play in the market. A trend's likelihood to
continue is based on its cycle's phase.
4. Market Memory and Mean Reversion: Hurst emphasized the idea of
"market memory," where market behavior in the present is influenced by
previous behavior. This leads to mean reversion, where extreme price
movements tend to revert back toward the long-term trend.

Key Takeaways
5. Hurst Exponent (H): This is a statistical measure that quantifies the persistence of
a trend in a market. The exponent (ranging from 0 to 1) helps indicate the degree to
which the market follows a consistent trend:
o H > 0.5: Indicates persistent trend (bullish or bearish).
o H = 0.5: Random walk, like a Brownian motion (no trend).
o H < 0.5: Indicates mean reversion behavior.
6. Cycle Analysis and Forecasting: By analyzing cycles within the data, Hurst
believed one could identify the phases of the market and time entries and exits more
accurately. Techniques such as spectral analysis or Fourier transforms can be used to
break down price movements into constituent cycles.

Key Takeaways
7. Bifurcation Point: A crucial concept in Hurst's work is the “bifurcation
point,” where market conditions shift, and cycles transition from one phase to
another (e.g., from a bullish to a bearish market). Recognizing this point is key
for predicting significant turning points.
8. Multi-Dimensional Market Cycles: Hurst argued that cycles could not be
understood in isolation. They are interconnected, and market movements often
represent a blend of multiple cyclical factors (e.g., political, economic, and
psychological cycles).

Cheat Sheet for Market Cycles
 8 to 18-year cycles: These long-term cycles should be at the core of your market
analysis. Watch for reversals or breakouts that align with these periods.
 Fractal Analysis: Look for patterns within smaller time frames (such as weeks or
months) to identify broader market trends. The same principles apply at different
time scales.
 Hurst Exponent:
 H > 0.5: Trend-following behavior.
 H < 0.5: Mean reversion.
 H = 0.5: Random walk.

Cheat Sheet for Market Cycles
 Cycle Phase Identification: Recognize when a cycle is in its early, middle, or late
stages. A phase change could signal an upcoming shift in market behavior.
 Persistence & Trend Continuation: Be alert for signs that a current trend may
continue rather than reverse. If the trend’s cycle is persistent, it will likely maintain
its direction.
 Market Memory & Reversion: Understand that sharp deviations from a trend are
often followed by a reversion, especially in markets with low volatility.
 Use Spectral or Fourier Analysis: To decompose market data into cycles, use
these tools to identify the dominant cyclical components.

Interpretation of Hurst’s Conclusions
 Predictability: Hurst's work suggests that markets, while seemingly chaotic, are
governed by predictable, recurring cycles. By identifying these cycles and
understanding their nature (trend-following or mean-reverting), traders and
analysts can enhance their forecasting abilities.
 Market Cycles and Psychological Factors: Hurst’s research implied that market
cycles often reflect collective psychology. The rise and fall of investor sentiment
play a significant role in dictating the direction of these cycles.

Interpretation of Hurst’s Conclusions
 Fractal Nature of Time and Markets: The fractal approach means that looking at
smaller timeframes is just as valuable as focusing on large-scale cycles. Small
trends feed into big ones and vice versa.
 Risk Management: Recognizing the cyclical nature of markets helps with
managing risk, especially when it comes to understanding the likely duration of a
trend or reversal.
Overall, Hurst’s conclusions provide a framework for recognizing cyclical patterns in
markets, with an emphasis on the persistence of trends and the ability to time
market movements by understanding the cyclical nature of economic and
psychological factors.

W.D. Gann's Observations
Presented By :

W.D. Gann’s Observations
 W.D. Gann was a legendary figure in the world of market forecasting, known for
his unique techniques that combined astrology, geometry, mathematics, and
historical analysis.
 His methods focused on cyclical patterns, price relationships, and time cycles,
which he believed were key to understanding and predicting market movements.
Below is a summary, cheat sheet, and interpretation of his key observations and
methodologies:

Key Takeaways from W.D. Gann's Observations
1. Time and Price Relationships:
 Gann believed that price movements are inherently related to time. The concept
of time cycles, whether measured in days, weeks, months, or years, was central
to his theory. For Gann, the key to market forecasting lay in understanding these
time-price relationships.

2. The Importance of Angles and Geometry:
 Gann used geometric principles to forecast price movements. He believed that
certain angles (e.g., 45-degree angle) had significant meaning in terms of price
and time. These angles were used in the creation of his Gann Fan and Square of
Nine charts.
 Gann Fan: A tool that uses geometric angles to show price and time relationships.
 Square of Nine: A numerical chart that links prices with specific time cycles, often
used to identify turning points.

3. Price Cycles:
 Gann emphasized the cyclical nature of markets, believing that markets moved in
fixed patterns that could be predicted through the study of past price movements.
 He believed in the importance of understanding major market cycles (e.g., 90-
year cycles, 60-year cycles) and their influence on the present market.

4. Astrology and Planetary Movements:
 Gann famously incorporated astrology into his market analysis. He believed that
planetary movements and celestial cycles had a direct impact on market behavior.
 For example, he often referred to the influence of planets like Saturn and Jupiter,
along with lunar cycles, as factors that could help predict turning points in
markets.

5. Master Time Cycles:
 Gann focused on specific time periods such as the 60-year, 30-year, 10-year, and
5-year cycles, all of which he believed had a repeating pattern in market behavior.
 Understanding these cycles could allow traders to anticipate major.

W.D. Gann’s Observations on market
cycles
Presented By :

W.D. Gann’s Observations on market cycles
 W.D. Gann's observations on market cycles were fundamental to his market
forecasting techniques.
 He combined geometry, time cycles, price relationships, and astrology to create a
unique approach to predicting market movements.
 Below is a summary of his key observations on market cycles, a cheat sheet for
applying them, and an interpretation of his ideas.

Key Takeaways on Market Cycles
1. Cyclical Nature of Markets:
 Gann believed that markets operate in distinct, predictable cycles. These cycles
repeat over time and influence price movements. Understanding these cycles
allows traders to anticipate turning points in the market.
 Key cycles Gann focused on include the 60-year, 30-year, 10-year, and 5-year
cycles, all of which he believed had regular and predictable patterns.

2. Price-Time Relationships:
 According to Gann, price movements and time intervals are interrelated. Each
price movement has a corresponding time cycle, and market turning points often
coincide with both a specific price level and a time cycle.
 Gann often analyzed time and price together, using mathematical and geometric
formulas to identify where price and time intersect in significant ways.

3. The Square of Nine:
 The Square of Nine was one of Gann's most famous tools. It is a spiral of
numbers that he believed showed the relationship between price levels and time
cycles. By aligning price points with the numbers on the Square of Nine, traders
could predict potential market turning points.
 This chart could also be used to identify support and resistance levels and the
timing of reversals, as key numbers in the Square of Nine corresponded with price
movement patterns.

4. Gann Angles:
 Gann Angles are geometric lines drawn at specific angles from a given price
point. The most important angle is the 45-degree angle, which represents a
balanced relationship between time and price. When prices move along or near
this angle, it suggests a balanced, natural trend.
 Gann used other angles (e.g., 22.5°, 67.5°) to identify potential support and
resistance levels, as well as key turning points in the market.

5. Master Time Cycles:
 Gann identified specific "master cycles" that govern long-term market movements.
The 60-year cycle was central to his analysis, as he believed that significant
events and market movements tend to repeat every 60 years.
 He also identified shorter-term cycles like the 30-year, 10-year, and 5-year cycles,
all of which could be tracked to identify upcoming market trends or reversals.

6. Planetary Cycles (Astrology):
 Gann believed that planetary movements and aspects had a direct influence on
market behavior. For example, the position of planets like Saturn and Jupiter were
thought to correlate with major market events.
 He studied lunar cycles and other celestial events to forecast turning points. Full
moons, new moons, and other significant planetary configurations were believed
to correspond with market highs and lows.

7. Law of Vibration:
 The Law of Vibration is based on the idea that every price movement has its own
vibration, and market trends follow a rhythmic pattern of oscillation. By
understanding the vibrational frequency of a market, one could predict price
movements and turning points.
 This concept is closely related to the idea that markets do not move randomly but
are driven by specific cyclical forces.

Cheat Sheet for Gann’s Market Cycle Analysis
1. Identify Long-Term Cycles:
 Start by analyzing long-term cycles such as the 60-year cycle to understand the
broader trends in the market.
 Break these long-term cycles down into smaller segments (e.g., 30-year, 10-year,
and 5-year cycles) to pinpoint key time periods when important market
movements are likely to occur.

2. Use the Square of Nine:
 Align market prices with the Square of Nine to find key levels of support,
resistance, and potential turning points.
 Determine important price levels by calculating the square root of the price level,
then aligning it on the Square of Nine chart.

3. Draw Gann Angles:
 Plot Gann Angles from significant price points (e.g., market highs or lows). Look
for 45-degree angles as these represent balanced price-time relationships.
 Pay attention to how price movements interact with the angles, especially when
prices test or break through these angles, indicating potential trend reversals.

4. Track Planetary Cycles:
 Study lunar cycles and planetary movements to identify when key market turns
might occur. For example, consider how planets like Saturn (representing long-
term cycles) and Jupiter (representing growth and expansion) could influence
market sentiment.
 Use astrological calendars and tools to track planetary alignments and their
potential effects on the market.

5. Monitor the Law of Vibration:
 Pay attention to the rhythm of the market. Notice repeating patterns in price action
and time, which suggest that markets are moving in a predictable, cyclical
fashion.

Interpretation of Gann’s Observations on Market Cycles:
1. Cyclical Predictability:
Gann’s observations emphasize that markets are not random but operate in predictable
cycles. By identifying and understanding these cycles, traders can time their entries and
exits more effectively, anticipating major market trends and reversals.
2. Time and Price Synchronization:
Gann’s work underlines the importance of synchronizing both price and time. A price
movement alone is not sufficient to predict future action—understanding the time cycle
that corresponds with that price is just as important.

3. Astrology and Market Movements:
Gann’s incorporation of astrology into market forecasting shows his belief that external,
cosmic factors influence the behavior of markets. While this aspect of his work is
unconventional and controversial, he believed it was crucial for understanding the timing
of major market turns.
4. Geometric Precision in Market Trends:
Gann’s use of geometry, particularly the Square of Nine and Gann Angles, offers a visual
and mathematical framework for forecasting market movements. Traders can use these
tools to spot key levels and time periods for price reversals or continuations.

5. Master Cycles and Market Trends:
The concept of master cycles, especially the 60-year cycle, highlights that market
behavior is shaped by long-term forces, and history tends to repeat itself. By
understanding these long-term cycles, traders can align their strategies with broader,
more predictable trends.
6. Market as a Reflection of Cosmic Forces:
Gann viewed the market as a reflection of natural cycles, driven by both mathematical
and astrological principles. This holistic view underscores the interconnectedness of
human behavior, the physical world, and the broader universe in influencing market
outcomes.

In conclusion, Gann's observations on market cycles emphasize the predictability of
the market through careful analysis of time, price relationships, geometry, and astrology.
By applying his tools—such as the Square of Nine, Gann Angles, and time cycles—
traders can forecast potential market turning points and understand broader trends,
improving their chances of success in the market.

Tom DeMark’s Observations
Presented By :

Tom DeMark’s Observations
Tom DeMark is a prominent technical analyst best known for developing indicators
and methods for identifying market turning points. His work focuses on creating tools
to anticipate changes in price trends, with a particular emphasis on momentum and
the psychology behind market behavior. Below is a summary of his key
observations, a cheat sheet for applying them, and an interpretation of his
methodologies.

Key Takeaways from Tom DeMark’s Observations
1. TD Sequential Indicator:
 One of DeMark’s most famous contributions is the TD Sequential Indicator, a tool
designed to identify potential market tops and bottoms.
 The TD Sequential works by counting price bars in a sequence, aiming to identify
exhaustion points where the trend is likely to reverse.
 The indicator consists of two components:
 Setup Phase: A series of 9 consecutive price bars where each closing price is lower
than the close of the bar 4 periods earlier (for a bearish setup) or higher for a bullish
setup.
 Countdown Phase: A subsequent phase that involves 13 bars, during which the price
must meet specific conditions that signal exhaustion of the trend.

2. TD Combo:
 The TD Combo is a variation of the TD Sequential, combining the Setup and
Countdown phases to offer a more refined approach to identifying trend
reversals. It is used to signal extreme overbought or oversold conditions.
 The Combo is generally used on longer time frames, such as daily or weekly
charts, to provide more reliable reversal signals.

3. TD Lines:
 DeMark's TD Lines (also known as Trend Lines) help traders spot when a price
trend is about to reverse. They are typically used in conjunction with other
indicators like TD Sequential or TD Combo.
 TD Lines connect significant price points and assist in defining the price range
within which a reversal could occur. When prices break through the TD Line, it
signals a potential trend change.

4. Market Psychology and Exhaustion:
 DeMark’s methodologies are grounded in understanding market psychology. He
focuses on the exhaustion points of trends, where buying or selling pressure is at
its peak and a reversal is more likely.
 The idea is that after a long, uninterrupted trend, the market becomes
“exhausted,” and a reversal is imminent. This exhaustion is typically represented
in the TD Sequential and TD Combo signals.

5. Multiple Time Frame Analysis:
 DeMark advocated for using multiple time frame analysis when applying his
indicators. For example, a reversal signal on a weekly chart might be more
reliable when confirmed by a daily chart signal.
 He believed that using various time frames provided a more comprehensive view
of market momentum and trend development.

6. Price and Time Symmetry:
 A key principle in DeMark’s work is the idea of price and time symmetry, where
the timing of market moves and the price levels reached during these moves are
linked.
 For example, when a market hits a certain price point or experiences a certain
level of volatility within a specific time window, it often leads to a reversal in
direction. Recognizing these symmetrical patterns is a critical component of
DeMark’s approach.

Cheat Sheet for Tom DeMark’s Indicators
1. TD Sequential Setup Phase:
 Look for 9 consecutive price bars where each close is higher than the close of the
bar four periods ago (bullish setup) or lower (bearish setup).
 A TD Sequential Setup alone is a signal that a trend may be nearing exhaustion.
2. TD Sequential Countdown Phase:
 After a Setup phase, the Countdown phase begins, consisting of 13 bars.
 A Countdown signal indicates that the trend is at an extreme point, with potential
for reversal.
 When a Setup and Countdown both occur, a strong reversal signal is formed.

3. TD Combo:
 Use the TD Combo for confirmation of a trend exhaustion when both the Setup
and Countdown phases align on longer time frames.
 A Combo is often more reliable than a Setup alone and is used for more accurate
trend reversal predictions.
4. TD Lines:
 Draw TD Lines on key price points to mark significant trend boundaries. Price
breaking these lines could signal a trend change.
 A price movement that breaches a TD Line (either upwards or downwards) should
be treated as a strong indication that the market’s trend may reverse.

5. Multiple Time Frame Analysis:
 Always consider multiple time frames. Look for confirmation of reversal signals across
different charts (e.g., daily, weekly).
 A signal on a shorter time frame (like the 60-minute chart) may be significant if it aligns
with a reversal signal on a daily or weekly chart.
6. Market Exhaustion and Price Reversals:
 Use the TD Sequential and TD Combo indicators to pinpoint potential exhaustion
points where the market has gone too far in one direction and is likely to reverse.
 Focus on overbought or oversold conditions to anticipate when trends may be ready to
reverse.

Interpretation of Tom DeMark’s Observations
1. Trend Reversals and Exhaustion:
 DeMark's work revolves around the idea that trends do not last forever. Eventually, a
trend becomes exhausted when buying or selling pressure reaches its peak. His
indicators help identify these exhaustion points, giving traders an edge in predicting
reversals.
 The TD Sequential and TD Combo indicators are designed to spot these exhaustion
points by counting price bars and their relationships over time. The shift from setup to
countdown indicates increasing market stress, a precursor to a trend reversal.

2. Market Psychology:
 DeMark’s tools are grounded in understanding that market movements are driven by
collective human psychology. A sustained trend is often the result of an overwhelming
market sentiment, but once this sentiment reaches extreme levels (either bullish or
bearish), the market is likely to shift.
 The TD Sequential and TD Combo indicators capture this psychological shift, providing
traders with actionable insights about potential changes in market direction.

3. Mathematical Precision:
 DeMark’s methods rely on precision in counting price bars and aligning them with time
frames. These numbers are not arbitrary; they are based on his analysis of market
cycles and momentum.
 The countdown in both the TD Sequential and TD Combo serves as a reliable signal
that a market has stretched itself, and a reversal is more probable.

4. Holistic Approach with Multiple Time Frames:
 DeMark recommended using multiple time frames in analysis, as signals on different
time charts can provide greater confirmation of a trend reversal.
 For example, a countdown on a daily chart followed by a setup on a weekly chart is a
stronger indicator of an imminent market shift than a signal from just one time frame.

5. Price-Time Symmetry:
 DeMark’s concept of price and time symmetry suggests that markets often follow a
predictable, cyclical pattern. Price movements over a certain period will often be
balanced by time movements, and recognizing this symmetry can help predict future
market behavior.
 By identifying when a market is aligned with its cyclical patterns (price and time),
traders can predict the likelihood of price reversals.

In conclusion, Tom DeMark's observations focus on the psychology of market trends
and the identification of exhaustion points using a combination of price bar counts, time
cycles, and market sentiment. His TD Sequential, TD Combo, and TD Lines tools offer
traders a systematic way to forecast market reversals and capitalize on changes in
market momentum. By using multiple time frames and understanding price-time
relationships, DeMark’s approach helps traders make more informed decisions.

The Presidential and Four-Year Cycles
Presented By :

The Presidential and Four-Year Cycles
 The Presidential Cycle and Four-Year Cycle refer to specific market patterns that are
observed to correlate with the U.S. presidential election cycle and broader economic
factors. These cycles, often considered from a historical perspective, suggest that
market performance tends to follow certain predictable patterns over a four-year period
in relation to the presidential election.
 Below is a summary of key takeaways, a cheat sheet for understanding and applying
these cycles, an interpretation of how they work, and a case study demonstrating their
impact on market behavior.

Next Chapter 1 - Trading Systems
Next Section 12 - Systems and Quantitative Methods
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Section 11 - Chapter 6 - Cycle Driven Market Approaches

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