hi everyone,
im currently reading moving averages simplified by clif droke and there is a chapter which talks about cycle analysis. i understand that its used in stocks and commodities trading but is it also widely used in currencies? thanks in advance for any answers.
pipboyy
sorry if the above is a stupid question…what exactly is cycle analysis? hoping someone can enlighten me…thankyou
Hi Pipboyy,
Market cycles are the repeating, cyclical patterns that markets go through. This includes currencies. If you think of price as a series of waves, then the cycles extend from one peak or trough to the next. Cycles might be found in any type of data, not just price; there are volatility and volume cycles also. Factors of “seasonality” are also cyclical, although unless you identify a significant causal relationship between a seasonal factor in another market and a currency pair, then seasonal cycles are not likely to be very relevant for forex trading.
Though all markets do undoubtedly go through cycles (a bear market will undoubtedly follow the current bull market in equities), they are of limited help in most kinds of trading activity. A cycle is an approximate way to describe a market, and as an approximation it is great, but that probably won’t help with timing the market for particular trade entries or exit.
You will need to decide for yourself whether you think that you (or some author) have uncovered some hidden geometry in the market that describes it in an accurate and timely manner . . . if not, then the inclusion of cycle analysis in your trading needs to take full account of the fact that it is an approximation only.
Kind regards,
Nick
thank you very much nick for your reply… the book i mentioned earlier talked about how powerful it would be if we use cycle analysis together with moving average analysis…can i ask what is cycle on time/price/volume? what do they mean?
Hello Pipboy…
I agree with what Nick said…
I looked into cycles myself and I recommend these (free) books:
“The Geometry of Markets” by Bryce Gilmore;
David Fischer’s “The Great Wave”.
Good luck and happy trading.
In addition to above, check this out. Open your trading platform and add a 100 period moving average and a 200 moving average. When the 100 crosses the 200 that would be the end of one cycle and the beginning of another, same when 200 crosses the 100. Moving averages over 100 could be used as a measurement of longer term cycles.
Do the same thing with 30 and 60 with the same rules and that could be an indication of medium term cycles. Do the same with 10 and 5 moving averages and you might get an indication of short term cycles.
The thing with moving averages is like all indicators, you should use other indicators to confirm. Especially if you’re using them for entries and exits.
Here’s a pretty good video on Moving Averages and how you can use them as well with other indicators for confirmation.
I hope this helps. One more thing to remember. Everybody was like you when they started their forex journey and many asked the same question or questions, asking questions is one of the ways you learn. Point is there is really no dumb questions; dumb, is not asking a question when you don’t understand something. A strong foundation is what’s needed to get you through down the road so ask away.
Good Luck
Gp
Sound advice, GP0053!!
Thank you my favorite analysis tools 30/60 EMA’S Cross, confirmed with VSA.
“1. Select the period of consideration: the long term (months to years), the intermediate term (weeks to months), or short term (days to weeks). It can also be a smaller segment of any of these where a change of slope of the trendline is apparent.
“2. For an uptrend within the period of consideration, draw a line from the lowest low, up and to the highest minor low point preceding the highest high so that the line does not pass through prices in between the two points. Extend the line upwards past the highest high point. It is possible that the line will go through prices past the highest minor high point. In fact, this is one indication of a change in trend, as will be demonstrated shortly.
“3. For a downtrend within the period of consideration, draw a line from the highest high point to the lowest minor high point preceding the lowest low so that the line does not pass through prices in between the two high prices. Extend the line past the lowest high point downward.
“While this method is very simple, it is extremely consistent and very accurate. The slope of this trendline is a close approximation to the slope you would get by doing a linear regression analysis on the price data over the same time period. Unlike other methods, it prevents you from drawing a trendline to suit your purposes — it prevents you from imposing your wish onto the trendline. It also provides the tools to graphically determine when a change of trend has occurred.”
– Victor Sperandeo, Trader Vic: Methods of a Wall Street Master
many thanks for the advise GP!
You’re welcome; my pleasure
Gp