It’s important to understand why I use an approach to trading that values the importance of understanding TIME and CYCLES as a prerequisite to learning about price action and any type of trend analysis.
Technical analysis covers price action and trend, but it is in the field of cyclical analysis that we begin to advance into the understanding of not just space but space & time. We view space as the area of price action on the chart - the distance of highs and lows relative to each other. But when we begin to understand the aspects of TIME relative to a markets price action, then we begin to discover the keys to market timing and one increases their probability of picking specific highs and lows within the trend. We also begin to increase the probabilities of recognizing potential trend changes and it is this understanding of cycles and TIME analysis that we begin to properly anticipate the beginning and ends of a move and one will naturally then begin to achieve much higher success rates in ones trading.
Let’s begin with an understanding of a few basic concepts surrounding time and cycles, and how we use these cyclical approaches in our trading to produce high probable market setups. One of the core concepts in my trading model is what I call the Pi Line. Pi is the ratio of the circumference of a circle to its diameter, and Pis mathematical significance is well known throughout many fields and its origins go back to antiquity.
Pi has been represented by the Greek letter π, and because its definition relates to the circle, π is found in many formulas in geometry and trigonometry.
Pi appears in other sciences such as number theory and statistics, as well as it is found in thermodynamics, mechanics, and electromagnetism. We can also see the numerical significance of Pi in cyclical wave structures, sine and cosine functions repeat with a period of 2 π this oscillation and wave form creates a rhythm of time. It is these oscillations and wave formations that we try to identify in our trading. Much like the rhythm of a pendulum, we look to trade around the same rhythms of time on the chart.
It is this oscillation through time that creates this cyclical rhythm and these mathematical constants show that there is an underlying structure and geometry of not just space but also TIME. In this next section lets examine what I call in my proprietary trading model the Jenkins Pi Line concept.
Section 1: The Jenkins Pi Line
The price action on a chart is simply energy moving through people in what we call the markets. Everything moves in waves - it’s how energy travels. This is why we built our model around such wave formation cyclical vibration. Pi defines the circle and thus it is the perfect cycle, this is why I originally began to search for ways to incorporate this cyclical and mathematical phenomenon in our trading model. What I discovered next was really a very simple basic discovery but one that produces amazing results on the price charts on all timeframes.
I decided to put Pi on the chart. I was looking for a longer moving average to incorporate into our trend analysis and decided why not take Pi 3.14 x100 and put a 314 simple period moving average on our chart. When I did, I was astonished at the accuracy and the frequency in which price made prominent highs and lows putting in tops and bottoms often times to the exact level as the moving average line itself. The incredible number of failures and bounces off this line was outstanding and it happens regardless of the time frame. I knew in my 15 years of trading and all my institutional experience talking to some of the largest and most well respected traders that I had never heard of anyone using such a moving average. Its fair to say that most traders never even go out past the well used 200 period moving average. So, I knew the idea of a self fulfilling prophecy with everyone using the same 314 period moving average was not a contributing factor as to why this average was doing such a spectacular job at defining price action. There was clearly more to why this moving average line worked so well. This was and is clearly proof of an underlying cyclical structure to how energy moves.
I do not use any one particular moving average nor do we use simplistic moving average crosses to determine when I buy and sell. The model is much more complicated than such strategies but this one simple Pi Line concept is irrefutable evidence that there is a hidden design to markets and under the surface of what seems to be chaotic random events, there-in underneath the complex lies repeatable cyclical patterns and my Pi line concept proves this. Here are just a few examples of the many occurrences you will find on the charts concerning our Pi Line concept:
And we can see these examples across other asset classes and on smaller timeframes. Here is an example of EURUSD on the 1 Hour chart (Price holding Pi as shown per the yellow circles):
The Dollar vs the Mexican Peso, this is a 1 hour chart example, price cycled away from the Pi line only to cycle back and produce a subsequent failure at Pi:
This Pi line technique produces significant highs and lows like this often to the exact level. Lastly, this is one of my favorite examples, the exact high of the move on the day of Brexit we saw the Pound fail right up at Pi (the green down arrow is showing our sell signal). You can also see multiple failures at Pi in 2015 highlighted in yellow:
These types of events, both highs and lows with the Pi Cycle are very common across all timeframes and in all markets. Now we do not just simply buy and sell when price hits the Pi Line nor do we go bullish or bearish just based off price being above or below this line. Our model to reiterate is more in depth and our process we teach our traders only begins with the Pi Line. But as an overall good general rule, our Pi Line acts as a great starting point to begin an individual’s trade and many successful trade setups occur at or near this significant cycle line. I will come back to the Pi Line concept in the video at the end of section 3 and I will demonstrate how we incorporate this Pi line concept with the other cycle indicators that we use. However, before we get into the next Oscillating Cycle setup I want to touch on something else that is key to proper cycle trading; and that is learning how to work the right position size in and around the cycles.
Section 2: Why position sizing almost matters more than TIMING.
It’s our belief that TIME matters more than price, and that timing matters far more than fundamentals and valuation. We also have found that cycles matter more than just relying on technical analysis. But what is also very critical, is how the individual trader works his or her position size relative to the timing component of the cycle. How one works into and out of that position either playing the trade from a contrarian perspective being early relative to the cycle change, or whether one’s scales in and out with the current trend and the cycle is key to being early and wrong or late and wrong.
When a trader is able to analyze the cycle and actually combine a few similar timeframes - for example looking at a 30min cycle in conjunction with analyzing the 15min cycle - the trader is able to identify the cycle correctly in a fractal manner. Fractals are a mathematical set that shows a repeating pattern. The term Fractals was derived from the Latin Fractus, meaning broken or fractured, and it is used to describe the self-similar or self repeating patterns that are representing in a way broken off pieces of the larger pattern. We find these fractal examples throughout nature such as the design of a sea shell, the self-referring nature of the fern leaf, to large scale examples in nature like coastlines.
I built this same fractal design into my trading model and it is why I look for the cycles on multiple timeframes. When the trader learns to recognize these cycles over multiple time durations in such a fractal manner, it is then that the trader begins to experience the highest degrees of probable market setups.
These multiple cycles over fractal multi-duration setup allows the trader to identify more accurately where price is in TIME relative to where price has come from, meaning is the price trend closer to the beginning of its move, in the middle of its respective move, or closer to the end of its move.
The cycle helps the trader determine where in time the price action is, and whether that trend has room to continue or whether price is reaching the point of possible trend change and reversal.
But having this edge or understanding of the higher probable outcome as far as where price is in the cycle is only half of the battle. Because even if one is correct in analyzing where price is relative to the cycle or the TIME component, the trader must next determine and make the decision of how much capital to commit to the trade at that specific point in TIME. Does the trader buy a one lot? Does he or she commit 1/2 of their normal position size? What is the traders normal position size? Does the trader go all in and commit his full position size? Does the trader scale in? Does the trader even have a process to determine the answer to these questions or does he or she just buy the same fixed amount for every security regardless of the market or regardless of the selected timeframe? These are difficult questions, and these are the questions that will enter the trader’s psyche time and time again. Every time the trader wishes to enter into the market the same thought process will occur. This is why one must have a process and a model to answer these questions. It is too much mental work and creates unnecessary anxiety if the trader must guess and strain to determine the answer to these position size questions every time the trader wishes to take a trade. It is this undeceive decision making process around position size that creates inconsistency. Deciding how many shares or contracts to buy or sell is paramount to increasing the odds of a successful outcome.
Let me also explain how and why position size is key to determining the final outcome of any particular trade. I often will get a trader who comes to me and says the familiar I knew I should have stayed in that trade! I was right - I knew it! I knew EURO was too high and it felt toppy I knew it was a short. I hear this all too often, and my next question is always, So what happened, you didn’t make money?. The trader will respond something like, No I stopped out into the high and their next comment is always followed up with some remark about how the trader felt or how he or she was nervous or changed their mind at the high based on this factor or that thought, hunch, or feeling. It is an emotional response to fear due to pain associate with being too aggressively short too early in the move. This happens very often and I’m sure you the reader has experienced the same. It has happened to me plenty of times in my trading career. It is the direct result of being too aggressive or too heavy in the traders overall position size too early before the market turns. This happens even when the trader may have had the right idea and the right directional call on the market. The trader cannot sit through the further move up, stretching the trader or squeezing him or her causing too much of a paper loss and forcing the trader to exit. All the while the market was only offering higher and better prices to sell before the reversal of trend and the cycle turn took place. And it is this fear or pain from taking on too much of a paper loss that causes the trader to react emotionally or even just kill the trade because the unrealized loss is at or above the traders typical loss amount that causes the trader to stop out on the high. This type of outcome is always accompanied but some emotional response and excuses related to how the trader knew the idea was right but did not make money because of how he or she felt when the market was going further than they had originally thought. And the feelings of frustration are well deserved but it is not because of their feelings as to why they did not execute the trade as planned, it is the poor execution of being too heavy with their position size too early relative to the cycle.
This type of trading results in the trader making executions and trades based from their P&L and not based off of selling high and buying low. This is called P&L trading and this can be avoided with proper position sizing and learning to properly scale into a trade.
This improper execution is common and it is a trading error that most traders fail to recognize and this habit of being too heavy too early will plague the trader causing a multitude of losing trades. However the solution this problem lies in a proper understanding of the cycles and TIME. You need to properly identify when early in a trade and how to work your position size accordingly.
The 3 pillars are: Analysis, Execution, and Risk.
I will use this thread to answer questions and post my trade signals to help you better understand the process.
