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MTA Educational Web Series: Using Cycles in Trading

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This document discusses using cycles in trading. It defines cycles as recurring patterns in markets and other phenomena. Cycles can help trading by indicating time frames, preventing overtrading, and determining technical analysis tools to use. Characteristics of cycles like retracement and translation are examined. Charts are provided showing how cycles impact risk and reward as well as how they determine appropriate oscillators. Both benefits and challenges of incorporating cycles are reviewed. Recommended reading on cycles and technical analysis is provided.

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MTA Educational Web Series: Using Cycles in Trading

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Archati Z
108 views20 pages
This document discusses using cycles in trading. It defines cycles as recurring patterns in markets and other phenomena. Cycles can help trading by indicating time frames, preventing overtrading, and determining technical analysis tools to use. Characteristics of cycles like retracement and translation are examined. Charts are provided showing how cycles impact risk and reward as well as how they determine appropriate oscillators. Both benefits and challenges of incorporating cycles are reviewed. Recommended reading on cycles and technical analysis is provided.

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matthewcaruso

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matthewcaruso-102109

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This document discusses using cycles in trading. It defines cycles as recurring patterns in markets and other phenomena. Cycles can help trading by indicating time frames, preventing overtrading, and determining technical analysis tools to use. Characteristics of cycles like retracement and translation are examined. Charts are provided showing how cycles impact risk and reward as well as how they determine appropriate oscillators. Both benefits and challenges of incorporating cycles are reviewed. Recommended reading on cycles and technical analysis is provided.

Copyright:

© All Rights Reserved
Download as PPT, PDF, TXT or read online from Scribd
Download as ppt, pdf, or txt
108 views20 pages

MTA Educational Web Series: Using Cycles in Trading

Uploaded by

Archati Z
This document discusses using cycles in trading. It defines cycles as recurring patterns in markets and other phenomena. Cycles can help trading by indicating time frames, preventing overtrading, and determining technical analysis tools to use. Characteristics of cycles like retracement and translation are examined. Charts are provided showing how cycles impact risk and reward as well as how they determine appropriate oscillators. Both benefits and challenges of incorporating cycles are reviewed. Recommended reading on cycles and technical analysis is provided.

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MTA Educational

Web Series
Using Cycles in trading
By: Matthew Caruso, CMT
Matthew Caruso, CMT
Matthew Caruso is a Senior Pro-Equity trader at National Bank
Financial (NBF) as well as an active independent futures trader.
Matthew is a Chartered Market Technician and serves as President
as well Montreal Regional Director for the Canadian Society of
Technical Analysts (CSTA). Matthew is also an adjunct professor at
Concordia Universitys John Molson School of Business where he
teaches the course How to build a profitable trading system (using
technical analysis).

Matthew has written several articles which have appeared in stocks


& Commodities magazine as well as the MTA newsletter
What are cycles?
Cycles are recurring patterns in time
Many real world phenomena move in
predictable cycles
In the market, a cycle is an approximate
length between important market bottoms
No definite explanation as to cause
How can cycles help your trading?

Selection of TA tools what technique


should I use? What length should I study?
Prevents over trading
Determines time frame for decision
making
Cycle Characteristics
Retracement (Chart 1)
Cycles typically retrace by one to two thirds after their
peak (uptrend) or bottom (downtrend)
Translation (Chart 1)
In an uptrend (larger cycle is up), cycle tops are made
in the second half of the cycle
In a downtrend (larger cycle is down), cycle tops are
made in the first half of the cycle
Fractals (Charts 2 & 5)
Cycles work the same on all time frames
Larger cycles impact smaller cycles
Chart 1
Chart 2 Daily Cycle
Chart 3 - Downtrend
Chart 4 - Uptrend
Chart 5 Larger Fractal
Cycles Pros
Risk vs. reward (chart 6 & 7)
Prevents over trading
Prevent excessive pyramiding at wrong time
Forces you to wait for the market and anticipate
Provides a rationale for selection of indicators as
well as lengths of indicators
Provides a continual understanding and
awareness of trend (right & left translation a
result of larger cycles. Larger Cycle = trend)
Knowledge of the direction of the larger cycle is
gives insight of the current trading trend chart
5
Chart 6 Risk vs. reward
Chart 7 Risk vs. reward
Cycles Pros
Risk vs. reward (chart 6 & 7)
Prevents over trading
Prevent excessive pyramiding at wrong time
Forces you to wait for the market and anticipate
Provides a continual understanding and
awareness of trend (right & left translation a
result of larger cycles. Larger Cycle = trend)
Knowledge of the direction of the larger cycle
gives insight of the current trading trend (chart 5)
Provides a rationale for selection of indicators as
well as lengths of indicators (Slide 15)
How cycles determine your TA tools
Oscillators used with cycles should be
or the length of the cycles being traded
(Charts 8 & 9)
Oscillators should be used only to enter a
market, not to exit
All oscillators give very similar results, use
what you are most comfortable with.
I prefer the stochastic or %r
Chart 8 Tools selection
Chart 9 Tools selection
Cycles Cons
Not perfectly consistent
Very difficult to automate
Very difficult to mechanically back test
Sometimes downright confusing
Difficult to apply on short timeframes
Recommended Reading
CMT Program
The power of Oscillator/Cycle Combinations by
Walter Bressert***
The mysterious forces that trigger events by
Edward Dewey
The profit magic of stock market transaction
timing by J.M. Hurst
All books by Larry Williams (not cycle related)
Thank you
Questions?
matt.caruso@analyzingmarkets.com

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