Page 69 - NEW FOREX FULL COURSE

FOREX TRADING COURSE FOR BEGINNERS

After a seasonal cycle has bottomed, a trader knows prices should not drop below the seasonal
low until after the seasonal high has been made, normally several months later. After the
seasonal cycle has topped, the uptrend is over and prices should move lower until the seasonal
cycle bottoms. Traders who know the direction of the seasonal cycle are able to follow the
profitable maxim of trading with the trend.

Keep in mind there are sometimes some surprising differences in the seasonal pattern of cash
and futures prices for agricultural markets. Futures markets try to anticipate the cash market due
to expected production and expected demand. Therefore, futures market may bottom as much
as two months ahead of the cash market. For example, the hog futures market may bottom in
August, anticipating the fall low for the cash market, but the cash hog market may not bottom
until October.

While the causes of seasonal cycles are known, the causes of other cyclical patterns are not
always known. The Foundation for the Study of Cycles (124 South Highland Ave., Pittsburgh, PA
15206), a nonprofit organization, has cataloged thousands of cycles using de-trending processes.
Some of the longer-term cycles they have identified include the 9-year wheat cycle, the 5'/2-year
corn cycle, the 5'/2-year cycle for precious metals, the 25-month and 38-month soybean cycles,
the 11-year cattle cycle, and the 4-year business cycle.

The theory of cyclical analysis is that events will occur within a cycle to move prices in the
expected direction of the cycle. The basic drawback of fundamental analysis is that the events
causing changes in supply and demand are not known until after the fact? Well after tops and
bottoms have occurred. All fundamental information relative to supply and demand is in the
market each trading day. But the market usually moves before the fundamental reasons are
known. Cycles help traders pick the direction of price moves before the news comes out.

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