Page 70 - NEW FOREX FULL COURSE

FOREX TRADING COURSE FOR BEGINNERS

To analyze a futures market based on cycles, it is necessary to isolate the dominant cycles
affecting price activity. Once these dominant cycles have been identified, future price
expectations can be established by combining the effects of these dominant cycles. Long-term
cycles, such as the yearly cycles identified by the Foundation for the Study of Cycles, tell you the
direction of the overall price trend. Shorter cycles, weekly and daily, can then be used to
determine when long-term cycles have topped or bottomed and when to enter and exit a market.

Most markets have a dominant short-term daily cycle which may be as short as 14 calendar days
or as long as 35 days. Most of the meats and grains, for example, have a short-term cycle
averaging 28 calendar days. Combing two or more of these short-term daily cycles forms a
dominant intermediate-term weekly cycle which runs 6 to some 20 weeks from low to low,
depending on the futures market. When the short-term cycles are combined with a larger cycle,
the smaller cycles will look like the drawing at the bottom of this page.

Cycles are seldom symmetrical, and their patterns differ in bull and bear markets. In a bull
market, the crest of the cycle tends to lean to the right because the highs are to the right of the
midpoint of the cycle. This is called right translation. In strong bull markets, the length of the
cycles tend to contract (shorten) slightly.

Just the opposite is true in a bear market. In bear markets, the cycles tend to be slightly longer
than they were during bull markets. Cycles in bear markets tend to peak early in the cycle to the
left of the midpoint - called left translation. Note the 13-week cycle from August to November
on the K.C. May wheat had right translation up to the seasonal high and left translation coming
down from the winter seasonal high. Right translation quickly followed by left translation is often
the way a longer-term cycle high is made.

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