Page 71 - NEW FOREX FULL COURSE

FOREX TRADING COURSE FOR BEGINNERS

Trend lines are also an important tool to confirm cyclical tops and bottoms. Penetration of a trend
line drawn from the crest of two cycles of similar length confirms that the next longer cycle has
bottomed. In bull markets, breaking an uptrend line connecting the lows of two similar length
cycles will confirm that the next longer-term cycle has crested.

The wheat charts on these pages are a good example of repetitive patterns which are helpful in
profitably trading a market. For the long-term perspective, these charts show wheat when it was
declining toward the 9-year cycle low, which is expected the next summer. The current seasonal
cycle began in August, topped in December and is expected to bottom with the 9-year cycle the
following summer.

Near the 13-week cycle low in February, intermediate-term traders would be taking profits with
plans to sell again as the next 13-week cycle crests. The next cycle high is likely to come early (left
translation) because the dominant 9-year and seasonal cycles are pointing down. The crest of the
13-week cycle may be made with the crest of the first 28-day cycle out of the February low. This
13-week cycle should bottom again about 13 weeks from the February low, which would put the
expected low in May (plus or minus 15). The next 13-week cycle low would be due in another 13
weeks in August, which would be the most likely time for the seasonal cycle lows.

On the Chicago July wheat chart, three 28-calendar-day cycles make up the 13-week wheat cycle.
Breaking the uptrend line connecting 28-day cycle lows confirmed the 13-week cycle high in
November. The winter seasonal high was confirmed during the January collapse when prices
dropped below the previous 13-week low (Nov. 25 low). The 13-week cycle low in February was
confirmed by breaking the downtrend line connecting 28-day cycle highs. Shorter-term traders
would be trading the 28-day cycle highs and lows in the direction of the intermediate-term cycle.

Cycles are most accurately measured from low to low. It is not unusual for a cycle to have a
variation of plus or minus 15 of the length of the cycle, and expectations should be established
accordingly while the most probable times for cycles to top and bottom can be established, cycles
do sometimes stretch, shrink and, on occasion, disappear. It is a common feature of cycles to
correct themselves as time passes. A cycle that runs too short, for example, might then make an
adjustment by running longer on its next repetition. Chicago July wheat had two short cycles in
September and October, which was followed by a cycle that ran more than five weeks from mid-
October to late November.

CANDLESTICK PATTERN FORMATION
Japanese Candlestick charting dramatically increases the information conveyed to the visual
analysis. Each candlestick trading formation or series of formations can clearly illustrate the
change of investor sentiment. This process is not apparent in standard bar chart interpretation.

Each candle formation has a unique name. Some have Japanese names, others have English
names.

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