Cycles Research's Blog

Strength and weakness

Wed, 05 May 2021 15:58:07 +0400

Strength & weakness

Let’s examine these two principles more closely using Dogecoin – a cryptocurrency as the illustration. You should know that these two principles apply to all markets over all time frames.

Strength & weakness personified – note that supply appears at the top of the market and demand appears at the bottom of the market as demonstrated by the supply line in red and the demand line in green. Once the price range becomes excessive relative to the previous bars in the background, you are alerted to a potential change in trend.

Do you know when the market is weak or strong? Or better yet, how to tell when any market is ready to fall or rise.

Before selling or buying takes place, the market has to transit to a phase known and distribution, professional selling, or accumulation, professional buying. The accumulation phase is seen through the line formation expressed by channel lines CC. This channel line CC established the CAUSE that would later express itself through the EFFECT seen at bar A. The line formation is one of the biggest money-making formations known in classical traditional technical analysis. The professionals keep buying while keeping prices in a narrow range to potentially frustrate all the weak holders who were waiting for a quick advance. Once the accumulation phase is complete as seen above supply line C at point #1, the market is ready to be marked up until the buying climax phase; the strongest sign of weakness appears at letter A.

For those weak holders unaware of the CAUSE, they simply entered the market with euphoric ambitions expecting prices to rise above its 90-degree angle.

Understanding and knowing these two principles can and will save you headaches, sleepless nights, and potentially lots of money. So how can you tell when selling or buying has arrived? This post will guide you through the *principle of* *weakness* and *strength* so that you will know once and for all how to trade in harmony with professional interests. Once you see the principles unfold, you will never be able to not see them in the future.

As we begin, let’s define strength and weakness.

Definition: strength is buying. When strength, demand, or buying appears in the market, it will express itself via a wide spread down bar that closes off the low, in the middle, or high of the price bar. The next bar will be an up bar to confirm the buying that took place on the previous very wide-spread down bar. This will be akin to a FedEx letter coming your way with some important message requiring your immediate attention. Please stare at the chart for some time until the image stains your right brain.

Bar B is an excellent example of demand entering the market. Note how prices opened unchanged to the previous day’s close. They moved the price up, to trick you, after which prices were dropped to further panic investors into selling. Once all the weak holders sold, the indirect message was, “tricked you”, as prices were moved back up towards the day’s high. What a roller coaster. For confirmation, the next day’s price needs to close higher to confirming the buying that took place on bar B.

On the other hand, weakness is selling. When weakness, supply, or selling appears, it will express itself as a wide-spread up bar that closes off the high, in the middle, or low of the price bar.

For example, look at bar A on the chart. Bar A has the widest price up range ever seen in the chart’s background. The background is everything behind you - looking from right to left. The news must have been ultra-good to pull so many weak holders into the excitement of buying while the professionals, who control 80 – 90% of the market’s float are selling. The float is, i.e., the total number of contracts or shares available for trading. As the price moved away from its high, many weak holders continue to jump in; meanwhile, the professionals were telling you that they are ready to take prices lower. If you did not believe the message, observe how the next bar closed down. It is important to learn these, and all other principles, so you can respond within two seconds without doubting your understanding.

In short, the markets are a merchandising system designed to create losers unless market participants learn and understand the language including the principles and structures through which professionals operate to move prices up or down.

Buy or Sell: Introduction to Fundamental Analysis

Wed, 28 Apr 2021 11:13:00 +0400

Hello, and welcome. This is Hamilton Lewis from the [Digital Studios][1] of The cycles foundation with an introduction to our research process and investing style.

More than 100 years ago, Mr. Rollo Tape said “…successful trading is the study of forces.” Thus, if it takes a specific force to move the price, the price movement can be determined in foresight depending on the magnitude of the force acting on the price. For example, let’s introduce two forces that you have heard of. The two forces are the force for demand and the force of supply. Rollo Tape went further to discuss the idea of the feather’s weight. He said that a feather’s weight on either side of the scales of the two forces will determine the future trend of that force. In short, the feather’s weight is represented as the lack of supply or demand - also known as diminishing demand - a sign of weakness or diminishing supply – a sign of strength. In some cases, the principle will usually be color-coded to denote strength or weakness. Example, demand and supply.

Imagine that you have an idea about your favourite company, for example, your favourite company could be VISA or Master card, a name familiar to most debit and credit card users, or any other company from any country anywhere in the world.

Your curiosity leads you to wonder how fascinating it would be to own shares in your favourite company and to prosper as your favourite company succeeds.

On the other hand, you might be interested in the futures markets, for example, the precious metals, the meats, the grains or even the crude or palm oil markets. All futures markets are also known as the derivative markets. In other words, the futures market derives their values from an underlying cash or physical asset. As an example, you might load up on physical gold and you would easily have the futures contract specifying how many tons of gold own for a specific period.

In addition, you might have an interest in the bond market, the options market on stocks, options on indexes, futures, or even the currency, or your favourite crypto currency market. The big question that you must answer is when do you buy, sell or sell short. To arrive at the buy and sell decision, it becomes necessary to adopt an approach or a combination of approaches that will enable you act appropriately and support your decision based on the time you have to invest and the amount of money you have. Most of all, you will consider an approach that will allow you to sleep at night. After all the right decisions have been made, you can still lose some, or most of all your money – thus the world of speculation. By definition, speculation is the ability to anticipate a future event and act today to participate in that future event.

Know that all your analyses can be right and you can still lose money.

One of the first places most investor start is with the fundamental analysis approach. This approach is commonly taught at most under graduate and graduate schools. So what is the fundamental analysis approach? The fundamental analysis approach starts with the company, the management, the products, services, and the financial statements i.e. the balance sheet and income statements from which you will learn about the various financial ratios. In some cases, you will even become interested in listening to or reading the financial news and paying attention to the economic calendar.

Essentially, if you have $5 million or more to invest and if time is not an issue for you, than the fundamental approach is a good starting place. However, you should know that Mark Twain said, "If you read or listen to the news, you will become informed to a degree, at the same time, you are bound to be misinformed." So be mindful of the fox, feeding you the news while guarding the chickens. Our process devotes a very limited weight to the fundamental approach. Even though fundamental analysis and technical analysis can be considered the opposite side of the same coin, your money personality will help you determine which approach suits you best.

For some background, you should know that the global capital market system is created around a merchandising process , merchants create markets for both the public and private sectors to buy and sell stocks, bonds, currencies, cryptos and so on.

Consider this observation, if it you were a merchant, would you easily and readily reveal your hand to your retail and professional market participants? Under normal conditions, the answer is usually no.

Moving on to the next approach we use, brings us to the universe of Technical Analysis.

To help answer the question of when to buy or sell leads to the study of Technical analysis. Technical Analysis or traditional Technical Analysis is expected to guide you through the turbulent waters of wealth accumulation. The premise of Technical Analysis introduces a forecasting method designed to guide you through the many decisions you must make as to when to buy or sell. These decisions are based on the study of past price and volume data and certain price patterns. The forecasting methods uses indicators that will let you know when prices are overbought or oversold – a process based solely on academic theory since oversold and over bought levels do not really exist. Furthermore, over the years, I have learned that the best indicator is the market itself and how the market responds to its own actions. The logic of Technical Analysis further infers that what has happened in the past will happen in the future. Under some conditions, that appears to be a logical and normal consideration; however, life in general is not a set mold or pattern because conditions are constantly changing. Thus our weight associated with traditional Technical Analysis is also limited.

Since conditions are constantly changing, it is fair to conclude that the future is only a partial reflection of that past based on the principle of variation. Thus, our process focuses the greater emphasis on Judgmental Technical Analysis i.e. (JTA). Velocity Analysis , Acceleration Analysis , and Cycles. Let us begin with (JTA). (JTA) takes into account the various forces and principles that determines market movements. For example, when is the market weak - selling or strong - buying? The ability to understand when the market is weak or strong plays a major role in your decision making process because your bias to buy or sell will emerge.

(JTA) foundational premise establishes that the future will repeat itself differently; in addition, (JTA) infers that all price movement is the result of a natural law and a CAUSE which exist long before the EFFECTS takes place and can be known years in advance.

The two CAUSES indigenous to all markets are accumulation and distribution i.e. buying and selling. That said, knowing the when or the time to buy or sell enhances your results better than any other consideration you can explore.

For example, at the 30 min mark during a live TV interview, with Ed Shannon, found on YouTube, I said in Oct 2008 that the markets, the S&P, would rally after 2014 into a significant crest into 2020. Days before President's Day in February 2021, the daily forecast called for a sell just before the multi-week decline in March 2021. Another incredible forecast was made on March 11th 2021 when the June S&P 500 futures posted a chart entry at 3,940.00; the prediction said to expect a rally to 4,380.00. On April 9th, 2021, the S&P posted an entry at 4,100.00. These are some of the many successful forecasts made using the confluence of the various analysis processes in our tool kit.

Velocity Analysis takes into account the price action as it travels through space over time i.e. distance travelled over time. (VA) allows you to determine the amount of risk, up front, you are willing to take on every trade. After the known amount of risk is defined, you can move on to create a specific algorithm that guides you through the market cycles and phases. When you fully understand (VA), you will be equipped to calculate objective buy and sell signal including price objectives up or down. By definition, a buy signal is a move above a previous high while a sell signal is a move below a previous low.

The largest component of our process is grounded in the mysterious forces that trigger events – known as cycles and acceleration analysis.

Cycles by definition is the variation of a distribution returning to its point of origin whereas acceleration is the rate of change of velocity engineered to give you the future price spread with a high degree of accuracy for any time frame.

When discussing cycles, you might recall that a cycle is the result of multiple smaller cycles known as waves that determines the full cycles. As an example, when you see the price, you should remember that that price is the sum of many smaller or sub cycles some of which are more dominant that others. By knowing which component cycles is dominant within the composite cycles, you can anticipate when a cycle high or cycle low will occur based on the price's transit around its cycles.

Since a cycle reflects the movement around a circle, you know that the movement originates at point zero and moves in a counter clock wise to 30 degree, 45, 60, and 90 degrees. The 90 degree angle marks the maximum height of the cycle otherwise known as the amplitude of the cycle. So if you know the amplitude, you can calculate the period or frequency of the said cycle because frequency is proportional to amplitude. For example, if the amplitude of the cycle is 5 unit length in height, using the principle of proportionality, you can calculate the cycle length, period, or frequency with a 10 unit length.

After the price touches its 90 degree angle, it begins its transit towards the 180 degree angle until it arrives at the 270 degree angle, to mark a cycle low, with a trough of a -5 unit length reading. In short, the cycle studies will let you know when a cycle high or low is expected in foresight to further support your buy/sell decision.

Next, a careful consideration is given to acceleration analysis. Since you have already covered velocity analysis, the acceleration of velocity tells you what the future price is expected to be for any future time T in advance. For this phase of the analysis, you will incorporate the laws of motion and monitor the slopes of the cycles to know the state of the measure of motion and any time T.

You want to become a buyer once the measure of motion, i.e. momentum becomes positive and sell once the measure of motion becomes negative. Thus the need to understand the principle of velocity analysis.

To put is all together, imagine that you are cooking your favourite dish; you select your ingredients beforehand. Next, you mix the various ingredients at different times to create that memorable taste. The process is very similar as it related to the investing process. You know and under your objectives i.e. to manage risk while creating value. You understand the various analysis methods and their limitations after which you mix some or of all of the analysis methods depending on the results you want to establish at any particular time.

In short, be mindful of your blind spots by understanding fundamental, technical, judgmental technical analysis, velocity analysis, acceleration analysis and the principles of cycles. You should know that each analytical process is a specific language and takes time to learn and understand depending on how you apply yourself. We sum up with the words of Robert Rhea, who said, "No profession required more hard, intelligence, patience, and mental disciple than successful speculation." Enjoy your lifetime journey to wealth accumulation.

Are the movements in the capital markets a random system

Sun, 25 Apr 2021 21:00:26 +0400

Are the movements in the capital markets a random system?

Introduction

At first glance, anyone looking at the effects of the market movements reaches the conclusion that the various lines and colors appearing on price charts resembles the scribbles of a two-year seeking to compose a beautiful abstract masterpiece. This initial premise leads many to conclude that the movements are random and the future moves are unpredictable such that nobody knows what is likely to happen in the future. Obviously for those adopting such a position reflects their limited awareness of the multiple influences impacting the system known as the markets. After many years of study and being around the markets, I have come to realize that all movements in the market are the result of natural law because nothing in the universe is random; every move is ordered. During this presentation, you will learn three points: how the market moves in definable waves with distinct amplitudes and troughs. How the rallies and reactions are the results of the magnitude of the forces impacting the market, and finally how the apparently random nature is a reflection of the chaotic influence governing all complex systems.

Markets move in waves,

similar to that of the ocean's wave. In fact, the ocean's ripple, tide, and wave observed are akin to the price movements in the markets as reflected by its various time frames such as daily, weekly, and monthly. Being aware of the duration of the minor, intermediate, and major trends supports an investor's decision by trading in harmony with the current trend. Since the price wave has a distinct amplitude; it automatically infers that the period of frequency of that wave can be known in advance. As a result, with the proper instructions, studies, and understanding, any investor can know in advance, when the wave high or low will occur. Because this principle is universal and fractal in nature, its structure is applicable to the various times associated with the markets. For example, with some busy work, you can analyze intraday highs and lows; in addition, you can extend your analysis out to the larger time frames for greater rewards.

Since each wave has a distinct amplitude and trough, it is logical to conclude that the current and future movements are ordered and measurable. The price is going to a specific angular destination whose angle can be measured and known in advance. For example, being aware of where the price is within the 360 degrees that comprise the circle, you know that at the zero points, the price will seek to rally towards its 90-degree angle. Obviously, the advance will not happen in a straight line i.e. from zero to 90 degrees. Under normal conditions, the price will rally and react from zero to 30 degrees pause for some sideways action before seeking to attempt the 45-degree angle. The same process of rally, reaction, and pause occurs until the prices get to their 60 and 90-degree angles respectively. The 90-degree angle is the highest point in the wave which is also known as the highest high that the price will experience. After the price completes its 90-degree angle, it will begin its reaction towards its 180-degree angle with the usual counter-trend rally and reaction until the maximum low, or its lowest low during the wave frequency, is touched at its 270-degree angle. As you can conclude, the amplitude/trough factor alone nullifies the random nature of the price action.

As an example, the Euro/Dollar spot currency contract posted it 90-degree cycle high at 1.2115 on February 25^th^, 2021.

Following the 90-degree angle cycle high, the spot currency contract reacted to its 270-degree angle cycle low on March 31^st^ at 1.1703. As of Friday, April 16^th^, the EUR/USD closed at 1.1980.

Another example can be seen with Zoom Video Communications (ZM). The 90-degree angle cycle high was posted on Monday, Oct 19^th^ 2020 @ $588.84. (ZM) reached its 180-degree angle cycle low on Monday, March 8^th^ at $309.00. The 270-degree angle is expected around the $200.00 mark.

There is a specific force, whose magnitude influences rallies and reactions. It is the force that moves the price to change its position over time thereby creating a net change. The relationship of the force relative to the price ranges and the closing price establishes principles -- many of which will be covered in future blog posts. You will learn about the principles such that you will be persuaded without a shadow of any doubts that the markets not random. For example, the magnitude of the force determines the amount of displacement the price is expected to experience during a specific time interval. As the thrust of the displacement diminishes in either direction, the price signals a potential change in trend -- another element that nullifies the random nature of the price action. This is akin to a car going uphill as it runs out of gasoline. The obvious tends to follow i.e. a move back downhill.

Finally,

the confluence of the various elements comprising the markets gives it an appearance of randomness when such complexity would more suitable suggest the chaotic nature of the markets. The market's chaotic structure represents a higher level of order in that what you see today you will never see repeated tomorrow or at any time in the future except for a variation thereof. That is one of the reasons why a mechanical approach to market analysis may work well during the backtesting periods and fail miserably during the live market. In short, Haven learned that the market moves in definable waves with distinct amplitudes and troughs; that the rallies and reactions are the results of the magnitude of the forces impacting the market, you have the foundational grounds to finally judge how the apparent random nature is a reflection of the chaotic influence governing all complex systems. The three credible points to confirm and nullify that markets are predictive to a degree and will never ever be random as some experts would have you believe.

Sunday April 18^th^, 2021 @ 10:10 ET