HACK: Identify the Market Trends with this Hurst Cycles principle

The market are influenced by a huge number of trends:

  • The primary trends
    They can last from a year to several years.
  • Medium term trends
    It’s a secondary movement they usually retrace between the 0.33% and the 0.66%.
    The duration could be between one and 3 months.
  • The minor movements
    They are the shortest and the more likely to be manipulated.
    The standard duration could be between from an hour to one month.

Most of the famous market strategies are based on following these trends BUT they do no explain:

  • Which trend you need to follow.
  • How to systematically identify a market trend.

This lack of information and method usually leads the new traders to discretionary trading systems which are the fastest way to the margin call.

The Hurst Cycles, once again, solve this issue thanks to their first principle: The principle of the proportionality.

The Principle of the Proportionality

This principle says:

“The longest the duration of the cycle, the bigger will be the movement that the
cycle generates in the market (Amplitude)”

Let’s analyse two cycles with a different duration on the chart of the Aud/Usd:

Monthly Hurst Cycle:
This Hurst Cycle has an average duration of 32 days.
Its average movement is between +30 pips and -40 pips from its halft.
The total average movement bottom-to-top is of 70 pips.

Hurst Cycles amplitude monthly

Yearly Hurst Cycle:
This Hurst Cycle has an average duration of 256 days.
Its average movement is between +77 and -160 pips.
The total average movement bottom-to-top is of 237 pips.

Hurst Cycles Amplitude yearly

As you can see:
The Yearly Cycle, which has a duration 8 times bigger than the Monthly Cycle, create a movement 3,38 times bigger than the Monthly cycle.

Now that you know the “theory”, let’s move into the advantages of trading the trends with the Hurst Cycles.

Which Market Trend should you follow?

In your opinion, the actual trend of the Aud/Usd is Bullish or Bearish?

The answer is: You cannot tell it.

Why? Because you didn’t specify which trend you are trying to identify.

There’s a famous sentence I like to remember:

“If you don’t know where you are going, you will never get there”

If you don’t know which trend you are looking for, the answer can be whatever: bullish or bearish.

Here the first advantage of the Hurst Cycles comes into play: DEFINITION.

Thanks to the Hurst Cycles you are not going anymore to speak about “Trends” but “Cycles” and the cycles has a defined average duration and amplitude which you can measure, analyse and forecast.

  1. Choose the Hurst Cycle you want to trade based on its duration and your free time.
  2. Systematically identify its direction as explained in next chapter! 

    In which Direction is pointing the Current Trend?

    Now that you have decided which cycle you want to trade, it’s the moment to methodically identify its direction.

This one of the key features of the Hurst Cycles.
A lot of trend-based trading systems use the Moving Averages with different inputs such as 21, 50 or 200.

Have you ever wondered why you are using these inputs?

Do they really work? Which is the best input? 

If you haven’t done yet hundreds of backtests, surely the answer is “I don’t know”.

But there is a good news: The Hurst Cycles solve this issue.

Since the Hurst Cycles have an average standard duration you can:

  1. Set your indicators using this number.
  2. Identify the cycle.
  3. Have a systematic indication of the trend direction.

Let get more practical.

1. Set your indicators using the Hurst Cycle Duration.
In the article “2 Useful Tricks to identify the Hurst Cycles” I explained you that the Moving Averages follow the movement of the cycle when the input is half the periods of the cycle duration.
(Example: if you want to identify the weekly cycle which has 192 periods, you are going to use the Moving Average 96 periods)

2. Identify the Cycle.
Apply the Moving Average to your chart.

3. Spot the direction of the Cycle/Trend.
Now that you have a clearer image of the cycle movement, you just need to spot its direction using this easy rule:

  • When the Cyclical Moving Average is pointing upward, the selected cycle/trend is bullish.
  • When the Cyclical Moving average is pointing downward, the selected cycle/trend is bearish.

Looking for something easier? Have a look at our Premium Indicators!

The advantage of using the Hurst Cycles

Using the Hurst Cycles you eliminate all the discretionary side of the common Trend Following Strategies.

When you know which trend you are looking for and how to systematically identify its direction you automatically delete all the emotions from your analysis creating the basics for a disciplined trading system. (such as the Standard Cyclical Trading System)

Be systemic and disciplined.

Learn more about the Hurst Cycles!

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