How to use the Hurst Cycles to plan your Positions

In the previous article you have seen the main Trading cycles in the market, now you are going to learn:
How to develop a plan about where and when to open your next positions.

In this article I will explain you HOW to do using 3 easy points:

  1. The Fractals and the Hurst Cycles.
  2. The principle of the sum.
  3. The Battleplan.

The Hurst Cycles are Fractals

The Fractals are a repeating pattern that displays at every scale.

That, translated in a trading language, means:

The movement of a long cycle (such as the economical one) is created by the same movements on the smaller scale.

Have a look here, the black line represent the 3-month cycle and the blue line the 1-month cycle.

hurst cycles forecast

In the red rectangles you can spot the same movement on both the 3-months and 1-month cycle but with a smaller duration and amplitude.

Which are the advantages of this phenomenon? 

  1. You can trade any time frame because you will find the same rules and patterns.
  2. Analysing the movement of the smaller time frame, you can forecast the movement of the long-term cycles.

The Sum Principle

In order to create a Hurst Cycles Forecast you will need to have in your mind:

  1. The Cyclical Movement you are expecting.
  2. Where you will open the position.

In this paragraph, you will learn how Standard Cyclical Movement looks like.

The Sine Waves

The basic movement of a cycle is a sine wave. [ =SIN() formula in Excel ]

hurst-cycles-forecast

But you will never find a clear movement like that in the market.

WHY?

Because, due to the fractals principle, the movement of a cycle is the result of the sum of several market cycles.

The Sum of Sine Waves

To solve this issue and get a more realistic forecast you will need to sum the movements of the basic cycle with the its Sub-Cycles.

In the picture below, I've summed the main cycle (Blue line) with 2 smaller cycle.
The result is the Green Line which is more similar to a Real Price Movement.

hurst-cycles-forecast

The HURST CYCLES Forecast

Using this Standard Cyclical Movement, that from now on I will call Battleplan, you can now:

  • Create Forecasts.
  • Plan your entries.

immagine

The planned entries are

  • Two long entries on the first and the second cycle.
  • Two short entries on the third and fourth cycle.

What you will need to do now is:

  1. Identify the minimum of a cycle using one of the following methods:
  2. Buy and Sell the Sub Cycles in the direction of the main cycle on the Planned Entries.

Here an example of the Battleplan drawn on the Eur/Usd 4H chart.

Green arrow - Long Position || Red Arrow - Short Position.

immagine

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