Stock Market Cycles. Features and principles.

Starting from the easiest cycle of the seasons, up to the economic fluctuation, the cycles have always had a direct impact on our lives because:

“Everything Turns, Rotates, Spins, Circles, Loops, Pulsates, Resonates And Repeats.”

These cycles affect our daily decisions and behaviours and, since the prices are the numerical effects of our thoughts and actions, you will see these cycles as well as in nature also in the financial markets.

Discover now:

What are the Market Cycles?

JM Hurst, the author of the book The Profit Magic of Stock Transaction Timing, did a lot of researches on the prices of more than a thousand assets and discovered that the markets are moving in cycles with an average standard duration.

With his book, JM Hurst, provided the traders with an excellent solution to identify the proper timing to buy or sell financial assets.

Features of the Market Cycles.

 The two main characteristics are:

  • Amplitude
    The difference of price between the minimum and the maximum of the cycle.
    This feature represents the strength of the cycle to move the price.
  • Duration
    The interval of time between the initial and final minimum.
    It's the most important feature because it allows you to:

    • Properly set up your indicators.
    • Open your trades with a perfect timing.

Market cycles features

The standard Cycles durations

Starting from the economic cycles, these are the standard durations that JM Hurst discovered.

Market cycles duration

 

As you can see, each trading cycle contains TWO sub-cycles of HALF duration.

This is because market cycles are a repeating pattern that displays at every scale (also know as fractals).

Of course, since nothing in nature, and mainly in the financial markets, works perfectly the 100% of the time, these durations are averages. (Otherwise everybody would already be a millionaire, isn't it?)

The Cycle Durations could be subjected to a percentage change of around 25%.

The 2 principles of a Stock Market Cycle

  • The principle of proportionality.
    The bigger is the duration of a cycle, the bigger will be its amplitude.
  • The principle of the sum.
    The movements in the market are the result of the sum of several market cycles.

Here you can see the two principles working together.

Stock market cycles

With the Grey Line you can see the standard movement of two cycles:

  • The cycle X, which is the smaller, has a short duration and a small amplitude.
  • The cycle 8X, which is 4 times bigger than the cycle X, has a long duration and a bigger amplitude.

The Blue Line represents the sum of the two cycles.
As you can see, even if the cycle 8X has a bigger amplitude, it's movement is partially affected by the Cycle X.

Let's see an example with Gbp/Nzd:

GBPNZDH4

 All the charts are created with Premium MT4 Indicator. GET ACCESS NOW! 

The Green Lines between the Blue Dots represent the movements of the Cycle X. (96 periods)
The Black Lines represents the movements of the cycle 4X. (384 periods)

As you can see the cycle 4X moves the price with more strength because of its bigger duration.

AND YOU?

Did you already know the Hurst cycle? How do you use them? What's your favourite cycle?

Let me know in the comments below!

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