What is Cycle Trading?
With cycle trading you track the market for a pattern of bottoms occurring in a set number of days. Cycles will last different lengths depending on the market, but you will notice different markets consistently seem to bottom within a set number of days. Tracking these bottoms you can estimate the best time to buy into a market using a buy signal and ride the market up before the cycle turns and heads back down to another bottom. On the DBC chart below, you can see that the market bottom every 30-40 days, then move upward.
3 Types of cycles
Daily Cycles - These cycles occur in a set number of days. In the DBC above you can see about every 30-40 days the DBC will bottom and begin climbing up. Those small dips are called daily cycle lows (DCL) and indicate the current cycle is ending and a new cycle is about to begin, providing a buying opportunity.
Intermediate Cycles - An intermediate cycle typically occurs every 3-4 daily cycles. An intermediate cycle low (ICL) usually has a larger price drop followed by a larger gain.
Multi-year cycles -
Intermediate Cycles - An intermediate cycle typically occurs every 3-4 daily cycles. An intermediate cycle low (ICL) usually has a larger price drop followed by a larger gain.
Multi-year cycles -
characteristics of Cycle Trading
Half Cycle Low (HCL) - Almost all cycles have a 1/2 trading cycle within a cycle. The contract dips halfway through its cycle and provides an opportunity to add to your positions. These dips usually occur when conditions become overbought and the market needs to briefly consolidate before continuing up.
Right Translated / Left Translated Cycle
Right translated - Bullish signal, the cycle peaks towards the end of the cycle following the half cycle low.
Left Translated - Bearish signal, the cycle peaks towards the beginning of the cycle preceding the half cycle low.
Right Translated / Left Translated Cycle
Right translated - Bullish signal, the cycle peaks towards the end of the cycle following the half cycle low.
Left Translated - Bearish signal, the cycle peaks towards the beginning of the cycle preceding the half cycle low.
Confirmation of a new cycle
After you have counted your days and you are in the timing band for a new cycle, it is time to keep your eye out for the beginning of a new cycle. Not every swing low is confirmation a new cycle has begun. Cycles have a confirmation process to know you have the beginning of a new cycle. Look at the example below for the confirmation process.
Failed Cycles
Cycles can fail! You need to keep your eye out for failed cycles to know when to get out for a small loss.
Cycles can fail! You need to keep your eye out for failed cycles to know when to get out for a small loss.
