Overview

I use cycles as a way to better quantify trend analysis and turn it into actionable insights. When I look at cycles I focus 100% on price action. Cycles help to explain the price action, not the other way around. I don’t believe there is any outside force controlling the price action to make it conform to certain timing bands as other analysts seem to think. This is why I don’t rely on knowing when an asset is “supposed” to have a certain cycle low. To identify those turning points I use price action across multiple time frames to understand different scenarios and their likelihood of occurring. For video content you can visit the YouTube channel

Advancing Phase Leads to Declining Phase

Cycles are always measured from low to low and every cycle starts with the advancing phase as it rises from the low set by the previous cycle. At some point, the advancing phase will peak and prices start to decline as the cycle enters the declining phase. The declining phase will then continue until the cycle reaches its low point or cycle low. This cycle low marks the end of the current cycle and the beginning of the next cycle as cycles continue on in an endless loop the same way they exist across nature. Cycles are a brilliant tool for timing the market because they give you a rough idea of when you might expect the next low. When you combine this with precise price action analysis, you can gain a formidable edge. The key is always understanding whether you’re in the advancing or declining phase of the cycle and understanding what to look for to know when you have transitioned from one phase to the next.

Right Translation vs. Left Translation

How bullish a cycle is will mostly be a function of how long the advancing phase lasts. Cycles with longer advancing phases are more bullish because there is more progress in terms of price appreciation. A longer advancing phase also generally means a shorter declining phase where price does not drop by as much so most of the price appreciation that occurred during the advancing phase remains intact as the asset moves in an uptrend. Cycles with advancing phases that are longer than their declining phases are called “right translated”, while cycles with declining phases that are longer than their advancing phases are called “left translated”. For instance, if an asset has a 30-day cycle from low to low and the peak happens on day 20, then it is right translated since it spends 20 days going up (advancing phase) and 10 days going down (declining phase). If the peak happened on day 10 instead, it would be left translated since the advancing phase would only last 10 days while the declining phase would last for 20 days.

Assets can go through stretches of time where their cycles are extremely right or left translated. During the global financial crisis for instance, most assets had cycles that were extremely left translated as they would spend a very short time in the advancing phase and then spend the majority of the cycle in the declining phase before reaching the cycle low and starting the process all over again.

Failed Cycles

Any cycle is said to have “failed” if/when price goes below any previous cycle low. This makes sense intuitively because in order to remain in an uptrend an asset needs to continue to make higher lows. If at any point it goes below a previous cycle low, that would break the pattern of higher lows needed to maintain an uptrend and trigger a warning that a trend reversal might be in the works. The most bearish cycles are ones that are left translated (short advancing phase, long declining phase) and fail. There is a high correlation between left translation and failure which make intuitive sense as the longer the declining phase lasts, the more severe the price decline.

The Different Cycle Lengths

There are cycles of every imaginable length from the smallest/shortest to the largest/longest. Next, we’ll discuss the 3 cycles that are most commonly followed and also most useful for making investing decisions.

The Daily Cycle

This is the shortest cycle that is practical to follow though you will find people on Twitter who post about hourly cycles for instance. Daily cycles vary in length from asset to asset and cycle to cycle but are generally around 25-35 trading days long. In other words, one daily cycle tends to last somewhere between several weeks to 2 months long on average. Some abbreviations and definitions that will be useful:

• Daily Cycle Low (DCL) – the low point and end of a daily cycle and the point right before the beginning of a new daily cycle. DCL is always marked by a swing low.

• Daily Cycle High (DCH) – the high point of the cycle and marks the beginning of the declining phase; in right translated cycles the DCH comes much later because the advancing phase lasts longer…the opposite is true in a left translated cycle where the DCH happens very early in the cycle. DCH is always marked by a swing high.

The Intermediate/Weekly Cycle

Intermediate/weekly cycles tend to last anywhere from 18-30 weeks depending on the asset class. For US equities, weekly cycles tend to be 20-25 weeks long which is just about 4-5 months. This means if you can spot the advancing phase of a weekly cycle relatively early, you can ride that trend for a few months if your timing is right. It’s also important to keep in mind that higher time frame trends are more important than lower time frame trends. For instance, if an asset is in the advancing phase of the daily cycle but it’s in the declining phase of the weekly cycle it’s not a good trade since the short-term upside of the daily cycle will soon be overwhelmed by the higher time frame trend from the weekly which in this case is lower. Similar to the daily cycle here are some abbreviations and definitions that will be useful:

• Intermediate/Weekly Cycle Low (ICL) – the low point and end of weekly cycle and the point right before the beginning of a new weekly cycle. Will always coincide with a Daily Cycle Low as well. Every ICL is also a DCL too. ICL is always marked by a weekly swing low.

• Intermediate/Weekly Cycle High (ICH) – the high point of the cycle and marks the beginning of the declining phase; in right translated cycles the ICH comes much later because the advancing phase lasts longer…the opposite is true in a left translated cycle where the ICH happens very early in the cycle. Every ICH is also a DCH so this is a clue when using multi-time frame analysis to spot a weekly cycle high early. ICH is always marked by a weekly swing high

The Long Term Cycle

A long-term cycle is any cycle where the lows are years apart as opposed to weeks or months. Daily cycles last for weeks. Weekly cycle last for months and long-term cycles last for years. Some common long-term cycles that are closely followed include:

1. the 3-year cycle which applies across many asset classes including Commodities, the Dollar Index and Equities

2. The 4-year cycle for Bitcoin which is linked to its halving every 200k blocks which works out to about every 4 years

3. The 8-year cycle for gold

It’s critical to keep in mind that cycles are nested within each other which means every cycle has multiple shorter cycles within it. In essence, every cycle is the combination of several shorter cycles which combine to form the larger/longer cycle. This is not unlike the way things combine in nature to form larger structures when this is to their advantage.

So when you think about the 3-year cycle for the Dollar index for instance, this is the combination of many weekly cycles which themselves are a combination of many daily cycles. The 3-year cycles themselves combine to form the 15-year cycle for the dollar index. This goes on and on, building larger and larger price action structures.

Additional Content

Detailed Cycle 101 videos can be found on the YouTube channel.