Investors, Traders, and Their Charts

For traders of financial markets, “timing is (almost) everything.” They need all the tools available to gain an edge in perhaps the most difficult of all market tasks: trading.

Yet a number of people associated with financial markets will not be interested in short-term trading. It does not suit their temperament or life style. There are a number of tools associated with these market timing studies that can be invaluable for investors too. Therefore, let’s refine this article into three categories of market participants, according to the strategies involving different cycles and different time frames for chart analysis. The reason for making this distinction is because investors and traders will use different technical studies and chart patterns to determine a favorable point to enter and exit into a position.

Long-Term Investor

From a cycles’ perspective, a long-term investor is one who will create an investment strategy with the four-year cycle as the central focus. That means the 4-year cycle will be used in tandem with a longer-term cycle, such as an 18-year cycle, a cycle that is “above” (longer than) the time frame of the 4-year. Additionally the investor will use the subcycles or phases that unfold within the 4-year cycle, as the next cycle of a lower degree. That will involve the two- or three-phase classical breakdown of the 4-year cycle, which may include two 23-month cycles (with a usual range of 19-27 months), and/or three 15.33-month cycles, with a range that varies according to whether it is the first, second, or third phase. As outlined in Volume 1, the mean average of a 46-month cycle would be 15.33 months. But historical studies show that the first phase has a mean cycle length of 16.5 months with a normal range of 13-20 months. The last phase, however, is shorter, with a mean cycle length of only 14.3 months, with a very wide range of 8-23 months. Because it is the last phase of a longer-term cycle, it is not surprising that 54% of the historical cases of this third phase occurred outside the “normal” range of 13-20 months that were observed in the first phase.

In my own practice, I use the 18-year cycle as the “greater cycle” containing four or five 4-year cycle phases. In other words, historically there are usually 4 or 5 four-year cycles within the greater 18-year cycle. There has been at least one instance of 6 four-cycle phases within an 18-year cycle (see Table 1). The “lesser degree” cycles I use in tandem with the 4-year cycle are the 2- and 3-phase subcycles within the 4-year cycle. These are the 23-month and 15.33-month subcycles discussed previously. I will also use the 50-week cycle to help time a long-term entry or exit point. As demonstrated in Volume 1 of the “Stock Market Timing” series, there may be anywhere from three to five 50-week cycle phases within a 4-year cycle. Half of the time (50%) the 4-year cycle will contain four 50-week cycles. The other 50% of the time it will likely contain three or five 50-week cycle phases. Thus one starts with the idea that a 4-year cycle will contain four 50-week cycles, but at the same time be aware that it might contract to include only three, or expand to include as many as five 50-week cycles. The point to understand here is that a long-term investor who is applying these methods to enhance investment performance, will use a 4-year cycle, and tie it in with at least one longer-term cycle and one shorter-term cycle.

The long-term investor will also examine charts of at least three different time frames. The primary time frame to be used for analysis might be the monthly chart. Above that, perhaps he may tie it in with the yearly or quarterly charts. Below that, he may tie in the monthly studies with the weekly and maybe also the daily charts. The point is that he wants to invest in the direction of what his monthly charts are telling him. But he wants to make sure this conforms to the trend direction suggested by the yearly or quarterly charts and their technical studies. He then wants to make sure that the weekly chart is at a point of reversal, and ready to move into the direction of both the monthly and longer-term charts.

Intermediate-Term Investor

In actual practice, quarterly and yearly charts are not that practical for investment purposes. An investor can do just fine by concentrating on the weekly and monthly charts, and then maybe using the daily chart to fine tune entry and exit points. A distinction may be made between a “long-term investor” and “intermediate-term investor.” An intermediate-term investor, in this case, may use the monthly, weekly, and daily charts for applying technical studies in the pursuit of optimal investment entry and exit points. At the same time, he may use the 50-week cycle as his primary frame of reference, and tie it in with the 4-year cycle and its phases (a level above the 50-week cycle), and the primary cycle (one level below the 50-week cycle). This type of investor may be most comfortable holding a position for several months, and maybe even 1-3 years.

Position Trader, or “Trader”

The term “position trader” will refer to one who intends to be in a position less than one year but usually at least two weeks. This trader will primarily be focused upon the daily chart. But in assessing an entry or exit point, he will tie this in with the weekly chart (one time frame above), and quite possibly an intraday chart (one time frame below the daily chart), such as a 60- or 30-minute type. In reality, it seems that most position traders are not concerned about intraday charts. They use mostly daily and weekly charts, and perhaps some will use monthly charts, just as investors will.

In terms of cycles, this type of market participant would be advised to use the primary cycle as the central point of analysis, and combine it with both the 50-week longer-term cycle (one level above the primary), and the major and/or half-primary cycle phases within the primary cycle (one level below the primary). If entering the first primary cycle within the greater 50-week cycle, the trader may elect to hold onto this position for several months. If entering the final primary cycle phase of the greater 50-week cycle, he may elect to hold onto the position for only 2-8 weeks.

Short-Term Trader

Most professional traders are short-term or even aggressive traders. Their basic goal is to enter a trade that – according to their studies – has maximum profit potential with minimal market exposure. Their average duration in a trade may range from one day to three weeks, sometimes more.

The short-term trader will use the same time frame charts as the position trader. But he will tie in different multiple cycles in choosing his entry and exit points. That is, the daily chart will likely be the primary chart for reference. Against that chart, he will integrate studies from the weekly chart (one level above) and perhaps a 30- or 60-minute chart (one level below the daily). He wants to trade in the direction of the trend indicated on the weekly chart. If the weekly chart studies suggest rising prices, then he wants to enter the market when the daily chart signals are bottoming and exhibiting signals that it is ready to turn up. He will then use the 60- or 30-minute charts to fine tune his entry point.

In terms of cycle studies, the short-term trader may use the 6-week major cycle as the central point of focus. The level above the major cycle to use in this endeavor would be the 18-week primary cycle, and the cycle to use on the next lower level would be the 2-4 week trading cycle, or even the 4-9 day alpha-beta cycles. If the primary cycle is in its early stages, the short-term trader will look to buy on any corrective decline to a major or trading cycle trough. He may use the alpha and beta cycles to help him make this decision.

Aggressive Short-Term Traders

In my daily and weekly market reports, parameters are provided for both “position traders” and “short-term aggressive traders.” These suggestions for aggressive traders are for those willing to go against the trend of the primary cycle. Or, in some cases, it will refer to those who wish to be in a trade for perhaps only 1-4 days on average.

An aggressive short-term trader is going to use a host of intraday charts to find the right technical set up for entry and exit. He may be most focused upon a 30- or 60-minute bar chart. The next level up to tie his analysis in with may be the daily chart. He should always try to trade in the direction of the daily chart, except when he believes the daily chart is about to reverse. Because he is willing to “bottom pick” or “pick the top” of a move before the reversal is confirmed, he is an aggressive short-term trader. He is picking the top or bottom of a move before it has actually reversed. He understands that the sharpest price moves in the shortest amount of time occur when the market reverses its trend and starts a counter-trend move. This is especially true in bull markets when prices are making a crest. The decline is usually sharp and vicious at the end of the rally to the cycle’s crest. However, the decline is also brief in comparison to how long it took to reach the crest. That is why the most successful traders are willing to sell short at certain points in a bull market. Investors would never think of such an unconventional and risky approach. But aggressive short-term (and professional) traders know that the greater the risk, the greater the profit potential as well.

Below the 30- or 60-minute chart, this aggressive trader may use a 5- or even 1-minute chart to fine tune entry-exit points, and maybe even a “tick chart,” which records each and every trade as it is being made. This trader studies the technical signals of these very short-term charts, and waits until they are also ready to turn against the trend of the daily chart, as well as the 30- and/or 60-minute charts.

There are no three cycles to tie in with one another for this type of aggressive speculator, unless one uses intraday cycles, like 50-minute, or 3-hour cycles, which are not within the scope of this book. However, an aggressive short-term trader may use the fast-moving solar-lunar phases, within the field of geocosmic studies, to help determine days when 4% or greater reversals, lasting 1-4 days, are most likely. The Sun-Moon combination changes every 2-3 days, and many of these combinations have very high historical correlations to 4% or greater price reversals in various stock indices. These studies were reported in Volume 4 of this Stock Market Timing series, titled: “Solar-Lunar Correlations to Short-Term Reversals.” For the aggressive short-term trader, the studies in this book are invaluable for knowing when to enter and exit a 1-4 day trade that has a higher than normal probability of success, assuming the very short-term technical studies are set up properly. Once again, the primary purpose of this book is to know how to identify such a compatible technical set up.

Summary

The importance of using multiple time frames and multiple cycles to establish a successful trading plan cannot be underestimated. It is the most important factor in determining the trend. It is only through an understanding of where the market is in terms of its trend that one can consistently realize profitable trades or investments. But trend means different things to different people. It means different things to a cycles’ analyst too. The trend to a short-term trader may be completely opposite the trend to a long-term investor. The key to understanding trend is to focus on a particular time frame or cycle, and to tie it into a time frame or cycle that is “above” that level, and also one that is “below” that level.

The idea is to first of all determine when the “up one level” chart or cycle is in a clearly defined trend. Then patiently wait for the next lower time frame or cycle to finish a contra trend move (i.e. retracement) and indicate it is ready to begin a thrust in the direction of the “up one level” chart or cycle. When it appears the lesser cycle is ready to move in the direction of the greater cycle trend, then time the entry (or exit) to coincide with the “below one level” chart entering an oversold (if buying) or overbought (if selling) technical pattern. The central and “below one level” time frames or cycles should also be in a time band when a cyclical trough (if buying) or crest (if selling) is due. It should also be in a time band when appropriate geocosmic signatures correlating with a reversal are present. This concept will be repeated over and over again, for these are the steps within the methodology of this series that make the market timing studies work. These are the steps that provide the structure in which market timing can be a very valuable tool to the success of any investor or trader, regardless of one’s market temperament. But as with all successful endeavors in life, it requires work. It requires planning and proper analysis, and the correct implementation of these rules, plus perhaps a few of the reader’s own. But the rewards are worth it, and it is an exciting process.

The following list represents suggested time frames and cycles to use in this endeavor for each type of market participant. The first time frame or cycle listed in each group represents the next “higher level” type to use. The middle time frame given will be highlighted in bold. It represents the suggested primary time frame to use for trading or investing. The last time frame given represents the suggested “lower level” type to use to fine tune one’s optimal entry and exit point for maximum profit potential.

Buy and Hold Long-Term Investor (6+ years) 

  • Cycle:72- or 90-year, 18-year, 4-year
  • Charts:Yearly, monthly, weekly – concerned with percentages.

Long Term Investor (2+ years buy and hold): 

  • Cycle:18-year, 4-year, 50-week
  • Charts:Yearly, monthly, weekly

Investor (1-3 year position): 

  • Cycle:4-year,50-week, primary
  • Charts:Monthly, weekly, daily

Position Trader (2 weeks – less than one year) 

  • Cycle:50-week, primary, half-primary or major
  • Charts:Weekly, Daily, 30- or 60-minute

Short-Term Trader (3 days – 3 weeks, sometimes as long as 6 weeks) 

  • Cycle:Primary, major, trading
  • Charts:Daily, 30- or 60-minutes, 5- or 15 minutes

Aggressive Short-Term Trader (1-4 days, sometimes longer, sometimes shorter) 

  • Cycle: None. This speculator looks for contra-trend moves based on technical set ups, but may use Sun-Moon studies as a leading indicator.
  • Charts: Daily and perhaps 60-minutes, 30-minutes, 5-minute or 1-minute, and even tick charts.

Determine which of these best fits your own psychological temperament and life style. It is possible to utilize more than one of these types. It is possible to utilize all of these types for various purposes and at various times. I do. But make the effort to define which approach you are taking with each investment, with each trade. Once that is determined, apply the suggested time frames to that type of investment or trade for the best and most consistent results.

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