In all my years of trading in the futures and commodity, stock and Forex markets, I do not think I have ever known a trader that did not believe that having the most accurate market timing strategy was not important.
It most certainly is!
With the increased volatility in the markets today, many traders have gravitated towards day-trading off minute charts, mini-forex contracts, or even mini options trading in an effort to minimize risk exposure. Without a really good market timing strategy, the trader is left with getting into trades either too early or too late, both increasing risk exposure.
Charting indicators, although very useful for those wise enough to employ technical analysis as opposed to pure fundamental analysis to timing, have various limitations. Because the majority of this indicators have to rely on ‘reacting’ to price action, their signals often tend to be lagging (you get in late).
But not all such analysis is lagging. In fact, there is a type of analysis that has proven to be more effective in providing accurate market timing over traditional charting indicators.
The best market timing strategy is based on Cycle Analysis.
Cycle Analysis is based on discovering a repeating cyclic pattern to price action. If you simply apply moving averages, Stochastic, MACD or some other ‘oscillating’ type of indicator, you can quickly see that there is an ebb and flow, a somewhat repeating pattern to price action.
The key to determining useful cycle information is finding a detrending method that works well. A search on the internet will present some interesting approaches to cycle detrending, and you can bet it can be a tough read for most.
My first foray into cycle analysis was prompted by reading the works of W. D. Gann. After looking at charts and finding that history does appear to repeat itself to a large degree (there is a random element difficult to account for), market timing became more accurate.
Some have focused on seasonality, which is another form of Cycle Analysis. My work on seasonality has proven to me that it is a valid and useful analysis and definitely worth doing. It is not the most accurate market timing approach, but it is close.
What I find to be a weak form of cyclic analysis is to discover that a market is making bottoms or tops at some equal increment and then attempt to time my trade based on where that time will arrive again. Most who have tried to trade off this ‘fixed’ interval type of analysis often find the cycle appears to ‘disappear’ right when you decide to trade the next interval. This has turned many traders away from Cycle Analysis, unfortunately not realizing that they had latched onto a very weak form of the study.
Dynamic Cycle Analysis, in my opinion, is the better representation of market behavior and provides the best market timing strategy. This type of analysis requires that you delve into a more esoteric form of analysis based on the position of the moon or other heavenly body in relation to the earth. While some will mistaken this to mean dabbling in Astrology, nothing could be further from reality. My reference is in Astronomy, not into what ‘house’ or ‘zodiac’ a planet may be in.
For example, take note of a Live Cattle chart at the time points when there is a full moon as viewed from someone in Chicago (where Live Cattle is traded in the CME). You may surprise yourself to find that Live Cattle often marks important daily swing tops and bottoms on or very close to these time periods. When you notice this, imagine how much better your timing is now as a Live Cattle trader! And to make the pot sweeter, this is just one very small sample of a much bigger picture. The more you learn about Dynamic Cycle Analysis, the more you will become convinced that it is the best market timing strategy, bar none.
Your research into this subject should take you to W. D. Gann, Bayer, J. M. Hurst and a few others. You should develop a strong respect for Fibonacci, Gann ratios, and other forms of geometric calculations. You may also want to consider learning about the Delta Phenomenon as published by Welles Wilder, because while it is a difficult timing method to trade (I’ll let you discover this for yourself), it did provide an insight to dynamic cycle analysis that most traders are not aware of, and can help lead you to making your own discovery of the most accurate market timing analysis.
My own discoveries would likely never have occurred had I not first had an open mind to the possibility. Once I discovered for myself the validity and power of dynamic cycle analysis, there was no turning back and this has led me to incredible achievements in price timing never thought possible.
I hope by this article that it has lit a fire within you, to go beyond the mundane and sloppy timing that comes from packaged indicators, so as to explore the powerful timing opportunities that real cycle analysis can provide you.