V.9:7 (270-275): Computing Cyclic Entries by John F. Ehlers

V.9:7 (270-275): Computing Cyclic Entries by John F. Ehlers
Item# \V09\C07\CYCLIC.PDF
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Computing Cyclic Entries by John F. Ehlers

Knowing how to compute entry points for your trades exactly at price crests and valleys when the market is in the cyclic mode can be advantageous. In fact, the procedure can be adjusted to anticipate price extremes so you can make your entry precisely at the extreme. Alternatively, the procedure can also be adjusted to delay the signals slightly as insurance against whipsaws.

The market has several identifiable modes, among which are trends, seasonals, pure randomness and short-term cycles. The procedure I am proposing is intended for use only when the market is in the cycle mode. Experience has shown me that cycles that can be used for trading exist only between 15% and 30% of the time, and so, determining if the market is in the cyclic mode should be the first task. This can be done with software such as MESA (which stands for "maximum entropy spectrum analysis"), or simply by observing recent price history. After that, the procedure becomes simple: you only need to know the length of the dominant cycle during recent price history. If you lack software to measure the cycle period, you can measure the length between successive lows or highs and interpolate the cycle length between. these spot estimates.

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