Stay In Phase by John F. Ehlers
This cycles software specialist discusses an indicator based on cyclical analysis.
A cycle is one market characteristic that can be scientifically measured. Although they can be measured, they are still maddening because they are in essence ephemeral; they come and they go. Our recent research, however, indicates there is a fundamental cycle parameter that leads us to the correct trading strategy for any current market mode. To
find out more, we must start by defining two possible market modes, the trend mode and the cycle mode. In the trend mode, the correct strategy is to buy (or sell, for downtrends) and hold. In the cycle mode, the correct strategy is to buy and sell on the cyclic valleys and
The parameter we use is the phase of the cycle. The measured phase tells us with great sensitivity when we are in the trend mode, enabling the capture of a large fraction of the trend movement. Typically, this capture range is far larger than can be obtained with a crossing moving average or other usual trend identification techniques. In the cycle mode, the measured phase pinpoints the cyclic turns in advance, with the further advantage that the false whipsaw signals of typical oscillator signals are avoided.