Letters To S&C by Technical Analysis, Inc.
FINDING THE DOMINANT CYCLE
I found John Ehlers’ article in the March
2008 S&C, “Measuring Cycle Periods,”
a very interesting way to adjust my indicators.
But I have a question: How do I
find out what the dominant cycle is, and
how do I calculate it? I am asking because
this is the key thing to start with.
KLEMEN VATOVEC, Slovenia
John Ehlers replies:
The default setting to display the dominant
cycle is FALSE, as shown in the
third line of code on page 18 of the
March 2008 issue. When run in
TradeStation, this input is easily
changed to TRUE so the dominant cycle
is plotted as an overlay on the spectrum.
When using the dominant cycle to adjust
other indicators, I suggest using
half of the dominant cycle period for
oscillators such as the RSI or stochastics,
where a peak-to-valley swing is desired.
On the other hand, one should use
the full dominant cycle period for determining
the true slope of a trend by
taking a momentum over the full period,
or for indicators such as the CCI to
determine a trading channel.