V.8:6 (212-215): 1989 cycles by John F. Ehlers

1989 cycles by John F. Ehlers

Cycle activity in 1989 was substantially higher than in 1988, and some role reversals in cycle personalities appear to have occurred relative to the previous year. To measure and examine 1989 cycle activity, I used 12 perpetual futures contracts as data for the cycle measurements. These 12 contracts were continuations of the same perpetual contracts used for comparisons to 1988 cycle performance. The short-term cycles were measured using the MESA computer program. Valid cycles are reported when the "cycle content" (signal-to-noise ratio) exceeds a 6 deciBel (dB) threshold. A deciBel is a logarithmic measure of power, where the ratio doubles for each 3 dB increase. Thus, the 6 dB threshold is placed where the measured cycle power is four times the power of the noise in the data. Research and experience have shown that cycle strengths of this magnitude and stronger are suitable for trading.

The data measured over the year are shown in histograms for each of the 12 contracts. Each histogram displays how many times a 12-day cycle occurred over the year, how many times a 13-day cycle appeared, and so on. The cycle personality revealed by such a display should have an envelope shaped like the conventional Gaussian (bell-shaped) distribution curve, which would therefore have its peak at the predominant cycle personality. This is the statistical mean. The width of the bell would be a measure of the departure from the dominant cycle personality. Statisticians call the half-width (one side of the distribution) of the bell curve the variance.