V.17:3 (109-115): Technical Studies And The Primary Cycle by Raymond A. Merriman

Technical Studies And The Primary Cycle

Cycle analysis offers the opportunity to identify windows of potential market bottoms and tops. Technical indicators can be used to time entries and exits in the stock at key points in the cycle. How well does this concept work?

The primary cycle in the stock market is the centerpiece of cycle analysis for traders as well as an important market timing tool for investors. Typically 17 weeks in length — with a window, or orb, of four weeks — the primary cycle is composed of smaller, short-term, subcycles known as phases. Further, the primary cycle itself is part of longer-term cycles. The primary cycle in stocks — for that matter, in any financial or commodity market — is the bridge between short-term and long-term cycles.

Before we analyze the primary cycle, let’s look at another valuable approach for traders, that of multiple time frame analysis. One of the most important steps for accurate cycle analysis (and successful trading) is to look at the market through the relation-ship of multiple time frames. Whether the user is a technical or cycles analyst or trades only by means of pattern recognition, the rule is the same: Every time frame needs to relate to at least one other higher time frame, preferably two. Typically, successful traders who trade mostly by technical studies will look at the trend of three time bands — a 30-minute chart, a 60- minute chart, and a daily chart. Those more oriented toward position trading, on the other hand, tend to examine daily, weekly, and monthly charts.