Trading Systems and Methods, 6th Edition

CHAPTER 11Cycle Analysis

The cycle is another of the basic components of price movement, along with the trend and seasonality, but as a mathematical problem it can be more difficult to evaluate and is often avoided. But there are different types of cycles and many of them are simple to find and can improve trading. For those more ambitious, there is inexpensive software that will help.

Cycles come in many forms – seasonality, production startup and shutdown, inventory, behavioral, astronomical, and the elusive business cycle. Seasonality is a special case of a calendar or annual cycle. Seasonality was covered in the previous chapter and its special features are not considered here. Some cycles are clearly periodic, having regular intervals between peaks and valleys; others are more uniform in their amplitude or height but irregular in period. The most definitive and regular cycle remains the seasonal, which is determined by the unalterable changing of the year.

This chapter will discuss the major commodity and financial cycles that most likely result from business decisions, government programs, and long-term market characteristics and phenomena. Short-term cycles are usually attributed to behavior and will be covered in Chapter 15, “Short-Term Patterns.”

  There are a few popular ways to find the cycle, the most common being trigonometric curve fitting and Fourier (spectral ...