We study market history to provide a roadmap for the future. This we do with the full knowledge that we may be wrong in our forecast. It is an exercise that assures we are thinking and planning ahead and not just reacting to events as they unfold.
We examine the yearly cycle, the decennial cycle, and the master cycle of 60 years and divisions of that.
As to the yearly cycle, we take a 365 day/360 degree full circle and divisions of the year. We halve the circle to get 182 day/180 degrees, we quarter the year to get 91 day/90 degrees. We then examine shorter time spans, an 8th of the year or 45 days/degrees and a 16th of the year or approximately 22 days. We also look at the one third divisions of the year or 121 days/120 degrees (4 months) and half of that 61 days/60 degrees. All this can be done in a spreadsheet. To start the spreadsheet, we mark significant swing dates (highs and lows) over past 2 years and project dates for the above divisions of time. If a stock or market hit a low or high, we then project out in the future the dates that are on the above time increments where we look for a potential trend change. When we see where two or more past trend changes project out to within a day or two of the same date in the future, we make a note on our personal trading calendar to revisit the stock, index or commodity under consideration when that date approaches.
It should look something like this;
Trade date of low/high, price, 22, 46, 61, 91, 121, 137, 182, 227, 242, 272, 317, 333, 365.
In the next row we do the same with the next high/low and so on.
The most important are the hard angle increments of 45 degrees as in 46 days/45 degrees, 91 days/90 degrees, 137 days/135 degrees, 182 days/180 degrees etc.
In consideration of the decennial cycle, we look back 10, 20, and 30 years to see if there are any harmonic dates that show up. If there are we take note of that date and add that to our personal trading diary. As we approach the dates we begin to focus on that instrument in question.
For the 60 year master cycle we look at that year (in this case 1962 and 1902) and mark the turn dates on our calendar. We also look at the important divisions of 60 years, half of that or 30 years back, one quarter or 15, and an eighth 7 ½ years. Also 1/3 divisions 20 years and 40 years.
The more common the turn date, the higher the confidence we have that this date in the future will be a significant turn (+/- a couple trading days either side).
We now have a roadmap for the coming year.
It is at that point that we use other technical indicators to confirm what we suspect will be a trend change, such as trendline breaks, moving average crossovers, oscillator confirmations and divergences etc..
Trade well and have a Happy New Year!
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