C
ycle analysis is an important part of technical analysis. In this chapter we will
cover the most important principles of cycle analysis, including the various
approaches to identifying price cycles. We will also learn how to effectively tune
oscillators and overlay indicators to the most significant cycles within the period
of observation.20.1 Elements of Cycle Analysis
Price Cycles
Price cycles are simply oscillations in price. They are characterized by price
making peaks and troughs in a fairly regular and consistent manner. Many
practitioners refer to price cycles as time cycles. This is erroneous. Time only
moves forward, as required by the laws of thermodynamics. Time does not
cycle or oscillate. As time progresses along its forward path, it is price that
exhibits cycles. The highest part of a cycle is referred to as the peak, crest, or
high, whereas the lowest part a cycle is referred to as the trough, bottom, or
low. Refer to Figure 20.1.ChAPter 20 Cycle Analysis
l E Ar n i n g ob jE Ct i vEsAfter studying this chapter, you should be able to:■ Understand how to identify important price cycles in the market and use them to fore-
cast potential reversals and continuations in the market
■ Describe the various cyclic principles and how they affect market action
■ Calculate the correct lookback periods for centered moving averages, window oscilla-
tors, and overlay indicators
■ Understand how chart patterns are formed from cyclic and trend components