Cycle Analysis
■ (^) Length: The cycle length is simply the time it takes to complete one cycle or os-
cillation. It is usually measured from trough to trough (although peak‐to‐peak
measurements are sometimes used when the troughs are indistinct or visually
indiscernible. Peak‐to‐peak measurements are less reliable and are not usually
used as they are susceptible to the effects of cycle translation). Cycle length is
normally measured by the number of periods or time intervals, which is rep-
resented by the number of bars it takes to complete one cycle. As such, cycle
length is also referred to in terms of cycle periodicity.
■ (^) Phase: Cycle phase represents the point in the cycle at which price is current,
and the difference between any two points is referred to as the phase differ-
ence. Phase difference is measured in time, the number of bars, or in angular
form such as degrees or radians. In Figure 20.3, we observe that wave B is 180
degrees out of phase with wave A.
■ (^) Frequency: Cycle frequency represents the number of cycles completed within
a similar reference time period. For example, cycle A completes one full cycle
or oscillation within 20 bars. Cycle B makes two full cycles within the same
20 bars. We say that cycle B is twice the frequency of cycle A.
■ (^) Resonance: The wave amplitudes will be greatest at the point where all the
peaks or troughs of the small, medium, and large wave cycles coincide. We say
that the waves are in phase. This convergence of phases produces the largest
amplitude, which we called resonance, usually seen during blow‐offs and sell-
ing climaxes.
Once a cycle is identified, the analyst is able forecast:
■ (^) Potential peaks and troughs in price (that is, bullish and bearish reversals)
■ (^) The price of the projected cycle peak or trough based on the average up and
down cycle amplitudes
Various other technical indicators may also be made more effective by observ-
ing the locations at which they occur within a dominant cycle. A dominant cycle
is the cycle that most influences price and market action within the observed time
figurE 20.3 Phase Difference.