THE HAnDbook of TECHniCAl AnAlysis
place of a trough, and vice versa. Figure 20.14 is an example of a cycle inversion
where a peak forms in place of a trough. We also observe reverse bearish diver-
gence forming between price and the MACD with a lower high between points 1
and 2 in price and a higher high between points 3 and 4 on the MACD.
Principle of nominality
Based on the principle of commonality, markets share common harmonic elements.
They are usually related in multiples of subdivisions of two and three. For exam-
ple, an 18‐year cycle tends to have a related 9‐, 4.5‐, 3‐, 1.5‐, and 1‐year related
cycles. Similarly, a 1.5‐year cycle (18 month) tends to have a related 9‐, 6‐, 3‐,
1.5‐, and 0.75‐month cycles. A 6‐month cycle (26 weeks) tends to have a related
13‐, 6.5‐, and 3.25‐week cycle. These cycles may be used as a starting point for
the search of dominant cycles in various markets. It should be noted that these re-
lationships are merely tendencies and will not always unfold exactly as expected.
20.3 Additional Cyclic Characteristics
One interesting characteristic of cycles is that the cycle peaks tend to lean to the
right of the idealized cycle‐length midpoint in a rising market and this phenomenon
is referred to as right translation. In declining markets, the peaks tend to lean to the
left of the idealized cycle‐length midpoint and are referred to as left translation. As
such, right translation is bullish and left translation is bearish. See Figure 20.15.
Longer‐term wave cycles tend to dominate and overwhelm the shorter‐term
wave cycle action. This also means that the trend of shorter‐term wave cycles is
determined by the trend of larger wave cycles.
figurE 20.14 Cycle Inversion on the Daily Chart of Corn.
Source: MetaTrader 4
