Cycle Analysis
20.4 Tuning Oscillator and Overlay Indicators to the Dominant Cycle Period
For every time horizon, there exists a dominant wave cycle that influences most price
activity. This dominant wave is usually easily identifiable as compared to other less
significant cycles across the period of observation or interest. The trader should at-
tempt to tie in the oscillator lookback periods to that of one‐half the dominant cycle
period. This will allow the trader to effectively track the most significant cyclic action
within the period of observation. The main advantages of tuning window‐based oscil-
lators and price overlay indicators to one half the dominant cycle period are threefold:■ (^) It allows the oscillator to generate only the most significant and relevant buy
and sell signals.
■ (^) It allows the trader to tune price bands and envelopes to contain price
effectively.
■ (^) It allows the trader to tune moving averages to track price accurately.
There are three ways to calculate the half‐cycle lookback period (using any of
the following formulas):
■ (^) (N+1)/2 and round up if N is even
■ (^) (N/2) +1 and round down if N is odd
■ (^) (2N+3)/4 round to closest integer
The last formula is advantageous from the perspective that you need not re-
member whether you are required to round up or down. Instead, you simply
round to the closest integer. (Refer to Chapter 12 for more details on calculations
using these formulas.)
Let us now recall how we tuned a stochastic oscillator to the dominant cycle
period in Chapter 8. Refer to Figure 20.16. The average dominant cycle period on
figurE 20.15 Right and Left Cycle Translation.