And rumour has it they were last working for Goldman Sachs, therefore too expensive for our consultancy budget. The point is, it is impossible (unless your magical) to forecast prices.
But I will say it is possible to recognise repeating price patterns in the market. After all we have all heard of these repeating patterns: December Rally, January effect, Seasonal Bias, President cycle, Four year cycle. So what about the Hurst Cycle, I cant see why they cant join the club!
To acquire a nuts and bolts understanding of Hurst cycle logic (price adaptive sinewave) you can find more here on our website.
Side note: The Hurst Cycle is named after James Hurst, via his book ‘The Profit Magic of Stock Transaction Timing’.
In short. We use mathematics to scan the price time series to find sinewave cycles or rising humps and falling lumps that have a common period or length of time between the peaks and troughs of the humps and lumps. When we find these cycle periods we test the cycle for statistical significance against the price time series to ensure that the cycle is not just a random noise that has little influence on price. This test is known as the ‘Bartels Significance’. To recap, find the cycle, test it for significance, if all good, you may have a sinewave cycle pattern that is likely to repeat in the immediate future (or 1 to 2 times cycle period length).
Lets have a look at the ETF FXA (or AUDUSD). I have been scanning for significant cycles for the FXA over many months of investing, so I know that their are two significant cycles around 30 and 104 periods. When you do this for a while, you learn the characteristics of the beast you are trying to tame. (Note: We use our RTT Cycle Finder Spectrum to do the scanning, which is available to members)
Everything I do here, you can back test yourself on our site. This is not secret squirrel stuff. We have done all the hard work for you. Anyway here goes.
1) We applied our two known significant cycles (30 and 104 daily periods) to the chart on the 06/07/2010.
2) We noticed that at (A) and (B) highs and lows are skewed slightly to the 104 cycle, but not too bad.
Therefore we called that price may be at a low in early July 2010. This was the sell off on the Greece debt scare, and we hoped that on the recovery that the Aussie dollar would bounce back.
3) We applied our RTTHurstDPO (DPO is the Detrending price oscillator), which matches our Hurst sinewave with the detrending price action. If price action turns up during the green shades and turns down during the red shades we can conclude that price is conforming to the current cycle (in this case 30 periods). As you can see via the blue arrows where DPO line changed from red to blue (bearish to bullish) price action allowed us to take positions in line with the Hurst cycle up swings.
4) One can not expect to find a cycle on a specific date and have this cycle maintain influence over price action for ever, no sir. You can only hope that price is influenced by the cycle for at least one to two cycle periods (or 30 to 60 days in our case, as our cycle period is 30). You need to re scan to see if their has been a shift in favour to other cycle periods, or you may actually re affirm that the current cycle still holds acceptable significance.
Simply, in the end we have just found a pattern that has repeated, like the Christmas rally or the presidential cycle. No Merlin or Gandalf magic here. Just some fancy maths and a clear head is all that is required. We provide that maths, the rest is up to you.
We hold no positions in the FXA.
BIO:We are financial market enthusiasts using methods expressed by the Gann, Hurst and Wyckoff
with a few of our own proprietary tools. Readtheticker.com provides online stock and index charts
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