5 Reasons to Use Cycles in Your Trading Plan

One of the most important pieces of trading advice that I ever received was to investigate cycles. And after 5 years of using a profitable trading system based on cycles, I’m convinced that they are of enormous benefit.

Reason 1

One of my favorite reasons for trading cycles is that a large percentage of traders don’t think they work! Without the proper understanding and tools to trade them, many traders have failed to uncover their value, and so those of us that have, get the edge!

Reason 2

A second reason to trade with cycles is that you are tuning into and getting into rhythm with the natural power of the universe. When it moves, the markets move, and when you know the rules you get to take advantage.

Cycles are everywhere in nature - the earth takes 24 hours to complete its daily cycle, the seasons move in cycles, a woman has a monthly cycle, the ocean tides move in cycles, the markets move in cycles. When you understand (or when you have the software that can understand for you!) the timing of different trading cycles, that information can be translated into trading success.

Many people get confused because when they look for trading cycles, they are thinking in terms of fixed periods. Of course, the market doesn’t move in fixed periods. If it did, my grandmother could time the market and there would be no speculation!

However, just because the market doesn’t move on a fixed schedule, doesn’t mean you cannot measure the market’s cycles and trade with them - you can!

One of the most important things to understand is that there are market cycles for each time period - weekly cycles, daily cycles, 30 minute cycles, 3 minute cycles - and they all interact with each other. The skill of using cycles in trading for maximum profit is understanding the relationship between the different time periods, understanding how cycles influence each other, and finding a profitable trading system - the best software - to indicate the cycles.

The good news is that for the purposes of trading you do not need a phd in advanced mathematics, you just need to understand the essentials of cycle movement, and have software to do the work for you.

Think of the relationship of cycles this way. Say you have a weekly cycle of playing golf with your friends on Tuesday afternoons. Your daughter has a monthly cycle of going to music class on Tuesday afternoons which your wife usually takes her to. Your wife has a monthly cycle - hence your daughter! This Tuesday these cycles which normally don’t coincide, are coming together in a spectacular way. Your wife has PMS and doesn’t want to take your daughter to music - you have an important golf match. In the market this kind of cycle action would result in a lot of chop. At home your wife may be giving you the chop!

When cycles are in harmony, they affirm each other, there will be assertive price movement in a consistent direction. When cycles conflict or are out of sync with each other you’ll see erratic behavior and chop. By reading the cycles we can tell a lot about how to trade, and how to take advantage of different market conditions.

Reason 3

The money. Using cycles to time your trades effectively will result in well timed and effective entry, and more profitable trades.

Reason 4

Using a profitable cycle trading system that tells you when to trade, will help you to overcome problems with over-trading. You can sit back and wait for the market to come to you, rather than getting lost in second guessing constant price movement.

Reason 5

The software. For those of you that want to unlock the power of cycles and take advantage of a profitable trading system there are a handful of great cycle trading systems available that will work wonders for your trading consistency and profitability. The best system in my experience is Roy Kelly’s Floor Traders’ Tools. These are add ons for Tradestation, Esignal and Multichart users that include cycle identification and a complete range of indicators to trade cycles effectively. Roy, has been trading cycles for 30 years. He originally worked with Walter Bressert, before going on to create his own system. These tools don’t come cheap - because they work so well - but they pay themselves back pretty quickly once you learn how to use them.

If you are interested in finding out more about trading with cycles, keep visiting us at tradingadviceblog.com for future posts on the subject.