Research Advisory
Research Introduction / Cycles
Cycles Analysis is the study of the rise and fall of activity over periods of time. Financial market cycles describe the evolution of prices from trough to trough. Financial Markets have been shown to be heteroskedastic. The standard deviation of highs and lows are not constant. Prices will pass through a variety of high low ranges exhibiting clusters of activity. This means is that if trends exist, they must periodically be interrupted by cyclical reversals.
We have identified a critical cycle for financial markets which is slightly less than four yeas in length. We have found this relationship in the dollar’s relationship to European currencies, American trade statistics, gold, and many fundamental variables. This cycle has been relatively stable for the last 120 years. After the repetition of several cycles the timing can become quite complex but we notice that the standard deviations of cycles are not additive. A string of cycles will tend toward their mean length.
FX Concepts employs a number of cycles. The shortest cycle we use is about 3.5 days in length. Cycles allow us to measure the probable length of trends and their most likely turning points.
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