No! Consider the following
discussion about the MYTH of exploiting dominant cycles.
It is true that the market does have
predictable cycles due to its "structural" or physical nature. For
example, quarterly earning cycles, triple witching cycles, Federal Reserve
meetings, weekly cycles, political election year cycles, the annual end-of-year
stock dumping cycle, sunspot cycles, and the slow Kitchin (3-5 years), Juglar
(7-11 years), Kuznet (15-25 years) and Kondratieff (45-60 years) cycles. They
are very predictable and the markets readily discount their presence as far
ahead in time as is reasonable. So there's not much left with regard to those
cycles for you to exploit.
What traders see as cycles on an hourly
chart, for example, is a different matter. The big, obvious cycles you see on
price charts are actually the result of a combination of many weak cyclic
forces that sometimes line up in phase to produce APPARENT dominant cycles that
suggest the presence of a strong structural cycle that, in fact, does not
exist. The slightest shifting in phase of any one component (due to crowd
psychology, unscheduled events, etc.) will significantly alter the structure of
the apparent dominant wave. This may drive the cycle into a "null" or
random period, then reappear, completely out of phase. Now you see it ... and
now you don't.
The transitory nature of these apparent
dominant cycles makes their automated detection difficult and forecast
unreliable. Sometimes cycle forecasting tools appear accurate and other times
they are totally off mark. The reason is that tools designed to spot dominant
cycles will announce whatever they find, even if they are only apparent (not
structural) and transitory. For example, such tools would have no problem
detecting cycles in the six charts below. But there is just one problem --- the
slow cyclic price action in the six charts below is *impossible* to project
into the future with any reasonable accuracy!
Why? Because we produced these six charts by
simply adding consecutive random price changes. That's right!! These charts are
nothing more than RANDOM WALKS. And by definition, they cannot be forecasted,
no matter how impressive their apparent cyclic behavior may be!
The chart above does not "prove"
market cycles are non-existent. Indeed, discretionary traders can learn to spot
and use periodic price events, and take time to "understand" their
causes, in order to verify whether the relevant triggers have actually
This demonstration does show, however, that
cycle-finding tools like FFT, MESA and periodigrams, which have no
understanding of market cause-effect relationships, can be easily fooled into
seeing ghosts. In contrast, our CFB tool was designed to measure market
trending action without assuming the existance of cycles. This makes CFB more