Combining Cycles with Other Technical Tools

posted under by ceecabolos
Two of the most promising areas of overlap between cycles and traditional technical indicators are in the use of moving averages and oscillators. It is believed that the usefulness of both indicators can be enhanced if the time periods used are tied to each market's dominant cycles. Let's assume that a market has a dominant 20 day trading cycle. Normally, when constructing an oscillator, it's best to use half the length of the cycle. In this case, the oscillator period would be 10 days. To trade a 40 day cycle, use a 20 day oscillator. Walt Bressert discusses in his book, The Power of Oscillator/Cycle Combinations, how cycles can be used to adjust time spans for the Commodity Channel Index, the Relative Strength Index, Stochastics, and Moving Average Convergence Divergence (MACD).
Moving averages can also be tied to cycles. You could use different moving averages to track different cycle lengths. To gen­erate a moving average crossover system for a 40 day cycle, you could use a 40 day moving average in conjunction with a 20 day average (one-half of the 40 day cycle) or a 10 day average (one-quarter of the 40 day cycle). The main problem with this approach is determining what the dominant cycles are at a par­ticular point in time.

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