S&C Magazine Current Contents Featured Articles Cycles Engineering Look At Cycles
Engineering Look At Cycles
- Details
- Parent Category: Featured Articles
- Category: Cycles
- Written by Arthur Zernov
A Look From The Measured Side
Do cycles exist in markets? Here’s a look at the markets from a different angle — one that will help you realize that there is a harmony among cycles, events, and market behavior.
The existence of cycles in stocks and commodities prices is considered to be an acceptable and rarely debated topic. While preparing for the Chartered Market Technician (Cmt) tests, I became interested in this subject and decided not to take their existence for granted but to investigate it myself. In this article I will attempt to answer the ultimate question: Do cycles exist?
Technical analysts determine cycles in time series using the following major methods:
- Descriptive statistics
- Visual analysis of charts
- Trigonometric methods (centered simple moving average and future lines of demarcation (Fld) developed by J.M. Hurst, the focal point method by Jim Tillman, and so forth)
- Traditional indicators such as the moving average convergence/divergence (Macd), stochastic oscillator, the slope, and so on.
By no means are these the only methods used, but they are the most common. Different analysts found different durations for market cycles, as can be seen from Figure 1.
Figure 1: MARKET CYCLE DURATIONS
The engineering twist
There appears to be no consensus on the durations of the cycles. So who is right and who is wrong? What cycles do we actually have if we have them at all? To answer these questions, I decided to try a scientific approach with an engineering twist. First, I employed the nullification hypothesis: There are no cycles in market price data. Yes, I denied there are cycles until proven otherwise. If my hypothesis is correct, I won’t be able to detect cycles using the mathematical methods used in electronic engineering to detect signals. If the hypothesis is incorrect, then these discrete time signal processing methods should work.
