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Where the Hurst Cycles come from?

In nature, so in our life, everything is a cycle:
• Day – Night.
• Seasons Cycle. (Summer – Autumn – Spring – Summer)
• Water cycle. (Sea – Clouds – Rain – River - Sea)
• Life Cycle. (Birth – growth – ageing – death)
• Hormones Cycle.
• And son on.

All the cycles follow the same sequence:

• Bottom.
• Transitional phase.
• Top.
• Transitional phase.
• Bottom.

You can represent the standard movement of a cycle with a Sine Wave Function
(What's a Sine Wave? Wikipedia Link)

Since our life is directly influenced by the cycles and we directly influence the
economy and the financial markets, you are going to find the same cycles in the:

• Economic Indicators. (Such as GDP and Inflation)

• Companies growth.
• Prices of the financial assets.

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Have a look at this weekly chart of the Gbp/Usd cross.

As you can see, even in the financial charts, you can find the same Sine Wave
Pattern as in all the other cycles in nature.

When the cycles occur in financial markets they are called Hurst Cycles, as the first
man who discovered them: JM Hurst.

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 The HURST Cycles
JM Hurst, the man in the picture, was an American aerospace engineer.
He was the first true pioneer of the computerised research into the nature of the
stock price action.

After many years and over 20.000 hours of computerised analysis, he discovered a
recurring pattern which was following a standard pattern: The Market Cycles

What is a Market Cycle?

A Market Cycle is the movement the price does between two minimums during a
certain amount of time.

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 The Characteristics of the Hurst Cycles
The two main characteristics of the Hurst Cycles are:

• Amplitude.
The difference of price between the minimum and the maximum of the cycle.
• Duration.
The interval of time between the initial and final minimum.

The Hurst Cycles are dominated by two principles:

• The principle of the Proportionality.

The longer is the duration of a cycle, the bigger will be its amplitude.

• The principle of the Sum.

The movement of a cycle is the result of the sum of other smaller market
cycles.

These principles are very important because they have a direct influence on all
the cycles in the market and they are the basic of all the trading strategies and
market forecasts.

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 The duration of the Cycles
The Duration of the Cycles is a very important characteristic of the Hurst Cycles
because it allows you to:
• Systematically set up the technical indicators.
• Perform Multi Time Frames analysis.
• Trade and forecast the Hurst Cycles.

Starting from the economic Cycle of 4 years (200 weeks) these are the standard
durations of the market cycle discovered by JM Hurst.

As you can see each cycle contains 2 sub-cycle of half duration.

Since nothing in nature, and mainly in the financial markets, works perfectly the
100% of the time, these durations are averages.

The Cycle Durations could be subjected to a percentage change of around 25%.

As you are going to learn in the next chapters, this “imperfection” is not that
important because you are going to identify and trade the Hurst Cycles using
some Cyclical Indicators which automatically consider this problem and show
the cycle even if the duration is different from the standard value.

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 The Amplitude of the Cycles
The amplitude is the difference between the minimum and the maximum of
the cycle.

Let's take for example this weekly cycle on the Nzd/Usd:

The difference between the first bottom and the top is 100 pips, the difference
between the top and the second bottom is 110 pips.

The average amplitude of this cycle is (100+110)/2=105 pips.

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 The Hurst Cycles and the Moving Averages
Every Hurst Cycles could be identified with two moving averages:

• A Fast Moving Average, which uses as input the half of the cycle duration
(For example if the cycle last 192 periods, you will use 96 periods as input),
that filters the movements of the lower cycles and only shows the
fluctuations of the selected cycle.

• A Slow Moving Average, which uses the same periods as the duration of the
cycle, that filter the movement of the selected cycle and it perfectly crosses it
in the middle.

Here the graphic representation using a standard Sine Wave to

represent the selected cycle.

As you can see the Fast Moving Average perfectly follows the movement of
the cycle whereas the Slow Moving Average completely filter the movement of
the selected cycle perfectly crossing it.

Here the same principle applied to the chart of the Nzd/Usd.

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 The direction of the Hurst Cycles
Calculate the Fast Moving Average (Input = Half the duration of the cycle) on your
chart. As you learned on page 16, the Fast Moving Average follows the movement
of the selected cycle, so:
• When the Fast MA is moving upward, the cycle is in its bullish phase.
• When the Fast MA is moving downward, the cycle is in its bearish phase.

Remember that for this indication you are using an input of half the duration of
the cycle.

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 Multi Time Frame Analysis
The Hurst Cycles Theory allows you to make a Multi Time Frame analysis on
only one time frame by setting up more cyclical or momentum indicators with
different inputs.

The advantages of this technique are:

• All the information you need will be in one time frame.

• Easier programming of any EA based on multi-time frames.

Let's see an example:

You want to identify the long term, medium term and short term market trends and
trade only when all they are pointing in the same direction.

If you are using the Multi Time Frame analysis you need to change 3 time
frames (weekly, daily and 4 hours) whereas, using the Hurst Cycles Theory, you
just need to set up 3 moving averages with 3 different inputs, such as:

• 384 periods – Long term cycle – Black Line.

• 96 periods – Medium Term Cycle – Blue Line.

• 24 periods – Short term cycle – Green Line.

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Important:

• When the Moving Average is pointing upward, the cycle is bullish.

When the Moving Average is pointing downward, the cycle is bearish.

• When the Moving Average change direction the Top/Bottom has been
created by the prices.

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 The Cyclical Trading System
Swing Cyclical Trading
The basic rule of this strategy is:

Buy the bullish sub-cycles when the main cycle direction is bullish.
Sell the bearish sub-cycles when the main cycle direction is bearish.

Theoretical representation:

Indicators:

• Moving Average for a long cycle. Input 96 periods for example.

• Moving Average for a short cycle. Input 12 periods for example.

(Remember that you need to use the Fast Moving average, see page 8, because it is
the one that follows the cyclical movement)

What you need to do now is just:

1. Identify the direction of the long cycle (with the direction of its Moving
Average) [Condition]

2. Stop when the sub-cycle is reversing in the direction of the the long cycle
(using the change of direction of its moving average) [Entry Signal]

Example:

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Stop Loss:
Above the closest Top/Bottom on the left of the Moving Average reversal.
The stop loss are highlighted with the thin black line in the image.

Take Profit:
At least the double of the pips of the Stop Loss.
Example: if your stop loss is 30 pips, the Take Profit has to be at, at least, 60 pips.

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 The advantages of using the Hurst Cycles

By using the Hurst Cycles as a method to analyse, forecast and trade the market you
will get a lot of advantages such as:
• A systematic method to:
◦ Identify the current market trends.
◦ Set up any kind indicators.
◦ Identify Support & Resistance.
◦ Identify the Chart Patterns.
• Perform Multi Time Frames analysis without keeping changing chart.
• Use cyclical divergences to anticipate the market reversal.
• Time-based Entry Signals.

In this Mini-Course I have explained the basic method using the Moving Average.

To get the access to:

• All the other Cyclical Indicators (Including the Trading Battleplan)

• Advanced explanations and techniques.

• 5 ready to use Cyclical Trading System.

• Much more.

Download the Full Course here:

The Hurst Cycles Course

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THANKS FOR READING!

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