Thus far we have looked at the3-Dimensional stock market analysis as the primary tool in predicting the stock market or individual stocks in both price and time. Yet, there is another way to perform the same type of analysis.  It is called cycle work.

At the same time it is not the typical cycle work associated with the stock market. Relatively speaking cycle analysis has been around for as long as the stock market has been opened. People have been using various cycle constructs to try and predict the market.  Thus far without too much luck. Any analyst working with trying to time the markets through the use of cycle work would soon tell you that at times his cycles work perfectly fine, being able to predict the market with great accuracy and at times, they don’t work at all.  Believe it or not, there is a reason for it and that reason will be discussed in greater detail shortly.  

However, before we go any further we need to define what cycle analysis really means. In traditional sense of the word, it means studying various time cycles and then trying to apply them towards the stock market.  The simplest form of such exercise is identifying one market cycle and then trying to fit it into your market forecast. As a hypothetical example, an analyst studying NASDAQ market structure is able to determine that all stocks in the index go up for 14 trading days and then decline for 5 trading days. Then they go up for another 8 trading days and then decline for next 3 trading days. Thereafter, the cycle repeats itself indefinitely.

Of course, no such cycles exist, but it gives you an idea of how you should think about cycles. On a more complex level an analyst might put together hundreds of various cycles in order to try and predict not only the time but the value of the move.  While such cycle analysis is fairly complex, it does produce interesting and sometimes incredibly accurate results. The keyword is….sometimes.

Which begs the question, why does cycle analysis only works on limited basis?

The simple answer has to do with the 3-Dimensional analysis discussed in the previous section. The cycles do not work very well or they do break down after a certain period of time because they are being applied in the wrong medium. In this case, the 2-Dimensional chart of price moving over time. As mentioned earlier in the book, the 2-Dimensional chart construct is nothing more than a shadow of the real stock market movement. As you can imagine, no proper outcome can come from studying the shadow as opposed to studying the real move.

At the same time, when we apply cycle analysis to the 3-Dimensional construct of the market we begin to see a completely different picture. We begin to see periodicity in the cycle analysis that can be used to predict the markets with great accuracy. Not only that, but we gain a further understanding of how the markets truly works. Let me give you an example.

To be continued…… 

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Timing The Market With Cycles 

Continuation of part 11

Avoid Loss Averaging: Contrary to a popular believe, it is not a good idea to buy more stock when the price declines after your purchase.  Buying more at a discounted price means you are going against the main trend and not with it. While you lower your overall purchasing price, the main issue remains. The main trend is down. Instead, you should average up when the stock price is going up. That way you are going with the trend.  

Now that we have looked at the overall rules to the profitable stock market operations, let’s take a quick look at a simple set of specific trading rules.

Rules For Trading In Stocks

RULE 1:  Buy at new high prices or old top levels.

RULE 2: Buy when prices advance above old low prices.

RULE 3: Sell when prices decline below old top levels or high prices.

RULE 4: Sell at new low price levels.  

RULE 5: Wait to buy or sell until prices CLOSE above old highs or below old lows on the daily charts. Closing price is incredibly important.

RULE 6: Use stop losses. Your capital and your profits must be protected at all times with STOP LOSSES. Implement stop losses at 1-3 points above or below your original price and at the time of the original trade.

RULE 7: Do not lose money.

In this section we have looked at 3-DV analysis, triangulation and various trading rules associated with trading the markets. By performing 3-Dimensional analysis for the DOW between 1994-today I have demonstrated without a shadow of the doubt the hidden structure within the stock market. Once that structure is fully understood (well, even before), an exact forecasts could be made. Once the analyst understands the lattice structure of the market, he can calculate it 1 year, 10 years or 100 years into the future with astonishing accuracy.

Further, we have looked at triangulation and various trading rules to minimize the risk associated with 3-Dimensional analysis.  By following all the rules described above, any stock market participant should be able to profit greatly. After all, an analyst using the work above in an appropriate fashion should know what the market will do and should act accordingly. In the next section we will look at another powerful tool to time the market with great precision. 

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Stock Market And 3-Dimensional Analysis (Part 12)

Continuation of part 10

Buy At New Highs: Believe it or not, but buying at new highs is the most profitable way to make money in the market. Most people believe that they must buy at the lowest price or in the valley. That couldn’t be further from the truth. By buying at the new high you are moving with the main trend.

Sell At New Lows:  In a similar fashion, selling or selling short at the new low is the best possible position to exist the stock. It confirms that the trend has changed and gives you ability to exit your trade at a good price.  More importantly, it allows you to trade with the trend and not against it.

Never Commit To Anything:  Never attach your forecast to any fixed outcome. If you do, you will shift from the position of power to the position of fear and hope.  Opening up your trading strategy to risk and losses. Instead, remain flexible and move with the market even if your forecast indicates otherwise.

Move Stop Losses:  As the market or any given stock continue to move with the main trend you must continue to move your stop losses up or down to avoid unexpected developments and to protect your profits.  By doing so you eliminate unnecessary risk of losing money.

Don’t Be Afraid To Be Out Of The Market:  There is absolutely nothing wrong with being out of the market completely.  Sometimes for prolonged periods of time. It is better to sit on the sideline than to lose money. Particularly when the trading situation or the direction of the financial instrument you are looking at is unclear.

Don’t Wait Until The Trend Changes:  DO NOT hold your losing position in hopes of a trend change.  That is how people lose most of their money.  For instance, the bears who have been holding short positions throughout 2013 have been decimated (even though they will eventually be right).  Once again, always move with the main trend.

Get Out As Soon As You Realize You Have Made A Mistake:  Even if your in-depth research shows one thing, the market might do something completely different.   At times like this you might realize that you have made a mistake.  Do not hold your position in hope that the market will reverse itself and allow you to exit at a better price. Liquidate your position immediately.  

Always Wait For A Confirmation:  Do not establish position until and unless your work is confirmed by the market itself.  In most cases the market will do so by setting new highs or new lows. Only after receiving such a confirmation should you establish a trading position based on the main trend of the market and/or based on your own research work.

Avoid Hope & Fear: This is probably the main reason why people lose money in the stock market. They trade and/or invest on emotion rather than technical, timing or fundamental work. They hope, pray and fear instead of following exact steps.  Do not be one of these people. Never trade based on hope or fear. Follow your rules.

To Be Continued…..

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Stock Market And 3-Dimensional Analysis (Part 11)