Weekly Cycle Projection Tutorial: The Basics
The weekly cycle projection report is a very powerful trading tool designed to provide a clean roadmap for short term swing trading. Unlike any other trading signal services or newsletters, the weekly report has no need of words. The complete report for any symbol is summarized into one chart filled with information. I am going to show you how to read this chart so that you can use it profitably.
Components of the Projection
Here is an actual weekly cycle projection report for the week of September 17, 2012 on the Emini S&P.
1. The scale to the left is the projected potential price level relative to the previous week close.
2. The blue line in the chart is the projected path of movement over the coming week.
3. The 3 strips of horizontal red and green bars are projected cycle duration for up swings (in green) and down swings (in red). The top strip labelled ST is the short term cycle. Middle strip labelled MT is the medium term cycle. The bottom strip labelled LT is the long term cycle.
4. The turning point for the medium term and long term cycle are marked on the blue line for easier reference.
Understanding the Information
You can think of this chart as a swing chart without noise coming from lower timeframes. Since it is a projection based on cyclical behaviour in the price movements, the swings projected can be off from the exact time where the turns happen. The goal of the projection is to give you clues on how the coming week will unfold in terms of price, time and swing formation.
Let’s take a look at the projection above.
Several observations stand out quickly,
1. The projected low for the week is about -15 points from previous week close and the projected high is about +1 point above the previous week close. That’s the overall potential for the week.
2. The first part of the week is expected to selloff from a gap down (started from -12 points) on Monday down to about -15 points.
3. Then bottoming out to drift higher into Wednesday for about 9 to 10 points. Tuesday is expected to drift lower / pullback before pushing higher.
4. Peaking on Wednesday should lead to a retest of week low on Thursday.
5. Thursday bottoming out at -15 points from previous week close late in the day should lead to a rally that close the gap above on Friday.
It is very similar to reading a basic line chart. Focus on the swings and the time when key support/resistance are tested.
Comparing to Actual Outcome
Following chart is what happened with Emini S&P for the week of September 17, 2012.
Now I will compare the projected swings and the actual swings one by one.
1. On Monday, the gap down was way smaller than projected.
Whole Monday turned into a slow grind sell day but the net drop from open to the day low on close basis in 30-min resolution is within 5 points. The magnitude of the drop is small as projected.
2. Swing up as projected and within the projected magnitude and time period.
3. The pullback projected for Tuesday happened within the projected magnitude and time period.
4. Rally in the projected magnitude and time period.
5. Selloff as projected but done in the overnight session instead of during the day which we have no control. But the most interesting thing with this gap down is that it printed the overall week low at the projected magnitude of about -15 points.
6. Rally back to above previous week close as projected. Again, the task was completed by a gap up through overnight session. Notice that in midday Thursday, there is the swing low that matches the projected time where the long bias began.
After the projected upside target is reached, the projection for the week is effectively used up. Whatever happened after that we have no information from the weekly cycle projection to lean on.
Taking all the results into account, I can say it scores a good 80% in my book in terms of accuracy and usefulness.
The gaps during the week is something cannot be avoided when you are trading index futures like Emini S&P. When the projection is applied on instruments that are trading 24 hours a day (e.g. forex), the impact from this gap issue is minimized.
A Look Inside the Projection Methodology
Many market timers use cycle analysis. It is not a big secret. Be that moving averages, oscillators, or pure cycle observations, the goal for these cycle analytical tools is to pinpoint the potential turning points. However, fixed or static cycle tools do not take into account potential changes in cycle length (i.e. time) due to the fact that it is the price and volume that really matters more than just the obsession of the observer who wanted to find regularities in the market behaviour. Hence, being able to incorporate the magnitude of the price swings can greatly improve the ability in finding the most significant cycles.
What weekly cycle projection does is to examine across the complete spectrum of possible cycle combinations to see which ones are dominating the current period. Thousands of combinations are tested and the ones that showed strongest persistency are then used to form the basis for the projection. Not only time of the turning points are considered, the significance of these turning points are also measured based on how successful they are in dominating the tape in terms of profitability.
This makes our weekly cycle projection tool unique as it is the only cycle analysis tool in the market today that combines both time cycle and magnitude analysis into one great projection tool.
The concept in fact is not complicated. After reading my description above, many of you who are good at using cycle tools and swing analysis will probably be able to conduct similar analysis by hand. The catch is that you will need to spend many hours per market, every week, to go through many combinations of cycles by hand to get the projections done correctly.
Shameless advertisement here – I see no point in doing stuff manually when it is something already automated for you, especially when it is offered to you at a very low monthly fee.
If you are interested in taking a look at the past projections on Emini S&P you can jump to its report page here.