I have written a great deal about how I use the FLD to make trading decisions with the FLD Trading Strategy, but of course the FLD (Future Line of Demarcation) is first and foremost an analysis tool defined by JM Hurst. I still use it extensively in my analysis, and in this post I would like to describe how I also use the reliable sequence of price and FLD interactions, which we trade in the FLD Trading Strategy, to inform my analysis.
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Three weeks ago I discussed the potential formation of the 20-week cycle trough. Here is the price action following that trough, with the interactions between price and the 20-day FLD labelled as for the FLD trading strategy:
In this analysis the 20-week cycle trough has been positioned on 16 June 2014. Following that trough we expect a sequence of interactions between price and the FLD, and the fact that the interactions that have formed match our expectations increases my confidence in the analysis, and in particular in the position of the 20-week cycle trough.
The sequence starts with an A-category cross above the FLD which occurred on 18 June. An A-category interaction is usually a clean one which carries price to the target. In this case it was clean (price didn’t spend long struggling against resistance at the FLD), but it didn’t reach its target (of 1971) until after the B-C interaction pair. Not reaching the target doesn’t disqualify it as an A-category interaction, but it does warn that the strength of the bull is waning.
The next interaction is the B-category interaction where price is expected to come back down to the FLD and find support there, which is exactly what price did on 26 June.
Then price is expected to “track along” the FLD, with the high of each bar above the FLD and the low below it, until price breaks up and away from the FLD in a C-category interaction. You can see how price did exactly that from 26 June until 1 July. At this point my confidence in the position of that 20-week cycle trough was very high: the tracking move between the B and C category interactions is a dead giveaway.
The next interaction is the D-category interaction as price drops down below the FLD. The D-category cross is often a messy one, as it was this week with price initially finding support on Tuesday 8 July, then bouncing up on Wednesday and tracking the FLD before finally crossing down on Thursday. D-category interactions usually fulfill their targets very accurately, as was the case here as it reached the target of 1947.25 just above the low of the day at 1945.5. If that target looks unusually shallow then bear in mind that targets are calculated from the level at which the median price crosses the FLD. Here is a chart showing that median line:
The fact that the target has been reached means that in cyclic terms the move down to the 40-day cycle trough is potentially complete because the cycle target has been fulfilled, but as it has been only 25 days since the 20-week cycle trough there is still time left for the move to extend and for the trough to form later. It is also worth noting (as pointed out by a Hurst Signals and Sentient Trader user this week on our academy forum) that this data is for the futures contract which was rolling over in the week of 16 June, and the cash index in fact formed a trough 4 days earlier, indicating that it might not be that early after all.
Bear in mind that suggestion that the bull is waning. We will see a bounce up following the 40-day cycle trough, but it might be a weaker bounce than we expect.
Have a great week and profitable trading!
