In April 2013 the EURUSD forex pair formed a trough that seemed a very likely candidate for the expected 40-week cycle trough, even if it was strictly speaking 18 days early.
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The 80-day cycle that followed was a beautiful M-shape, but it came surprisingly low, and the trough formed on 9 July 2013 (making the cycle a long 96 days) was a mere 10 pips higher than the April trough ( a difference of 0.001 in price).
As price bounced out of this July trough it presented us with a puzzle that we are still not able to resolve with absolute certainty: where should that 40-week cycle trough be placed? In April or July? And most importantly, how does this affect our analysis of the forex pair now? Here is a chart showing the April option, which is still my preferred analysis:
Note the 40-week cycle trough in April 2013, then the clear M-shaped 80-day cycle bringing price into the July 2013 trough. Notice that this analysis has the 20-week cycle trough in November 2013. Here is a look at the option with the same position for the 40-week cycle trough, but with the 20-week cycle trough in an alternate position of September 2013:
There are a few reasons why I prefer the November 2013 position for the 20-week cycle trough:
- The cycle shape from April to November is more balanced and a “better” shape in my opinion than the one from April to September.
- The trough in November has a very clear symmetry about it, which is not present about the September trough. For reasons that I will discuss shortly I would expect the 20-week cycle trough to have some symmetry, as it is possible it will turn out to be a straddled trough.
Why is the position of this 20-week cycle important? Because as fascinating as it might be to discuss a 40-week cycle trough which occurred over six months ago, the goal of any analysis is to work out what is going on now, so that we can make some appropriate trading decisions, and in discussing the 40-week cycle trough, we have to consider how it affects our understanding of what is happening now.
Let’s get back to that 40-week cycle trough. Here is the alternate position of the trough in July 2013:
Notice that interestingly the 20-week trough according to this analysis is also in November 2013, and so we have the satisfying outcome that whichever placement of the 40-week cycle trough is correct, our analysis of the most recent cycle activity in the market is unaffected, and therefore we are able to make the same trading decisions without actually answering the question about the placement of the 40-week cycle.
But instead of simply avoiding the question I would like to provide a few reasons why I think the April position provides us with a better analysis. This is where performing a Hurst analysis moves from being a science into an art!
- First of all, the 40-week cycle shape (you guessed it) from July 2012 – April 2013 makes more sense than the cycle shape from July 2012 – July 2013.
- There is an awkward analysis issue around the November 2012 and January 2013 troughs as shown on the chart above by the yellow arrows and eloquent question mark.
- Finally I have often observed that the first quarter of a cycle etches out a very clear cycle shape as an indication that there is a longer dominant cycle developing. The 80-day cycle from April – July 2013 fits that bill, and would indicate that the 40-week cycle was rising to dominance … which implies that the next 20-week cycle would be a “subtle” trough, perhaps straddled. And if we accept that the November 2013 trough is that 20-week cycle trough, it does indeed look as if it is developing into a true straddled trough, with symmetrical price action on each side of the subtle trough.
FLD Trading Opportunity for EURUSD Forex Pair
OK, enough analysis discussion, let’s change hats and take a look at what we should be doing in terms of trading the EURUSD. As mentioned above it seems very likely that the trough of November 2013 was a trough of the 20-week cycle. What has happened since then?
A very nice symmetrical (so far – symmetry always breaks down eventually) 80-day cycle is developing, and price is now moving down to the 80-day cycle trough expected in about two weeks.
Using the FLD trading strategy we would be standing by to enter into a long trade to catch the bounce out of that 80-day cycle trough (a category A trade). However we should bear in mind that the market is on the “downhill” side of the 18-month cycle, and will be heading lower into the 18-month cycle trough expected in about three months. And so the shape of this next 80-day cycle is most likely going to be bearish.
If you are thinking that all this analysis consideration makes reaching a trading decision a complex and laborious process then I have good news. Here is a glimpse of our new Hurst Signals service, a snapshot taken this morning:
The analysis has been done for you. The identification of the categories of price and FLD interaction are clearly labelled, and best of all the trading opportunity I mention above (entering long to catch the bounce out of the 80-day cycle trough) is provided in exact detail, including entry level, target levels and stop levels (including a caution that it might be too early for this trade). Best of all those trading opportunities are emailed out to subscribers every day.
We will be launching the new service very soon, so make sure that you are receiving emails about it. It has taken a great deal of hard work (and is the reason I’ve been so quiet on this blog recently), but it has been a labor well worth the effort.
Let me know where you think that 40-week cycle trough should be, and of course: profitable trading!
