I am often asked whether the FLD trading strategy works with cycles other than the 20-day cycle, and I believe it does. In this post I would like to consider what the 80-day FLD tells us about what is happening in the US markets.
But before I do that a quick follow-up on the EURUSD trade that I have been discussing over the past three weeks. We are still in the trade, and here is where the 3-bar trailing stop is now:
This third trade is now going to make us more money than the “true cycle trade” which closed at T2. That is why it is called the “lottery trade”!
So what about the longer cycle FLDs? While marveling at the profit being made in the E-category long trade in the S&P 500 this week I started to wonder what was causing such an extended bull move at this point in the cycle. The answer I believe is the impetus of the longer cycles and so I thought it would be interesting to look at what the interaction between price and the FLD of a longer cycle is telling us about the longer cycle picture.
When the cycle you are working with is longer than the 20-day cycle (which is the cycle we use in Hurst Signals) you should expect to allow the price and FLD lines some tolerance because of the greater detail relative to the cycle wavelength. For instance when price tracks along the FLD it will not actually straddle the FLD on every bar (the poorer your eyesight the better this works I find). Here is a chart showing the interaction between price and the 80-day cycle FLD:
You can see a clear sequence developing as we have come to expect.
- The first interaction between price and the FLD following the 40-week cycle trough (at least) in early February was a fairly good A-category interaction. As a matter of interest notice how the FLD provided a temporary resistance level at the A-category interaction in the third week of February.
- Then price came down to find support at the FLD for the B-category interaction which it did very accurately on 17 March 2014.
- For the next 7 or 8 weeks price roughly tracked along the FLD, and the 80-day cycle trough was formed during this period between the B and C interactions.
- The C-category interaction occurred at the beginning of May, and we expect a D-category short interaction next as price crosses down below the FLD on its way to the 20-week cycle trough expected in about two weeks.
D-category interactions are usually fairly accurate in achieving their targets, and so unless there are even longer cycles pushing upward we could expect a strong move down into that 20-week cycle trough.
And so the power of the FLD line is demonstrated again with the 80-day FLD. Notice also how the 80-day FLD provided brief support on 20 and 21 May. When price finds support or resistance, there is usually an FLD to be found!
Have a great week and profitable trading.
