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JM Hurst Cycles Analysis
Introduction to JM Hurst Cycles Analysis Methods
Cycles in Sentiment
Most of us understand that cycles are part of the fabric of life and the world we live in. Seasons come and go, night follows day, the tide rises and falls. The way we perceive opportunity is also cyclical. Feelings of optimism have to start somewhere, however tentatively. As these feelings take hold, especially among large, interacting groups of people,they feed on what went before and grow.
They continue to grow until things appear to be as good as they can get and at that point, they are. Ebullience then gives way to a sense of reality, which gives way to the first inklings of doubt, which in turn become feelings of pessimism and eventually despair. Then, when things look like they are as bad as they can be, they are and at that point the cycle starts up again.
This simplified view of the mood of the crowd, the essence of contrarian investing, is our starting point. Prices in freely traded financial instruments progress in cycles of sentiment and market action, rather than being a random distribution of independent prices, is governed by underlying form.
At any one time there is a multiplicity ofdifferent sentiment cycles operating together. For example, it is quite possible for a long term investor to be negative on the market, but at the same time for a short term trader to be positive. A raging bull market to a day trader will just be noise to a pension fund manager. It is all a question of which cycles are under observation.
JM Hurst Trading Cycles Analysis
Sometimes price cycles on a chart seem to be obvious, while at other times they are unclear. Critics say that because cycles seem to come and go they cannot be trusted. Mostly, however, these commentators lack the tools to correctly see beneath the surface of the market and to identify the cycles at work.
In order to do just that JM Hurst, an aerospace engineer working in the 1970s, developed an innovative approach to market analysis. Seeking to apply his knowledge of the mathematics of cycles to financial markets, Hurst developed a system which he briefly taught as a course. His original work is dense and a little complicated, but can be distilled into the following concepts:
- All financial markets are cyclical.
- There exists a finite set of cycles from very long to very short which tend to recur: the Nominal Model.
- These cycles are related to one another by a factor of two or three: they are Harmonic.
- Cycles build upon one another to form larger composite cycles: the principle of Summation.
- Figure below shows how the longer the cycle, the larger the change in price: the principle of Proportionality.
- Cycle lows tend to be sharp as the shorter cycles in the composite bottom together: Synchronicity.
- On the other hand peaks (in equities atleast) tend to be rounded as cycles tend to top out in succession.
- Despite all of this, variation from the norm is to be expected. The market is a huge, sometimes unruly mob of competing interests, not a physics laboratory.
Hurst’s insight into what he believed was the true nature of market price action, led to the development of a set of tools which we will be using as we study the S&P 500 Index. The following description will need to be brief, but it should help you gain a flavour.
Hurst Cycles Analysis Methods
Hurst Trading Cycles Defined
In figure below, we can see how cycles start at a low point, the cycle trough 'A', and then advance to a high point,the cycle peak 'C'. This is the cycle upswing. From the peak, the cycle then falls through its downswing to a second adjacent trough to 'E'. For argument’s sake, let’s suppose that the cycle falls back to the same level as it started from.
The time between the two cycle troughs is the period, or the length of the cycle and the height from trough to peak is the amplitude.
The longer the period, the more power the cycle has and the larger the amplitude. It makes sense that an 18 month cycle will move prices further up and down than a 20 week cycle.
Valid Trend line (VTL)
Analysts like to draw trend lines on charts as they give a sense of order and sometimes generate trading signals. Quite often, however, trend lines are subjective and tell us little about the underlying market.
What we perceive as price action is simply a composite of cycles of different magnitudes. Each cycle from the shortest to the longest contributes to the composite and the net effect is trend.
Thus, if the longest of the Hurst's cyclesare all advancing together then the longer term trend is up and shorter Hurst cycles will experience successively higher troughs.
Figure below shows a twenty week cycle with a flat underlying trend. If a straight line connecting adjacent cycle lows is projected into the future a horizontal line is plotted. Think of this as a trend support line. Now imagine that the twenty week cycle swinging back and forth around a longer cycle which is heading up. The line connecting the troughs now points up and starts to look more like a trend line.
Because it is based on a rule (connecting adjacent troughs of the same cycle) it is objective. However think about what happens as the longer cycle tops and begins to turn down, it forces the twenty week cycle through the turn as well and the line connecting the troughs (the validtrend line) is crossed from above by the twenty week cycle.
When the valid trend Line (VTL) is cut we therefore know that the next longer Hurst cycle has reversed.
By making the trend line objective and by redefining trend in terms of cycles, Hurst’s valid trend lines (VTL) gives us a clear insight into price structure and tells us the magnitude of recent reversals.
Forward Line of Demarcation (FLD)
The second of Hurst cycles trading tools is conceptually a little more challenging. Imagine a perfect cycle with, let’s say,a period of 14 days and amplitude of USD20. It takes seven days for the cycle to peak and another seven days for it to trough again. Now imagine a duplicate cycle that starts up seven days later, such that when the first cycle peaks the second troughs and when the first cycle troughs the second peaks. The cycles are therefore out of phase, or put more accurately, they are in anti-phase.
When the lead cycle crosses the lagging cycle from above we know two things: that the first cycle has peaked; that the peak must be a half cycle back; that its next trough will occur in one half cycle period’s time and that it will cover the same vertical distance to the next trough (USD7).
Displacing cycles in this way is the essence of the somewhat cumbrously named Forward Line of Demarcation (FLD).Thus, if we plot a replica 20 week market 10 weeks forward in time, when prices crosses it we know that a 20 week cycle trough or peak must have passed within the last 10 weeks and we know roughly how far prices have to travel to the next 20 week peak or trough.
If projections are overshot, then we know that a longer cycle is trending in the same direction (pro-cyclical) as the one under observation. If on the other hand projections are undershot, then we know that a longer cycle is trending in the opposite direction (counter cyclical) as the one under observation. Although there is a bit more to it than that, that is the basic idea. We use FLDs to project future prices, tell us the strength of underlying trend and ascertain the magnitude of recent reversals.
2019年8月22日下午三点收盘后焦炭主力合约J2001的周期分析供22日晚上或23日白天交易参考：
分析说明如下：
Price is currently in the SECOND 4 daycycle, of the FIRST 8 day cycle, of the SECOND 17 day cycle, of the FIRST 34day cycle, of the 67 day cycle.
Updated FPA reveals that the dominant cyclehas a wavelength of 34.8d, or 35 bars. This is assumed to be the 40d nominalwave, which implies that all waves will be approximately the same (3% variance)as nominal. This cycle is FALLING fast. The underlying trend to this cycle iscurrently slightly UP, likely slowing down. Recent fulfilled projectionshowever would seem to indicate that the underlying trend is STRONGLY DOWN. Thefuture FLD indicates that this cycle will influence prices to RISE.
The sub-dominant cycle (next wave down fromthe dominant cycle) has a wavelength of 17.3d, or 17 bars. This is assumed tobe the 20d nominal wave. This cycle is FALLING fast. This is probably theSECOND of 2 sub-waves. The underlying trend to this cycle is currently FLAT,likely turning UP. Recent fulfilled projections however would seem to indicatethat the underlying trend is STRONGLY DOWN. The future FLD indicates that thiscycle will influence prices to RISE.
The pre-dominant cycle (next wave up fromthe dominant cycle) has a wavelength of 67.5d, or 68 bars. This is assumed tobe the 80d nominal wave. This cycle is RISING, probably slowing down. Theunderlying trend to this cycle is currently FLAT, likely turning DOWN. Recentfulfilled projections however would seem to indicate that the underlying trendis STRONGLY UP. The future FLD indicates that this cycle will influence pricesto form a trough in a short while, and then rise.
Σ L is currently FLAT, likely TURNING DOWN.
The 34.8d CYCLE component of Σ L iscurrently STRONGLY DOWN (strength: -2 cycles), and accelerating.
The 17.3d CYCLE component of Σ L iscurrently FLAT, likely TURNING UP.
The 8.6d CYCLE component of Σ L iscurrently STRONGLY UP (strength: 2 cycles), and accelerating.
The 4.3d CYCLE component of Σ L iscurrently STRONGLY DOWN (strength: -3 cycles), and accelerating.
The 4.3d cycle might be the ideal tradingcycle, with an average potential of 5.2% per half-cycle. This equates to 51.8% because of leveragesettings. However trading such a short cycle is not recommended. Therefore the17.3d cycle is recommended with an average potential of 8.5% per half-cycle. Thisequates to 85.3% because of leverage settings.
FLD PATTERN PROGRESSION:
Sequence Ref #0 is expected to reach aLOWER target of 1822.45(-2.42 diff) by the same date, on 2019/8/25
Sequence Ref #1 is expected to reach a HIGHERtarget of 2118.13(-13.18 diff) by the same date, on 2019/9/7
DETAILED FLD PATTERN/PRICE CORRELATION:
Price did not move DOWN as it was expectedto by the FIRST sequence (ref #0) of the previous pattern and so has got nocloser to the target of 1822.45. The closest price has gotten to this target sofar is 1915.00 (5.1% short), 13 bars ago. This target is only expected to beachieved in 4 bars, but it MIGHT be necessary to consider this target as havingbeen achieved with a shortfall.
The SECOND sequence (ref #1)'s trigger isexpected in 3.5 bar(s) and so it is not comparing pattern/price progress forthis sequence.
CURRENT FLD PATTERN PROJECTION:
Price is currently moving DOWN (last close1955.5), in a DOWNWARD FLD pattern.
The first FLD pattern sequence (ref #0)projects a price movement DOWN to a target of 1822.45 by about 2019/8/25.
The second FLD pattern sequence (ref #1)projects a price movement UP to a target of 2118.13 by about 2019/9/7.
OUTSTANDING FLD PROJECTIONS:
67.5d: no projection
34.8d: no projection
17.3d: no projection
8.6d Refined FLD projection created on2019/8/16 projecting a price fall of 43.2815 to 1938.9370 by 2019/8/22. Thisprojection target was reached and exceeded on 2019/8/21. Normal FLD projectioncreated on 2019/8/19 projecting a price fall of 47.7709 to 1929.9580 by2019/8/24. This projection target was reached and exceeded on 2019/8/21.
4.3d: no projection
如果大家有自己做的交易品种，只要给数据，可以代为分析结果。
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