Trend & Cycle Decoded

“To everything there is a season, and a time to every purpose under the heaven” (Eccl 3:1)

You really do not want to know the future because if you did, you would simply be a robot fulfilling that future “plan”. There would be no free will, no choices and no mystery.

In trading markets, we can measure trends and cycles but what we are really doing is probability analysis. We do not absolutely know the outcome, only a probable result. However, in longer term trends and cycles, the probabilities become more reliable. 

First, some supporting background information.

Trend & Cycle Decoded

Mathematician Jeffrey West describes trends and cycles as follows: 

“From appearances, price movements appear not random, but chaotic. These apparent chaotic conditions are a tangled web of cause and effect creating innumerable variables and probable outcomes. This is the defining characteristic of chaos, but within this web of chaos, it does have a certain structure. Decoding and defining investing behavior and its variables reveals tell-tale signs of this group structure, its mass (force) and direction. These results are probabilities of varying strength and force depending on the length of the trend or cycle. Longer cycles equal a greater reliability of a probable outcome.

This group behavior and structure is otherwise known as the “herd instinct” and it depends on a large group participating in this trend of boom and bust.”

Trend Dynamics

Group dynamics, structure and behavior create geometric, mathematical trends and cycles.

In what may appear to be pure randomness of price change, there is order in this chaos in the form of a trend which is based on multiple variables acting upon it. We cannot know all the variables but we can see the result in the structure of a trend over time and distance.

This is not unlike spiders spinning their geometrically perfect webs with no apparent awareness of their amazing feats. As the web grows larger, the picture becomes more complete revealing the beauty, harmony and balance of nature’s proportions.

Predictive Truth & Group Dynamics

Jeffrey West demonstrated another mathematical principle we can all understand by way of a large survey group estimating the number of jelly beans in a jar.

The results and conclusions of the experiment were as follows: 

“What is really interesting is that the predictions or expectations of individual members of large market group are all over the spectrum of probabilities. But, the average of those predictions or expectations from the collective group is typically within 1% of the correct ultimate outcome”. 

This is called the Vox Populi, Galton Effect or wisdom of crowds.

This kind of mathematical exercise and result is similar to those found in national polls which involve large numbers in a surveyed group to establish predictive validity within a small error of deviation from final results. 

Unfortunately, the "wisdom of the crowds" does not apply to stock market projections since the answer is not fixed, there are multiple choices and many variables are present including a stake in the outcome.

Trend & Cycle Analysis 

Market Pendulum’s Trend and Cycle analysis is a first class methodology that helps decode this market structure, behavior and process. 

All the cheer leading in the world does not change a trend or cycle. Patience, money management skills and attention to the mathematical trend evidence is still required

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