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Short
Term Tutorial
Intermediate
Term Tutorial
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The Market Forecast is an
analysis tool designed to measure
a variety of market data with the
ultimate goal of finding
semi-periodic market activity. In theory, we can "tune into" various time frames with
the Market Forecast and see the market's
current position and amplitude for
selected time frames. While that
may at first sound daunting, the
graphic display is actually a
simple representation of four
time periods ranging from very
short term (days) to long term (9
months+) and their current
position relative to their
'normal' cyclic behavior.
Let's break down the key aspects
of the chart.
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In the chart above, the dates
along the top represent three
months of trading days. Each day,
a new trading day will be added
to the right of the chart and the
furthest left date will be
removed.
On the right hand side of the
graph, the +/- scale shows the
amount an indicator line can move
up and down from its norm. Notice
too, the graph has a darkened
zone in the upper and lower
extremes of the chart, indicating
when a line is reaching the
'maximum' levels for its time
period. The deeper an indicator
line moves into these
'reversal zones', the more
sure we are of an imminent change
in direction.
The Long Term
Indicator
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This first line (above) is the
Long term cycle with a periodicity
of about nine months (can we call
it the 'baby' cycle - it
delivers). While we typically
don't trade with this indicator,
it is important to watch because
its direction will
influence the amplitudes of all
cycles shorter than it
(intermediate, short, momentum).
This line rarely moves deep into
the reversal zones but frequently
reverses just after reaching
the area.
The Intermediate Term
Indicator
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Notice that the intermediate terms declining period (top of cycle to bottom) normally extends 1 1/2 months. The rising period is typically equal in time.
This cycle is the easiest to use
for most traders since entry and
exit need not be perfect to
capitalize on the move. We
normally go long as it's moving
up, and short on the way down,
thereby capturing most of the
profits possible in up and down
market conditions.
There are times when the intermediate
term indicator will not run the
full scale deep into the reversal
zones. Those times are expected
when the Long term indicator is
moving in an opposing direction
thereby canceling out some of the
intermediate move. An example is
provided below:
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Notice how the intermediate line
attempted its usual rise after
reversing in the beginning of
May. It failed to complete its
rebound to the top because the
Long term line was 'forcing' it
down. Remember that any cycle can
affect the strength of all cycles
shorter in time than itself.
In this instance, we would have
exited any long trade as soon as
we saw the cycle fail to complete
and top out.
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The Short-Term
Indicator.
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You'll notice that this line
tends to cycle every 6-8 trading
days with shorter or longer
periods based on the strength of
the intermediate term. Short-term
traders will typically enter a
long trade when this and the
momentum lines are deep in the
lower reversal zone and exit when
either or both tops out. Short
term traders will generally fair
better if they trade based on the
direction of the intermediate
terms direction. In other words,
trade the market long while the
intermediate term moves up and
short the market as it moves
down. For each direction on the
intermediate term there will
often be 2-3 short term trades in
between.
The Momentum
Indicator.
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The fastest cycling line is
the momentum indicator. It wants
to swing from one reversal zone
to the other and will do so every
2-3 days. When combined with the
short-term indicator, it provides
a very reliable day to day
barometer for market direction.
When both are at the bottom, the
market should advance within the
next day or so. Often, the
momentum line will turn a day in
advance of the short term line
and provide an early 'warning'
for change.
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Putting it all
together
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The chart above contains all four
time frames. Notice how the
intermediate trend is very
visible and declining since 8/27.
In that decline there was a short
term 'recovery' rally from 9/5
until 9/10. The flattening of the
short term line occured as the
decline became 'severe' through
Sept. (notice the momentum line
losing rebound strength
9/16-9/20). Other recovery
rallies would be expected, but
would likely remain small until
the intermediate term 'bottoms'.
Based on the intermediate
location, that bottom could be
projected to occur in the next
two to three weeks. (Notice how a
bottom forms as it did on 7/23
with the 3 shortest terms all
reaching deep into the lower
reversal zone at the same time -
nowhere to go but up!).
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