John Ehlers - Cycles Tutorial

INTRODUCTION

The use of cycles is perhaps the most widely misunderstood aspect of technical analysis of the markets. This is due, in part, to a wide variety of disparate approaches ranging from astrology to wavelets being lumped into a cycles category. The purpose of this tutorial is to present a logical and consistent perspective on what cycles are and how they can be used to enhance technical analysis. I was originally attracted to the use of cycles because it is one parameter on the charts that can be scientifically measured. These measurements can be used to dynamically modify conventional indicators such as RSI, Stochastics, and Moving Averages. Better yet, our research has provided superior indicators derived directly from cycle theory. The successful application of cycles to technical analysis is proven by mechanical trading systems which we offer for both intraday and position trading are ranked #1 in their respective categories. The following sections are more or less independent, but weave together to establish a basis for a scientific approach to trading. Some sections should be an easy read. Other sections might become too technical for many traders. If you feel uncomfortable in a section, just skip it for the time being and plan to return to it later. The punch line of this tutorial is in the final section, where we show how to correlate the indicators for a consistent analytical approach.