Alex Jamieson unravels the mystery of the decennial cycle and... them successfully. How to trade decennial cycles 29/08/11 10:47 AM
How to trade decennial cycles 29/08/11 10:47 AM Become a website member | Subscribe to YourTradingEdge magazine | Contact us Search... Join our community of traders Home About Subscribe Articles Blogs Forum Events Advertise Contact Resources BackIssues FAQ Glossary How to trade decennial cycles Alex Jamieson unravels the mystery of the decennial cycle and how to trade them successfully. To understand a market cycle can provide you a framework to construct a forward forecast of what might happen in the future. A cycle is a pattern that has consistently repeated itself over a period of time. While some cycles only last for a matter of months, other more reliable cycles have tracked through time with an uncanny level of certainty. In essence, cycles can be thought of large beacons on the future providing directional indicators of what might occur at a future date in time. For example, since 1886 the market has followed a natural cycle with a fair degree of accuracy every 10 years – commonly referred to as the decennial cycle. The decennial cycle has had an amazing track record in forecasting recessions, share market crashes and periods of abundant growth. Essentially the decennial cycle looks at the market in 10-year blocks such as from 1900-1909, 1910-1919, 1920-1929 and so on until you reach the current year 2011. Login Login for greater access to YourTradingEdge magazine online content: Once the 10-year block has been formed it will then look at each year in isolation. So for example, it can then reveal what has been the average performance of year “7” in each set of 10 years – i.e. 1907… 1987… 2007 and so on. Username The decennial cycle is only interested in one year's performance, so was the year “7” on average a positive year or a negative year since 1886? What is interesting about the decennial cycle is that it tells us about the past and how can we apply this to the future. So what does a decennial cycle look like? Password On average, years 0, 1 and 7 are generally the worst periods to an investor if you are trying to go long in the market via an index exposure, but far more beneficial if you are trying to short the market or profit from a falling market. You only have to think about years such as 2007, 1987, 1907 for prime examples of fallen markets or crashes. Did you also know that in most cases recessions on average occur around the start of the decades like 1930, 1981, 1990, 2001? This make sense then that the share market performance during these periods of times tends to be flat to poor for an upwards or bull market orientated investor. In these instances, one needs to be far more nibble in which assets they hold in the pockets of opportunity as opposed to the total market. So how would one make money out of this period of time? Well from a traders perspective range trading would possibly by an ideal strategy during this particularly time period for 0 and 1 year. Possibly also looking at short or taking advantage for falling markets will also need to be a strong focus in ones kit bag of tricks. For long only investors focused only on the upside, one would need to be in pockets of opportunities rather than just an index exposure to maximise potential upside opportunities. The safest periods of time to invest for an investor focused only on the upside would be from years 2 to 6. In fact, between 2002-2006 this held very true with strong upwards movement up year after year. The best year on average has been year 5 with the bulk of the 10-year performance being made in just this year alone. This year would be one not to be a sleep at the wheel and have all your guns blazing to capitalise on these easy pickings. Generally around these times you also feel like a superstar investors or trader so it is important to keep your emotions in tact and not get too carried away. Like most long-term cycles sometimes they may start a year or two later or earlier, but these indicators are an excellent file:///Users/suzyj/AJFP/How%20to%20trade%20decennial%20cycles.webarchive Remember Me Login Forgot your password Forgot your username Create an account World Time 10:45:53 AM EST (Mon) Special Offers Live Trade FOREX next to world-class experts in Barcelona - FXstreet.com Conference This year again FXstreet.com will organize its International Traders Conference in Barcelona (Spain) on October 20, 21 and 22....read more Page 1 of 3 How to trade decennial cycles 29/08/11 10:47 AM on October 20, 21 and 22....read more measure to park on your desk and look at when you decide to enter the market. 2010 in the Australian market pretty much followed through on a similar pattern to the “0” being negative marginally, and 2011 is looking at this stage to be a similar outcome once the calendar year closes out. One will have to wait to see how the rest of the decade will pan out according to the decennial pattern, but at least you will have a road map of what has occurred historically on average for the past 125 years. Good luck with your investing! Add comment Name (required) E-mail (required, but will not display) 1000 symbols left 1000 symbols left Notify me of follow-up comments Refresh Send JComments Polls What type of trader are you? 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