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Stan
Ehrlich on Cycle Analysis
By
Jim Wyckoff
Stan
Ehrlich's highly informative lecture at the TAG 21 conference, held
in Las Vegas, was entitled "Simple Cyclical Analysis."
Ehrlich
began his career as a runner on the floor of the Chicago Mercantile
Exchange in 1971. He presently owns Ehrlich Commodity Futures, based
in Novato, Calif. (Ph. 800-323-7898) (email: stanecf@earthlink.net).
Following
are some highlights of Ehrlich's presentation:
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The use of cycles can help a trader anticipate when a market turn
may be likely to develop. The monitoring of technical studies,
especially at those potential cyclic turning time periods, should
help warn the trader that a turn is imminent, or in the process of
occurring.
*
Market tops and bottoms often occur when the average trader may be
caught up in the emotional fundamental developments of the moment.
That's why it's so hard to pick tops and bottoms, because
fundamentals are most bullish at tops and most bearish at market
bottoms. This is why "contrary opinion" trading works
well.
*
Cycle analysis helps the trader better anticipate market tops and
bottoms.
*
When the general public catches wind of a strong-trending market and
starts to trade it, that is many times when the top is achieved in
the market.
*
When analyzing a market, look at the longer-term charts and cycles
for a bigger market perspective. Then work into shorter-term charts
and cycles.
*
Ehrlich showed the group his Ehrlich Cycle Finder. This is a neat
little gadget that, when put over a chart, allows even a beginner to
locate a cycle on a chart.
*
Options traders find cyclical analysis especially useful when trying
to identify market tops or bottoms.
*
Ehrlich's favorite one-day turning signal is the key reversal
pattern. A bullish key reversal is defined as a day when the low is
lower than the previous day's low, and the high is higher than the
previous day's high-and the close is higher than the previous close.
A bearish key reversal would be when the market closes below the
previous close. He said he generally believes that if the high and
low exceed the previous day's high and low by very small amounts,
then the signal will be less powerful. High volume increases the
validity of the signal, while low volume makes the signal suspect.
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