to JM Hurst Cycles Analysis Methods
Introduction to JM Hurst Cycles Analysis Methods. Article submitted by
Christopher Grafton, Author of "Mastering Hurst Cycle Analysis".
Cycles in Sentiment
Most of us understand that cycles are part of the fabric of life and
the world we live in. Seasons come and go, night follows day,
the tide rises and falls. The way we perceive opportunity is
also cyclical. Feelings of optimism have to start somewhere,
however tentatively. As these feelings take hold, especially
among large, interacting groups of people, they feed on what went
before and grow.
They continue to grow until things appear to
be as good as they can get and at that point, they are.
Ebullience then gives way to a sense of reality, which gives way to the
first inklings of doubt, which in turn become feelings of pessimism and
eventually despair. Then, when things look like they are as
bad as they can be, they are and at that point the cycle starts up
simplified view of the mood of the crowd, the essence of contrarian
investing, is our starting point. Prices in freely traded financial
instruments progress in cycles of sentiment and market action, rather
than being a random distribution of independent prices, is governed by
At any one time there is a multiplicity of different sentiment cycles
operating together. For example, it is quite possible for a long term
investor to be negative on the market, but at the same time for a short
term trader to be positive. A raging bull market to a day trader will
just be noise to a pension fund manager. It is all a question of which
cycles are under observation
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Technical analysis reports using
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JM Hurst Trading Cycles Analysis
cycles on a
chart seem to be obvious, while at other
times they are unclear. Critics say that because cycles seem
to come and go they cannot be trusted. Mostly, however, these
commentators lack the tools to correctly see beneath the surface of the
market and to identify the cycles at work.
In order to do just that JM Hurst, an
aerospace engineer working in the 1970s,developed an
innovative approach to market analysis.
Seeking to apply his knowledge of the mathematics of cycles to
financial markets, Hurst developed a system which he briefly taught as
a course. His original work is dense and a little
complicated, but can be distilled into the following concepts:
3.8 Mastering Hurst Cycle Analysis
Hurst’s insight into what he believed was the true nature of market
price action, led to the development of a set of tools which we will be
using as we study the S&P 500 Index. The following description
will need to be brief, but it should help you gain a flavour. Let’s
quickly have a look at some key ideas in part 2 of An Introduction to
Hurst Cycles Analysis Methods.
- All financial markets are cyclical.
- There exists a finite set of cycles from very
long to very short which tend to recur: the Nominal Model.
- These cycles are related to one another by a
factor of two or three: they are Harmonic.
- Cycles build upon one another to form larger
composite cycles: the principle of Summation.
- Fig 3.8 shows how the longer the cycle, the
larger the change in
price: the principle of Proportionality.
- Cycle lows tend to be sharp as the shorter
cycles in the composite bottom together: Synchronicity.
- On the other hand peaks (in equities at least)
tend to be rounded as cycles tend to top out in succession.
- Despite all of this, variation from the norm is
to be expected. The market is a huge, sometimes unruly mob of competing
interests, not a physics laboratory.
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Mastering Hurst Cycle Analysis
modern treatment of JM Hurst's
system of financial market analysis
by Christopher Grafton
Published: 30 Nov 2011
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