Stock Market Tools (3) - Multiple Time Frames and Cycles Analysis

continue from part 2...

Waves In the Market:
The Dow Theory, since a hundred years ago, has described it well that the market has three movements:

(1) The "main movement", primary movement or major trend may last from less than a year to several years.  This wave is mainly created by the big institutions.
(2) The "medium swing", secondary reaction or intermediate reaction may last from ten days to three months and generally retraces from 33% to 66% of the primary price change since the previous medium swing or start of the main movement.
(3) The "short swing" or minor movement varies with opinion from hours to a month or more.

When the three movements are in-sync, it moves the fastest.

The first diagram above illustrates the idea of the theory:
The blue line shows the "main movement",
the pink line shows the "medium swing",
the yellow line shows the "short swing", and
the brown line shows the "theoretical fundamental value".
When all these lines are super-imposed together (adding up all their values), it becomes the composite wave - the red line... 
The second diagram shows that the composite wave can technically be decomposed with Multiple Time Frame Analysis.  The normal techniques are using various periods and different kinds of moving average as filters.

For example:  If one were to do intra-day trading, he should keep track of the daily chart.  If one use End-of-day data to trade and hold positions over night, he must keep note of the next higher time frame -> weekly chart... and so on.

Multiple Time Frame Analysis:

When deciding on a trade or investment, be it short, intermediate or long term, multiple time frame analysis can help to filter the noise.

Multiple time frame analysis refers to the same stock are analysed with at least two time frames(e.g. daily and weekly). One can refer to the longer time frame as the trend, and shorter time frame as momentum. When both the weekly and the daily charts are in harmony, the chances of success can be greatly enhanced.

The man who thinks he hows the stock market is usually his own
worst enemy, because in the majority of cases he merely has
a large furry ear open for tips. When one of these happens
to go right, he flaunts himself on his astuteness.
-- Richard D. Wyckoff

Add-on at 23 Nov 2011 

Look at the MF Global case...  In Cockroach Theory, it suggests that when a company running into trouble; there may be many more related negative events that have yet to be revealed!  Usually, the first one was just the tip of the iceberg, and the real stuff yet to be seen.
Therefore, in today environment, personal financial strength is just as strong as the banks and security firms.
Also that regardless one is interested in trading the market or not, he must realize that he is living inside the system, and avoiding is not an option.
On the other hand, public normally has the wrong impression that trading is a very difficult subject and must take years of effort to learn and master.  This is not completely true.  
Let me explain...
Yes, it is not an easy task to trade for the full time and make a good living for most people.  But, it is not a difficult task to manage one own asset/portfolio in avoiding rotten companies and gain moderate profits.
The following charts show than there are many signals, when one using the Multiple Time Frame Cycle Analysis...  because the INSIDERS will leave many signs when they try to get out.



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