Why Cycles are Critical to Stock Trading Success


Cycles are Everywhere and Critical to Stock Trading Success

To begin with, cycles are critically important to your success when trading any asset. Understanding what to look for and when to enter a position, assists in navigating a cycle’s ebb and flow. Once the cycle becomes obvious, the crowd follows and the trend gets underway. Previous cycles are referenced when considering duration of the current cycle. Our task is one of timing sector rotation with market cycles. In this context, we will concentrate on trading stocks successfully using cycles and then examine other assets in future posts.

Futures are higher.

We’ve written a lot of articles addressing these cycles, so click the “Search” bar on the right and look for anything with that subject.

Financials – Cycles Can Help Your Emotions Too

Recent cycles have been very rewarding to those traders positioned for the surge in bank stocks. This is especially the case with options traders, whose timing is paramount. These traders must identify when the cycle begins and then merge this information with tight Bollinger Bands or low volatility, so they might buy when premiums are low and sell when the cycle hits an extreme, managing higher premiums as a result.

Below is the XLF Cycle Chart as it looked prior to the open on Tuesday. The change in character or “cycle” is becoming more evident, as we discussed during the Livestream session on Monday.

Prior to the turn, hedge fund and money managers were buying at the 50ma. CNBC commentators also began touting their favorite banks. Easing into new positions when the cycle begins to turn gave us an edge. Confirmation comes next, so we watch various indicators as part of our daily workflow, highlighted in video number 10, part of the Strategy Video Series.

XLF Pre-Market 11-28-2017

Compare the two charts. The financials were witnessing accumulation along the 50ma for more than a week, as the chart above depicts, yet one would also assume the lower high might lead to a loss of this level. Identifying this “rate of change” as the cycle began to bottom, alerted us of the potential follow through. We saw the change yesterday, wherein financial stocks witnessed major accumulation. Banks have become obvious targets. Once the cycle crosses the zero line, we’ll have our confirmation. Once the momentum changes, it tends to persist. We use previous occurrences for reference.


So, the question now becomes, is it too late to buy bank stocks? Well, that’s where homework comes in. You have to do your homework.

Our suggestion is to look at the banks that are moving but have not garnered all of the press that JPM, C, and BAC received on Tuesday. There are many that have room to run. Consider the regional banks as well. KRE is strong.

XLF – Top 30 Ranked by Performance


Cycles and Your Emotions

In addition to proper entry timing, cycles can also help with your emotions. Since we hate losing money, entering at the wrong time is sure to kill our spirit and our bank account. That said, if we enter with a tailwind (institutional buying), we immediately confirm our bias, in turn boosting our confidence, as we see deep pocket investors leading the charge. This, in turn, comforts our emotions the majority of the time we are invested.

My rule: Buy more when cycles turn from lows and sell into strength when cycles peak at extremes. XLY is reflecting that predicament now, though we need to consider the holidays could provide an extreme worth considering. If you are trading AMZN for example, we would be scaling out of our positions as we near extended levels. Leave a trailer if you think the rally could continue a bit longer.


Stock Trading Success and the XLV Cycle

Is the healthcare or materials sector next? It sure looks like it. Price is above the 50ma now and the cycle indicator has crossed the zero line, ushering in a buy signal confirmation. Price action has yet to bolt higher. That could happen soon enough; do note, however, this isn’t a guarantee, so always use a stop. Cycles in momentum usually continue for several weeks, assisting the swing trader immensely when the change in trend is identified early. The recent high in late October would be a good target to consider.


No matter how long you’ve been investing, or what asset you choose to buy and sell, understanding the comments herein will lead you to understand what we often speak about in the trading room.

Stock Trading Success – Use Markets Cycle.

The markets don’t go straight up and they don’t go straight down, so understanding rotation and cycles is critically important.

I hope this helps.


We will be LIVE at 9:20 AM EST

Industrials also moved markedly on Tuesday, the subject of that BLOG POST.


Market Cycles and Swing Trading


Disclaimer:  Do your Own Research

Our content is intended to be used and must be used for informational purposes only. It is very important to do your own analysis before making any investment based on your own personal circumstances. You should take independent financial advice from a professional in connection with, or independently research and verify, any information that you find on our Website and wish to rely upon, whether for the purpose of making an investment decision or otherwise.

Investment Warnings

We would like to draw your attention to the following important investment warnings. The value of shares and investments and the income derived from them can go down as well as up; Investors may not get back the amount they invested – losing one’s shirt i

Vinny Gambini

Trade Fundamentals w/ Technical Analysis - CANSLIM method using high probability setups and Ichimoku Trend Analysis. Architect, Family Man and Father of three.