Why Cycles are Critical to Stock Trading Success

Bank

Cycles are Everywhere

To begin with, cycles are critically important to your success when trading any asset. In this context, we will concentrate on trading stocks successfully 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. Below is the XLF Cycle Chart prior to the open on Tuesday. The change in character or “cycle” is becoming more evident.

Prior to the turn, hedge fund and money managers were buying at the 50ma. Easing into new positions when the cycle begins to turn gives 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.

Yesterday witnessed major accumulation in financials, as the cycle turns ever higher. Banks have become obvious targets, yet the cycle has yet to cross the zero line. Once it does, technically speaking, that’s a buy signal or confirmation.

XLF-followthrough-11-29-2017

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.

My 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.

XLF – Top 30 Ranked by Performance

BanksListTop30

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. If you are trading AMZN for example, we would be scaling out.

XLY-extremes

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.

XLV-11-29-2017-cycle

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.

The markets don’t go straight up and they don’t go straight down. Markets Cycle.

I hope this helps.

Vinny

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

 

Market Cycles and Swing Trading

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Vinny Gambini

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