MASTERING HURST CYCLE ANALYSIS A MODERN TREATMENT OF HURST'S ORIGINAL SYSTEM OF MARKET ANALYSIS CHRISTOPHER GRAFTON Table of Contents Visualising Period and Ampklude Ilow Cycles Combine Proportivs of Markel Cycles Conclusion ‘Trend and Trendlines Concepl of Trendiines, ‘Trend Direction ud Slrenghy The Real Nature of Trend The Key Role Played by VILs 2. BASIC TOOLS II: DISPLACED CYCLES — THE FLD Introduction Properties of the FLD Plotting the FLD Applying FLDs FLD Combinations 4. ISOLATING MARKET CYCLES Scanning Charts Enloring the Trade, Short Selling zz. MANAGING OPEN POSITIONS ah Case Study — JPMorgan Chase 2002/2003 8. RSI AND ELLIOTT WAVE ah RSland Elliott Wave ~ the Basics Case Sludy [: Gold, Novernber 2008, Case Study II: Duro/USD, January 2010, Appendix 1: Elliot: Wave Patterns Appendix 2: ELD Code Appendix 3: Inverse Moving Average Code. Appendix a: Cycle Envelope Code Appendix g: Dinnonds Grid and Numbers Appendix 6: Diamond Placement Code Appendix 7: Diserole Kauri form Code. Appendix 8: Volatility Index code Recommended further reading, ‘The Sentient Trader Publishing details HARRIMAN HOUSE LTD gAPonns Road Petersfield Tampshire GU32 EW GREAT RRITAIN Tel: +41 (0)1730 232870 Tax: +44 (0)1730 232880 Email: [email protected] ‘Wobnite: www harriman honse.com Tirst published in Great Dritain in 2011 Copyright| © Hecsinan House Lid The right of Christopher Grafton to be identified as the anthor hhas been asseried in accordance with the Copyright, Design and Patents Act 1988. ISBN: y78 0 85719 198 4 British Library Cataloguing in Publication Date ACIP calslogue cecozd for this boo’ ean be ublained from the British Library. All rights reserved; no part of this publication may be reproduced, stored in a retrieval system, or ransmitted in any form or by any means, electzonic, mechanical, photocopying. recording, or otherwise without the prior written permission of ‘the Publisher. This book may not be lent, zesold, hired out or otherwise disposed of by way of trade in any form of binding or cover other than that in which it is published without the prior ‘written conseat of the Publisher. Nu respousibilily for lose vevasioued lo uny person or corporate Vody cling or refraining lo acl asa resull of reuding snaterial in this buok can be accepled by the Publisher, by Ue Author, or by the employer of the Anthor. Designated srademarks and brands are the property of their respective owners. Nana korobi, ya oki “Fall down seven times — get up eight.” Praise for Mastering Ilurst Cycle Analysis “This book is highly-recommended for any marker analyst or trader whe wishes to add eycles to (heir unulylical toolbox. This fsa clear and concise intraduction.” Bill Surubbi, Fund Manager, TG, Vienna Yyelee Research Joveslments “Cycles are one of the most underutilised, and yet most rewarding, sources of information available to an analyst or ‘inwestor. [fit is posstble to anticipate a reversal, and track it in real time, then eager investors should want to know about tt Until relatively recently, cycles have not been properly understood, so there has been « dearth of practical knowledge. This gap is now being filled by dedicated researchers such as Chris Grafton. His book brings together the ideas of one of the pioneers of cycle analysis ~ the engineer. J.M. Hurst — and presents them in an easily understandable and very useable form. Once mastered, the techniques explored in the book ‘should be a source of significantly enhanced market understanding and very profitable investment.” ~Tony Plummer, Author, Forecasting Financial Markers, Director, Ielmsman Economics Ltd “1 really like this book. It takes the excellent original idea of Hurst and brings i right up-to-date in tie modern computer era, I expluins cycles and harmonies und shows how wo construct Valid Trend Lines und Lines of Fuiure Demareation, Ud does not pretend that this subject is eusy, but does explain il with very clear charts and writing. Tie work shows the relationship to BDiott waves and RSI oscillations. There are sume clear worked exarmples and ideus of iow iv pul on and manage a trade, Must investors will Jind i a useful uddition to their knaxnledge. Woll donc Chris Grafton.” - Robin Griffiths, Technical Strategist, Cazenove Capilel Management “Pheough clear, straightforward explanations of the twols and up-o-date market illustrations, Grafton mukes Hurst cycle unulysis accessible le today’s trader. Readers gain not only a thorough understanding of cycles but alse the skills to begin implementing cycle analysis hermediatcly.” ~ Julie Dadilquist, PL.D., CMY, Bdilor of the Journal of ‘Technical Analysis aad co-aultior of Technical Analysis: The Carmplote Resurec fam Financial Market Technicians “IM. Hurst's Cyclie Principles are perhaps the most powerful yet misunderstood concepts about the workings of financial markets in the history of financial trading. Published in the 1970s, Hurst's work has survived into the 21st century because it ts 50 powerful and effective, but the application of his principles and the practice of his trading methodology have been shrouded in a cloak of arcane mystery. Christopher Grafton has done a great service to the 2ist century trader by thoroughly presenting Hurst’s work in a format that replaces the pencil, eraser and chart pad with a computer. Armed with the tools that Grafton includes in the book (and an understanding of how to apply them) the reader will be well placed ta start honing their analytical skills and putting this ‘powerful theory to profitable use.” — David Hickson, creator of Sentient Trader — Hurst Trading System (wew.sentienttrader.com) About the author (Christopher Grafton is currently Director, Principal Analyst and Syslems Developer al Veclisme Lid., an independent markel sulysis firm focusing on Japanese equilies willta global snacze overlay, Lused in Bnglund. Previously, ie has held positions om the sell side ul several snvestiment banks in London and Tokyo and ale worked as en anelyst and Lader for a London based. Ledge [und specialising in Japanese equilies. Christopher speuks fluent Japanese, i= a member of the Markel ‘Techuicians Ascocialion, is a succesful sysleins designer, progruamer and. trader, and holds the Chartered Market Technician designation About this eBook Whilst every effort has been made to ensure an optimal reading experience, eBuok page layoul can be alfecied by the user's eReader ad puye gumbering ay alvo vary. ‘Teal size, and in some cases fonl, can be adjusled. A bookmark feelure i= invriln’le on some oRonders. Avery useful feulure of eBouks is Uhal the user can seareh for the couleal they need, rather then being provided wilh an index. Use the seurch fuselion on your eReuder or in your ebook sattinre to search this cRook for words ar phrases Plewse Le aware hal Uhis buok cunlins colour prive charts Uhl suol display oplimally on a greyseals portable eBook reader in Uhese cases you will achieve a beller ceading experience by viewing Uke buok in software for PC or Mac thal allows a colour digpley.