Decoding the
Hidden Market Rhythm
Part 1: Dynamic Cycles
by Lars von Thienen
A dynamic approach to identify and trade
cycles that influence financial markets
www.whentotrade.com
Decoding the Hidden Market Rhythm – Second Edition
A dynamic approach to identify and trade cycles that influence financial markets
Part 1: Dynamic Cycles (Release 2014)
All Rights Reserved.
© Copyright 2010-2014 Lars von Thienen / www.whentotrade.com
All materials of this book, including, without limitation, text, software, scripts, illustrations and video are copyrighted
intellectual property.
Everything presented in this book is considered licensed to you for your personal, non-commercial home use only.
You're not allowed to redistribute or sell the material or convert it to any other form that people can use. You may not
copy, reproduce, republish, upload, post, transmit or distribute this material in any way or for any other purpose unless
you get the written permission from the author first.
This book is designed to help readers obtain trading education. It discusses ways to trade the markets using cycle
analysis in the decision process. There are no warranties implied. This book makes no guarantee that that you will make
money trading any market.
The past performance of any shown trading system or methodology is not necessarily indicative of future results.
Hypothetical or simulated performance results have certain inherent limitations. Unlike an actual performance record,
simulated results do not represent actual trading. Also, since the trades have not actually been executed, the results may
have under- or over-compensated for the impact, if any, of certain market factors, such as lack of liquidity.
Trading involves the risk of loss. Please consider carefully which trading instruments are appropriate to your financial
situation. The risk of loss in trading can be substantial. However, the ability to assess risk is vital to a trader's survival.
Conversely, without risk there is no profit either.
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This book is dedicated to the Wave59 community. A
community in which new ideas can thrive. A place where
friendship is more than a word and where rampant ideas
can be discussed, are accepted and receive constructive
feedback.
I would like to personally dedicate this book to Joseph. A
Wave59 member who became a dear friend of mine. An
exceptionally loyal and helpful person. Joseph, without
your support and continual testing, I would not have been
able to stay on this path. Thank you, my friend. I am
grateful to have found you.
Lars von Thienen, July 2010
Forward: Second Edition – Part 1: Dynamic Cycles
This second edition of “Decoding The Hidden Market
Rhythm” comes in three parts with extended content. Part 1
is about “Dynamic Cycles”, Part 2 about “Metonic Cycles”
and Part 3 about “Genetic Algorithm & Cycles”.
The concepts presented can be replicated using the
Standalone WTT Charting Module or the Wave59 Cycles
Plug-In.
The original cycles tools were applied prior to the first release
in 2010 and they remain the same in this second release.
Additional examples have been added for explanatory and
demonstration purposes. The additional content can also be
reviewed in the video library (“Academy”) on the
WhenToTrade Website.
After the initial release in 2010, the standalone WTT
Charting Module was introduced in 2012 and it marked a
significant milestone. It enabled the implementation of cycle
analysis supplementary tools. A new genetic algorithm was
implemented as a precursor to the next dimension of cyclic
analysis. Researchers can now advance cycle research and push
the boundaries.
New tools, such as the Genetic Algorithm, is already available
within the WTT Charting Module for our community. The
first part of “Dynamic Cycles” introduces the underlying
basic cycles approach.
Lars von Thienen, February 2014
www.whentotrade.com
Contents
1. Introduction - It’s all about cycles ................................................................................ 9
2. How to detect and measure cycles in the stock market ............................................... 15
2.1 The cyclic approach put into practice ....................................................................... 15
2.2 The Cycle Scanner: Introduction of a new & proprietary cycle detection
algorithm ................................................................................................................. 17
2.3 Example 1: Dataset with 2 cycles .............................................................................. 20
2.4 Example 2: Dataset with 2 cycles + trend .................................................................. 24
2.5 Example 3: Dataset with 2 cycles + trend + noise ...................................................... 26
2.6 Step-by-step guide: How to build a forecast based on cycle detection ....................... 29
2.7 Example 4: Dataset with 4 cycles + trend + noise ...................................................... 38
2.8 Building the forecasting model for Example 4 based on the detected cycles .............. 45
2.9 Example 5: Dataset with 5 cycles + noise + changing trends and forces ..................... 49
2.10 The Cycle Scanner: Algorithm overview ................................................................... 54
2.11 Final summary – A new area of cyclic analysis at your fingertips ............................... 55
2.12 The Cycle Scanner: A step-by-step guide .................................................................. 56
2.13 The Cycle Plotter ..................................................................................................... 61
3. The Dominant Market Vibration ............................................................................... 65
3.1 Definition of the dominant cycle .............................................................................. 65
3.2 Definition of the Dominant Market Vibration ......................................................... 65
4. Fine-tuning technical indicators using the Dominant Market Vibration .................... 69
4.1 The basic idea ........................................................................................................... 69
4.2 A step-by-step guide: Trading the S&P 500 E-mini futures contract intraday........... 71
4.3 Trading the S&P 500 E-mini futures contract intraday – Example 2 ........................ 79
4.4 Summary .................................................................................................................. 83
5. Cycles Are Not Static: The Dynamic Nature of Cycles ................................................ 85
5.1 Effect A: Shifts in Cycle Length ................................................................................ 86
5.2 Effect B: Shifts in Cycle Phase .................................................................................. 87
5.3 The Combined Effects ............................................................................................. 88
5.4 Video Lesson – Dynamic Cycles Explained .............................................................. 91
6. Forecasting the next important market turn – Time, direction & polarity ................. 93
6.1 Introducing a new forecasting method based on the Dominant Market
Vibration ................................................................................................................. 93
6.2 Introduction of the Dynamic Cycle Explorer method .............................................. 94
6.3 Using the Cycle Explorer as a quality check for static cycle frameworks .................. 104
6.4 The Cycle Explorer as a visual confirmation tool .................................................... 105
6.5 Building a forecast based on the Dynamic Cycle Explorer ...................................... 106
6.6 A step-by-step guide to building a tradable forecast model / Daily S&P Index ....... 107
6.7 Updating the forecast after the projected turning point / Polarity forecast .............. 117
6.8 Updating the polarity forecast and the next ETA CIT projection ........................... 120
6.9 Review of polarity and ETA and updating the next forecast ................................... 120
6.10 Complete review of all forecasted CIT dates and polarity windows......................... 121
6.11 Combining a semi-static and purely dynamic forecasting model for trading ........... 123
6.12 The combined semi-static and dynamic trading approach in action on the
S&P 500................................................................................................................ 125
6.13 Video Lesson – Dynamic Cycles: S&P500 bar-by-bar review ................................. 142
7. Measuring and trading Dominant Sentiment Cycles ................................................ 143
7.1 The long-term Dynamic Cycle Explorer................................................................. 144
7.2 The short-term Dynamic Cycle Explorer................................................................ 145
7.3 Sentiment Cycles Follow-up progressions ............................................................... 150
8. Cycles within Cycles: Combining price and sentiment cycles ................................... 153
8.1 The Dynamic Cycles Approach .............................................................................. 154
8.2 The dominant carrier wave on the price chart – October 2010............................... 155
8.3 The peak is detected in advance - May 2011 .......................................................... 157
8.4 Following the vibration of the dominant cycle – September 2011 .......................... 158
8.5 Cycles within cycles – Sentiment in September 2011 ............................................. 159
8.6 Current sentiment cycle fits into the long-term wave – October 2011 .................... 162
8.7 Video Lesson .......................................................................................................... 165
9. Dynamic Cycles in Silver and Gold .......................................................................... 167
9.1 Dynamic Cycles Projection: April/May 2011 ......................................................... 168
9.2 Dynamic Cycles Projection: August 2011 ............................................................... 172
9.3 Dynamic Cycles Projection: 2012 and March 2013................................................ 175
9.4 Video Lesson – Silver Cycles Live Calls .................................................................. 180
10. Trading the swing of the dominant cycle – Next level momentum trading ............... 181
10.1 Calculation of the cycle acceleration ....................................................................... 182
10.2 Evaluation criteria for the new Cycle Swing Indicator ............................................ 184
10.3 Super smooth with no lag – The cycle’s acceleration is the leading price
momentum ............................................................................................................ 187
10.4 Adaptive divergence detection on any market: Repeating patterns at cycle tops
and bottoms ........................................................................................................... 199
10.5 Trading the turns of the cycle swing – Staying in vibration with the market ........... 206
10.6 Developing automated trading systems based on the Cycle Swing Indicator ........... 210
10.7 Cycle Swing Indicator parameter and usage ............................................................ 214
11. Multiple Cycle-Frame Trading ................................................................................. 215
11.1 Volume Cycles ....................................................................................................... 215
11.2 Price Range Cycles ................................................................................................. 217
11.3 Time Cycles & Cycle Cluster ................................................................................. 218
12. The CSI and cRSI Combo Trading Technique (Intraday) ........................................ 221
12.1 Day 1: March 21, 2012 .......................................................................................... 222
12.2 Day 2: March 22, 2012 .......................................................................................... 225
12.3 Day 3: March 23, 2012 .......................................................................................... 229
13. Cycles Toolbox and Charting Platform .................................................................... 231
14. Bibliography............................................................................................................. 235
