A very common question that I have been asked by the many people involved in beta testing THT has been “what will happen when beta testing closes?”
Well, that time has arrived, and here are the answers to those questions.
First of all, by “closing beta testing”, all that is effectively happening is that newcomers to THT will not join the beta testing group. Newcomers will be working with THT as users of the software, and not as beta testers.
I have in fact closed beta testing before – in August of 2009, when we reached 50 beta testers, and I thought that was as many as I could handle, but as the error reports started to diminish I opened the beta testing group again.
And so what is different now? The difference now is that THT is moving into a new stage of development. I am calling this new stage supported development.
Beta testing (of new and existing features) will in fact continue, but in a slightly different way: it will be more structured. No more random “testing” of THT by simply using it. Tasks are being defined, and beta testers will be required to choose a task to work on. These tasks will not be onerous in any way, but will provide for a much more thorough testing process. Beta testers will be required to report on the progress of their testing. Many of our beta testers have been doing this anyway, and so it might not be a big change for them.
Supported Development
The Hurst Trader started as a small personal project of mine. I wanted to create software that I could use for my own trading. The project has grown tremendously over the last 9 months, since I started beta testing with the 11 people who had stumbled across this blog. There are now 300 people who have “signed up” as beta testers, and that number is growing at an accelerating pace.
The sheer volume of questions and support requests has grown to a level where I have little time left to develop new features in the software. And developing THT further is something that I am very committed to doing.
And so I have had to make some decisions about the future of THT. These are some of the approaches I considered:
Should I say thank you to everyone involved and withdraw THT from the public, and use it to trade myself? I admit this is a tempting option. It is ironic that working on THT has taken up so much of my time that I spend very little time trading nowadays! But I have decided not to do this because I am very grateful to the many people who have helped to develop THT and would like to continue this journey with them.
Should I close Beta Testing and allow all existing beta testers to use the software for free forever? I did seriously consider this option. But there are two reasons why this is not what I will be doing. Firstly because there are many people who have not yet discovered THT, and the developing community has been one of the most rewarding aspects of this project for me. I don’t want to “close the doors” on the rest of that community. The second reason is because I want to keep developing THT. I have big plans for THT, including intraday analysis, a realtime version, and incorporating a broader and more advanced cyclic analysis.
Should I “bring THT to market” and start selling it as a commercial software application? This was perhaps the most obvious option, and it is my intention to do this eventually, but it seems premature to do it now, when I have so many new features that I still want to work into the software.
And so I convinced my partners in Fortuna Software to delay “bringing THT to market”, and to rather start a period of supported development. Development will continue, and it will be supported by the contributions of THT users.
I have seen very clear evidence (emailed to me privately by many beta testers) that THT can be used to enhance trading profits. And so it is time that this project becomes self-sustaining.
The further development of THT will be supported by the purchasing of 3-month licenses. All newcomers to our user group will need to do this after the 30-day free trial expires, and existing users will transition to this new phase now.
It is my sincere hope that this transition goes well, and that a very contented group of beta testers who have been using the software for free will become a very contented group of users who know that they are getting more benefit from the software than they are contributing towards its development.
I keep telling myself that I should stick to the software side of things, and let those with more market analysis experience actually do the analysis! But I am seeing such overwhelming evidence that the US stock market is about to turn down, that I cannot keep quiet about it.
I have sent emails to all those friends and family who trade or invest, but I have been greeted mostly as some sort of a lunatic (poor old David, he’s been staring at those charts of his for too long …), so I thought I’d express myself here, where I might be considered a lunatic, but at least most of you have been polite about it (and perhaps share some of the lunacy)!
Here is an analysis of the S&P 500 index, performed by THT using the commonality model, which I have been keeping my eye on recently, mostly to see how the commonality model is shaping up. Using the new ability of THT to show multiple cycle FLD Pattern Projection boxes, I am here showing the projection boxes of both the 40-day and 80-day cycles.
The commonality model analysis (which is not influenced by my input in any way) reflects a similar long term picture as that described by Silent One in this post, indicating that the most recent trough of the nominal 54-month cycle was in August of 2007, and the most recent trough of the nominal 9-year cycle was in 2002/3. That means that this potential peak of the current 18-month cycle is an interesting one, because it is the peak of the central 18-month cycle in the 54-month cycle which forms the downward slope of the 9-year cycle. And that is like standing on a precipice, more extreme than anything we’ve seen for at least 9 years, possibly even 18 years, or more …
I am also intrigued by how Cyclic Theory fits in with Elliott Wave Theory (EWT proposes a fractal price movement which consists of 8 waves, 5 in an “impulse” and 3 in a “correction” – a composite of 3 cycles with a 2:1 harmonic ratio would also give 8 waves). I believe our current position is similar to being at the end of a wave 2 upward correction in a bearish impulse wave. Coming next would be wave 3 down, notorious for being the most dramatic and powerful of all 5 waves.
Of course I realise the irony of my position. If THT’s analysis turns out to be correct, that would be a triumph for THT, but a disaster for us all because of the economic decline that this analysis implies. On the other hand, if this analysis is wrong, then that would be a failure for THT, but good news for us all economically!
I would love to hear what others think about this. Rather than leave a comment hear, reply to the post on the Hurst Trader Forum.
I have written before about the “grand plan” for the screensaver, and I’m pleased to announce that the final manifestation of the screensaver has now arrived.
What does the screensaver do?
Apart from the obvious: the screensaver uses your computer’s processing power when you are not using it, in order to:
How to use the screensaver
The best way of explaining is by example, and so here is an example of using the screensaver, using the S&P 500. I am going to try to make this as easy to read as possible, so I am going to use many pictures, instead of long dense explanations!
If your screensaver is processing some other data, and you want it to move straight on to this new data, simply click on:
Note that you can assign many charts to the screensaver. It will queue them.
Importing the trade histories
Now the fun begins. THT has been working as your trading research assistant, and has some interesting information about which cycles would have been best to trade over the time period that you specified as the analysis period (less the first 400 bars…)
There are two side-points worth noting here:
Note that you can import many trade histories, and THT will handle them all in the same chart, but in order to trade more than one cycle you will have to create a new chart for each cycle.
The Trading Reports
So how would we have performed, trading the 40-day and 40-week cycles?
First of all, a disclaimer: Please bear in mind that I am presenting hypothetical results here. I am not making any representation that your trading account would have experienced the same profit or loss. Also remember that past performance of a trading method is no guarantee of future performance.
And so, let me rephrase that : Hypothetically, how would THT have performed?
There is a lot of information there, which I will explain in webinars, tutorials, and on this forum in the fullness of time, but for now, a few points of interest:
The blue line is the actual equity for every day. The thin red line is the maximum intraday drawdown, and the thin green line is the maximum intraday gain.
Well that wraps up the use of the screensaver in THT. Two parting comments:
I have realised that many people are reading this “development blog” about The Hurst Trader, instead of connecting to our Hurst Trader Forum, and so I am going to be doing some dual posting between the two, for the benefit of those who don’t go for the whole forum thing!
The Hurst Trader has an extensive “trading module” built into it (see Webinar #10 in which I introduce the way in which THT does its trading).
However I am pleased to announce a brand new feature within THT, which is a “manual trading” capability.
This allows you to:
This functionality is going to take me a few posts to explain in detail, so watch this space …
Those who are testing the ALPHA version of THT will have the functionality available in version 1.2.0.0 (available 5 December 2009).
Those who are working with the BETA version of THT can expect to have this functionality as soon as the bugs are worked out of the system (probably by about the 16th of December 2009).
Software requirements
I have been working on The Hurst Trader for a long time now, but I believe it is necessary to express the requirements or guidelines that have provided me with some direction. Here they are:
The Hurst Trader is trading software that should achieve these goals:
For more information about the background to this project, and its development please explore the blog.
Current Status
Reading through a blog can be tedious, to say the least, and so I’ll make this simple: the software is currently being tested (Beta testing) by a group of enthusiastic testers in 9 countries around the world. If you’d like to be one of them, please enter your information on the Home page.
To catch up with the detailed progress, read the latest posts in the category: Project Progress.
I’m an apalling blogger, I admit that. Having received several encouraging emails from people interested in Hurst’s theories, I realised that I haven’t posted anything here for a while. In fact I have been working away, burning the midnight oil trying to get the software to really do what I set out to have it do: analyse the market the way Hurst would have done. I’m pleased to say I’ve made some progress. Now I am working on updating the screensaver aspect of the software so that it performs exactly as the main software works. On the way I have encountered many interesting problems, and I’m going to start sharing those on this site, which I guess is what blogging is all about! Today I’m going to write about the whole screensaver idea.
The screensaver
I have been asked why on earth I’m building a screensaver as a part of the software package. The reason is very simple. At the moment when loading data and creating a chart for the first time the software takes about 4 minutes to perform the phasing analysis on a chart with 15 years of history (on my computer, which is fairly fast, but not a super-computer by any means). Then every day it updates the analysis, a process that takes about 30 seconds. Twice in every trading cycle (and I am mostly looking at the 20 and 40 day cycles at the moment) the software does a complete re-evaluation of its phasing analysis, a 3-4 minute process. It’s all very well stepping the software through its paces every day, and seeing how it performs, but that doesn’t help one to know that in fact the software is “working” – in other words giving good advice about when to buy and when to sell. The only way to do that is to look back at a history of several years worth of the software doing its thing. To generate that history it is necessary to step the software through the data day-by-day, which is a process that really ties up your computer, and isn’t very entertaining. Which is why I am building the screensaver. From the software you allocate a chart you are working on to the screensaver, and then when you take a break the screensaver starts building the history. It’s a process that seems to work fairly well. The screensaver also builds a “trading journal” so that you can go back and see why the software bought and sold when it did. For me this is the key to making the software really work. Of course I can only expect the software to work as well as an expert in Hurst’s theories would work … and although there is some evidence that the theory works, the real test will be the trading history generated by the software, and the ongoing trading the software does.
Backtesting
Backtesting has earned itself a very bad reputation in trading circles, mostly because it is possible to optimize the parameters a system uses so as to perfectly fit the historical data, and produce a fabulous trading history that simply doesn’t work when you use the same parameters on new data. So is there a danger that my screensaver is going to fall prey to this dreaded problem (which has been the downfall of many trading systems – and is related to the problems Rich Swannell encountered with his Refined Elliott Trader because he presented hypothetical results rather than real ones)?
The simple answer is no! But I should explain that. There are two reasons why I don’t think optimized backtesting is going to distort the results generated by the screensaver:
There are two ways in which the screensaver’s results will not match the real performance of the software:
OK, so that’s it – why I’m creating a screensaver. The other thing about it is I think it looks cool! Here is a sample:
It’s been a while since I posted anything to this site – and the reason is not sheer laziness. It is because I had what might be called an epiphany a little over a month ago – one of those “bright lights in the sky” kind of moments, and that’s what I want to write about here – what I’ve called the “hidden secret” of cyclic theory. The other reason it’s been such a long time since my last post is that I’m currently directing So You Think You Can Dance and Strictly Come Dancing (the South African versions) … and those shows take up a lot of time!
So what is this “hidden secret”? Cyclic theory (at least the aspect of cyclic theory that Thinking Trading Software uses, as defined initially by JM Hurst) is based on the idea that stock market price movements are the result of the complex combinations of many different cycles. They differ in amplitude (in other words how much price movement they cause), and also in period (how long between each cycle trough – also called wavelength, or the inverse of frequency). I have mentioned elsewhere on this site that one of the differences between JM Hurst’s theories (and the theory TTS uses) and many modern day practitioners of cyclic theory is that Hurst constantly emphasised the fact that many cycles combine to produce a composite price movement, whereas the modern team generally talk about cycles in isolation from one another – there is much talk of “identifying the dominant cycle”, and then trading on the basis of that cycle only. That’s all very well, but the hidden secret I believe I’ve stumbled upon is all about the ways in which the many cycles combine, and illuminates the reason why tracing only a single cycle can be so disastrous to one’s trading account balance.
Let me start at the beginning, and try to explain. The basic cycle (of which Hurst says there are many, in fact an unlimited, infinite number), looks like your standard sine wave. Above this paragraph (if I’ve got the formatting of this page correct) is a graph showing two complete cycles of such a sine wave. Let’s assume that this wave is a depiction of the 54-month (4 & 1/2 year) cycle, believed by Hurst to be present in the movement of stock market price movement. That means that something (call it “social mood” or “the X factor”) is causing prices to rise and then fall as depicted in this graph – one complete cycle (up then down) in 4 and a half years. That’s all very well – but this doesn’t look much like a graph of a stock market price, and that’s because a stock market price is moved by a combination of many cycles! So let’s start combining them!
Now in this graph (should be above this) I have combined two sine-wave cycles, using Hurst’s Principles of Harmonicity, Synchronicity and Proportionality. What this means is that the waves have periods that are a small integer multiple of each other (in this case 2 – the pink wave has a period that is 2 x the period of the blue wave), and the troughs of the waves, where possible, occur at the same time (synchronicity), and the amplitudes of the waves are proportional to their periods (the pink wave is 2 times the amplitude of the blue wave). The white line is the combination of both these sine waves (using the Principle of Summation, which basically states that you add them up!) Now the point I’m getting to is that a trough in the blue wave (the same 54-month wave depicted above) appears differently to another trough of the same wave, depending on the influence of any longer cycles. So imagine that you were trading this 54 month cycle – you would want to buy at the trough of the cycle, and sell at the peak. If all you did was consider the 54 month cycle, you would have made a very disappointing trade at point A in the graph to the left. Although you have correctly identified that point as being a trough of your trading cycle (the 54-month cycle), the price move up from the trough (as shown by the white line) is very disappointing – it is completely different in scale to the price move up from the trough positioned at the extreme left of the graph. So the point I’m making is that one cannot trade cycles in isolation – one has to consider the cycle in the context of all cycles longer than it.
OK, so I’ve demonstrated that by simply considering the cycle one up (the cycle with the next longest wavelength) from your trading cycle you can avoid some disappointing trades. What happens if you consider more than that? Take a look at the graph above. The blue cycle in this graph represents the nominal 18-year cycle – which is the cycle two up from the 54-month cycle (the 9-year cycle is the only cycle between them). Now look at the white line that is once again the summation of all the cycles considered (in this case every cycle from 20-weeks up to 18-years). I have marked the 54-month troughs with the red arrows A, B & C. Now that we are considering two longer cycles, the effect of the 54-month troughs on the composite price movement (in other words the price movement created by combining all the cycles) are very different. If you’d bought at point A, a 54-month trough, you would have made a pretty profit. Same thing at point B, just with a slightly differently shaped curve on the upward path. Then, emboldened by two successful trades of the 54-month cycle, if you had bought at point C, which is a genuine 54-month trough just like points A & B, you would have been in for a nasty surprise … the price bumps up for a moment (apparently confirming your decision to buy) … but then it plummets. There is of course another 54-month trough that I haven’t labelled, at the extreme left of the chart. Buying at that point would have positively made you think you were a trading genius because of the way the price rocketed up for about 6 years!
Unfortunately the situation is even more complicated than combining two cycles as described above. Hurst mentions in his work that the longest known cycle is probably 18 years (and that was back in the 1970’s), and one might ask why one should need to know about cycles any longer than that … well this is the hidden secret I’ve been trying to get to: I believe one does need to know about the longer cycles, all of them (even if they are all lumped into one imperfect and slow movement – what Hurst calls Sigma L) because, as I hope I’ve demonstrated, the longer cycles have a great impact on the effectiveness of the shorter cycle troughs as buying points.
And so one final chart. In this chart I have combined all cycles from 54-months up to 54-years. I believe there are two alternatives for the cycle one up from the 18 year cycle – a 36-year cycle, or a 54-year cycle. The 36-year cycle has a wavelength 2x as long as the 18-year cycle, and the 54-year cycle has a wavelegth 3x as long. I prefer the idea that the 54 year cycle is in fact the next wave up, because of the symmetry with Hurst’s 18-month to 54-month cycles, and also because 54 years is generally considered to be the length of the Kondratieff cycle. But without actual evidence, I’m unwilling to commit to either, and in any case we need not only consider the 36/54 year cycle, but also all cycles longer than them, so the Sigma L “cycle” will by no means be a perfect sine-wave cycle itself. What I have done in the chart to the left is demonstrated both the 36-year cycle (the blue line, composite price is the pink line), and the 54-year cycle (the green line, composite price is the white line).
I have again labelled all the troughs of the 54-month cycle with red arrows, labelled from A to K, and of course there is another trough at the extreme left (or right, because they are the same trough) of the chart. Take a look at each of those arrows, and I think you will agree that trading the 54 month cycle is not merely a matter of buying every 54-month trough. One has to know what is happening to all the other cycles, in order to know whether a particular 54-month trough is likely to result in an impressive price rise. Consider for example point K – that is a 54-month trough, but I certainly wouldn’t want to buy there (irregardless of whether the longer cycle is 54 years or 36 years).
So here is the “hidden secret” to cyclic theory:
One can only trade profitably using cyclic theory if one is able to identify all of the cycles impacting upon a particular stock’s price movement at any one time. It is a mistake to say that because price is at the trough of any particular cycle, it will necessarily rise to a degree commensurate with the wavelength of that cycle – the impact of a particular cycle is governed by the status of cycles longer than it (what Hurst calls the underlying trend of a cycle).
Choosing one cycle (as the dominant cycle) is therefore no good as a trading strategy. It was this “epiphany” that has had me working hard at having Thinking Trading Software take this idea into account, and be able to identify the shape of the Sigma L (or sum of all longer cycles) “cycle”. I am getting there … slowly. My earlier posts to this site with analyses are, I believe all still valid, but they have a critical missing factor – which is what I guess I could call the Sigma L, or underlying trend factor. Over the near future I’m going to be revisiting all the commentaries and analyses I’ve made using TTS, and re-evaluating them in the light of the software’s new “Sigma L” functionality. I expect that the phasing analyses will not change much, but what will change is the expectation of future price movement. And that after all is what my quest is all about – predicting the direction of future price movement.
The shape of MTN’s price movement looks fairly familiar … like the rest of the SA stock market, it’s been going UP a lot! It reached a peak as recently as May this year. Since then the price has been falling fairly rapidly.
The software is choosing to position the 54-month trough back in August last year, which I think is fairly questionable, however as I have mentioned in other posts, the positioning of the 54-month trough is a tricky business (because it relies on evidence gathered from the 9 year cycle – of which there is very little in the 15 years of data available – about 1 and a 1/2 cycles to be exact). However whether or not the 54-month trough is positioned correctly, there can be little doubt that we are due for a 40-week strong trough as indicated by the inverse gray pyramid to the right of the chart. Notice also the column of question marks positioned on the 3rd of July – the software identifies that day as the expected nest-of-lows, but it is too recent for there to be enough corroborating evidence to firmly declare that as the trough. Price is in the BUY zone (in fact it is pretty late in the buy zone), and the software is forecasting a rise to over 17000. Of course if the positioning of the 54-month trough is incorrect, that will affect the cyclic model the software has built, and will change that forecast to some extent. But the worst that can happen is that the forecast will be lowered and the price will not be as extensive as forecast now. As the price unfolds the software should detect this change, rebuild its cyclic model accordingly, and exit from the trade at a lower price than originally forecast, but likely still at a profit. Time will tell … which is why we’re testing the software in this way!
Looking in more detail at the price movement – the 20 day FLD high is at 12720 1 day ahead (the 17th of July). If price crosses this level, that would confirm that we have seen the trough of the 40-day cycle, which by the Principle of Harmonicity implies the expected nest-of-lows occurred on the 3rd of July.
The buy situation reveals that an entry into a long trade at 12720 would have a Potential:Risk ratio of over 2 (which is acceptable), and a gross% return of over 280%, assuming one purchased margined Single Stock Futures in MTN. The annualized percentage is an exorbitant 1460%.
However, I must emphasize that I present this analysis in the spirit of testing the software – given the reservations expressed earlier about the positioning of the 54-month trough, this trade must be considered too high risk at the moment. As soon as the software’s Cyclic Model Rating feature is complete I will be able to judge the degree of risk, but that will have to wait a week or two.
Please note that this is a discussion of the cyclic analysis performed by Thinking Trading Software. It is NOT a recommendation of a trade. All articles and comments on this website are presented as a discussion of the efficacy of the software to analyze the cyclic movement of stock market prices. I am doing this to create a record of analysis by the software over time. DO NOT consider this to be trading advice or recommendation. I am not qualified to offer trading advice … I merely offer this information as a commentary on the software.
As I build this website I am gradually adding to the glossary, which explains some of the more technical terms. If there’s something that confuses you, that hasn’t made it into the glossary, or if you are interested in this sort of analysis, and would like to discuss it, or would like me to consider a particular share of interest to you, please let me know by adding a comment to this post, or by email: david@sentientcode.com.
Last week I said in an analysis of the ALSI:
I expect that next week I’m going to be standing-by to identify the 20-week trough.
Well, I am standing by – the market has fallen a little more, and yesterday price fell right into the middle of the BUY zone. I’m not going to say “now the market will turn”, because that would be premature, but according to the analysis (shown below) the turn is near … the 20-day FLD high action signal is at 26400, so an extremely aggressive approach would be to go long at that level, however a more balanced and conservative approach would be to wait for the first 10 or 20 day cycle trough after the upcoming 20-week trough before doing anything. The only reason to feel aggressive is that several other shares on the JSE are giving buy signals, so there is a chance that the tide is turning.
Standard Bank’s share price has taken a bit of a hammering since October 2007. Here is an overview of the last 13 or so years:
I have included the software’s phasing along the bottom of the chart – where (if your eyes are particularly sharp!) you might be able to see that the 54-month (4 1/2 year) cycle is identified as having formed troughs in 1998, and 2003. The software is predicting that the next 54-month trough is overdue, so we should be expecting a fairly dramatic turn up. Here is the last 18-month cycle, as phased by the software (which in fact spans about 2 years, thanks to the Principle of Variation):
Notice at the right side of the chart, the inverse pyramid of gray-shaded phasing bubbles. This is how the software presents the fact that a large nest-of-lows is expected. Now see if you can spot the vertical column of question marks on top of the gray pyramid. This indicates that the software thinks that the expected nest-of-lows has already occurred, on the 3rd of July. Why question marks, and not phasing diamonds? Because there is not yet enough evidence that the trough (which is a really big one) has really occurred. However if you look at the chart below, showing the buy and sell zones, you can see that price is already well into the BUY zone, and so it seems highly likely that this share is ready to turn up. The target for the upward movement is around 11500.
Looking in even more detail at the last 2 1/2 months: a break of the 20 day Valid Trend Line would confirm that the recent trough (of 3rd July) is a trough of at least 40 day strength. This is good enough, considering the extended nature of all cycles at this point to confirm that this is the trough of 54-month strength. Note that 54-month troughs are hard to pin-point exactly given the few cycles of one greater degree (the 9 year cycle) present in the available data, and so I am reluctant to be dogmatic about the 54-month strength of this nest-of-lows, however it is at least an 18-month nest-of-lows. The 20 day VTL is passing through 7735 today (1 day after the end of data), and so a potential entry point could be set at 7750, or to be safer one could use the last 10-day cycle peak of 7889, implying a potential entry price of about 7900.
Here is the Potential:Risk evaluation of the situation: you will see that an entry of 7900 gives us an extremely promising PR ratio of over 4, and an expected gross% return of over 40%, which annualized is about 180% – and this is not considering a margined, or single stock future trade. All-in-all the software is indicating that Standard Bank is in a position to turn around.
Please note that this is a discussion of the cyclic analysis performed by Thinking Trading Software on the share price of Standard Bank. It is NOT a recommendation of a trade. All articles and comments on this website are presented as a discussion of the efficacy of the software to analyze the cyclic movement of stock market prices. I am doing this to create a record of analysis by the software over time. DO NOT consider this to be trading advice or recommendation. I am not qualified to offer trading advice … I merely offer this information as a commentary on the software.
As I build this website I am gradually adding to the glossary, which explains some of the more technical terms. If there’s something that confuses you, that hasn’t made it into the glossary, or if you are interested in this sort of analysis, and would like to discuss it, or would like me to consider a particular share of interest to you, please let me know by adding a comment to this post, or by email: david@sentientcode.com.