Choosing what to trade

Attention is the scarce resource

Phasing a chart properly takes time. With hundreds of markets to choose from, the first skill is deciding which few deserve that time today.

The good news is that cycle analysts can be choosy. There is always another chart.

Swings big enough to matter

Compare how far a market swings within a cycle with its price, rather than in raw points. A stock that swings 8% between a cycle low and high is more useful than one that swings 1%, even if both have clear cycles.

Small swings leave no room for trading costs, slippage and a stop placed beyond the cycle’s low. Favour markets whose cycles move enough to pay for the risk.

Rhythm that is actually there

Some markets show clean, regular cycles for long stretches. Others are ragged and random-looking. Before phasing by eye, check whether the cycles are strong enough to stand out from random movement. If they are not, move on.

Where in the cycle

The best opportunities come when the longer cycles are rising and a shorter cycle is due to make its low, or the mirror image for shorts. That combination puts the bigger waves behind you and gives the short cycle the job of timing.

A market where the longer cycles have just peaked is a poor place for longs, however good the short-term picture looks.

Scan, then look

Use a scanner to cut the list down, then look at the survivors properly. Scanning finds candidates; it does not replace phasing.

A five-question filter

1. 1 Is it liquid? Enough volume that you can get in and out near the price you see.
2. 2 Are the swings big enough? The cycle’s swing, as a percentage of price, should comfortably cover costs and a stop.
3. 3 Is the rhythm real? The main cycle should stand out from random movement.
4. 4 Are the bigger cycles on your side? Rising for longs, falling for shorts.
5. 5 Is a turn coming? A shorter cycle’s low (or high) due soon, ideally with several cycles lining up.