Hurst cycles, from the start.

01

Who was J.M. Hurst?

James M. Hurst was an American engineer who turned an engineer’s eye on the stock market. In 1970 he published The Profit Magic of Stock Transaction Timing, and later a longer training course on cycles.

His starting point was simple: price does not move at random from moment to moment. Underneath the noise it is shaped by rhythms of different lengths, and those rhythms can be found, measured and used for timing.

02

Price is a sum of waves

Hurst saw price as several waves added together, plus a slow trend and some noise. A short wave rides on a longer one, which rides on a longer one still.

When the waves rise together, price climbs strongly. When they pull against each other, price goes sideways. When they all bottom at once, you get a major low.

03

Hurst’s principles

Hurst summed up what he found in a short set of principles. In plain words:

Commonality

Most markets share similar cycles.

Cyclicality

Price movement contains repeating waves.

Summation

Price is the sum of those waves, plus trend and noise.

Harmonicity

Neighbouring cycles are related by small whole numbers, usually about 2.

Synchronicity

Cycles tend to bottom at the same time.

Proportionality

Longer cycles make bigger moves.

Nominality

A common set of typical lengths can describe most markets.

Variation

Real cycles drift around those typical lengths. They are never exact.

04

The nominal model

To work with cycles, Hurst named a ladder of typical lengths, each about twice the one below it. These are averages, not fixed laws. Hurst’s own principle of variation says the real lengths wander around them.

5 days to 20 days

Short cycles: 5D, 10D, 20D.

40 days to 80 days

Medium cycles: 40D, 80D.

20 to 40 weeks

Longer cycles: 20W, 40W.

18 months and up

18M, 54M, 9 years, 18 years.

05

Troughs and phasing

Hurst worked from the lows. A cycle is measured from trough to trough, and each major low is where several cycles bottom together.

Phasing is the craft of labelling past lows by cycle: this low is a 20-day low, that one is also a 40-day and 80-day low. Once the past is phased, you know which cycles are rising, which are falling and when the next lows are due.

06

The FLD

Hurst’s best-known tool is the Future Line of Demarcation (FLD). Take the midpoint of each bar and shift it forward by half a cycle. You get a line that runs through price like a shadow of the wave.

When price crosses the FLD, the cycle has turned. Hurst found that the move after a crossing often runs about as far again as the move from the cycle’s trough to the crossing. That gives a price target, and the same mirror in time gives a rough date.

When price wiggles back and forth across the FLD, that is a sign of shorter cycles at work. The target still belongs to the cycle’s own trough, not to each little dip.

07

Where Hurst leaves room

Hurst worked with pencil, paper and averages. His nominal lengths had to be typical values, because measuring each market’s real cycles by hand was not practical in 1970.

Today it is. That is where spectral analysis comes in.

Next: what spectral analysis adds.