Measuring Cycle Highs

Recently I have posted two articles on cycles, the first providing a brief overview of how they work and the second on how to apply cycles. Cycles are generally drawn across cycle lows and indeed, this normally works well in Forex. However, there are some examples where cycles are best drawn across cycle highs.

An example of this is in the Euro, both against the Dollar and the Japanese Yen. Historically the Euro is an offspring of the group of currencies that formed the Euro-zone and prior to January 1st 1999 the European currencies were priced as currency per Dollar. However, on creation of the Euro the quoting method changed to Dollars per Euro.

Thus, when looking at the historical data series including the synthetic history created by measuring a trade weighted contribution by each previous currency pair, clearly the price highs in the Euro used to be price lows when the individual currencies were quoted as currency per Dollar.

This means that the chart has effectively inverted and as such we need a method of applying cycles to math highs. The cycle drawing tool in Dealbook is designed to measure cycle/price lows. What I have done to overcome this is created an “inverted chart” in Chart Studio as an indicator which can then be inserted into a chart. Since it is impossible to create an indicator that looks like a bar I have had to take the close of each bar only. This is done very simply in Chart Studio thus:

Indicator Inverse_Chart ;
Draw LastPrice(“Close”) ;
Begin
 LastPrice := Close * (-1) ;
end.

Following this select “Build” and select “Verify Module” from the top menu bar
You will be prompted to enter a name for this analysis technique. Write in “Inverse Chart”.
The Select “Build” again and this time you should see this succeed in the output window at the bottom of the studio.

Then select “Build” again but this time choose “Install Module”
The module will be installed into the User Modules.

You will now be able to access Inverted Chart in the charting application via the “set Up Indicators” icon at the top of the chart.

Inverted daily chart for cycles

After applying the indicator to the chart you may find it useful to slip the main bar chart higher so that it occupies only a small area:

This is the daily chart of EURUSD which displays quite solid cycle lows – which actually reflect the price highs in the chart. The next chart is of the weekly chart which also shows the imminent cycle low/price high expected.

Inverted weekly chart with cycles

Good luck.

Written by: gftforex.com