When determining the length of a cycle, it suffices for us to measure the time from one crest of the wave to the next, or from one bottom of the wave to the next. A perfect model would feature a uniform distance between high points and between low points. In the currency market, however, it is extremely rare to find such a regular pattern, even though the lengths of cycles are very similar. Hence, we actually use the average distance to determine the length of a market cycle.
The length of a cycle can be simply calculated as follows:
- We first spot out a few evident bottom points with comparable time periods on the chart and measure their length.
- Secondly, we work out the average time of the periods.
- Finally, to determine whether we have obtained a valid average number, we check to make sure that the maximum difference between the average period and the shortest and longest period is 15% or below. If it is confirmed as a valid average number, we can use it to forecast when the subsequent bottom period of the market cycle will occur.
The same process can be repeated to calculate the high points of a market cycle.