Tuesday, December 8, 2020

CYCLE - Trend and Volatility

 The term  CYCLE is often wrongly interpreted by many who use the word and hear the word. 

cycle[ sahy-kuhl ]


noun

1. any complete round or series of occurrences that repeats or is repeated.
2. a round of years or a recurring period of time, especially one in which certain events or phenomena repeat themselves in the same order and at the same intervals.
3. any long period of years; age.
4. a bicycle, motorcycle, tricycle, etc.
 
When we refer cycle in economic activities and financial markets, we are looking at (1) and (2).
 
Often and I dare to say that human in general do not have the ability to visualize and understand the details of things said.
 
When someone come up and tell us ,.. WE ARE in DOWN CYCLE ...
 
A) Does that mean it is down all the way directional without any sort of ups till the bottom? or 
 
B) There will be sporadic ups in the down direction until the bottom is attained?      
 
Majority will think of (A) but in actual fact (B) is the truth.
 
The worst part is during (B) the process of anti-reaction can be so confusing and convincing that we are not in a down cycle but and up cycle!!!
 
In a business economic activities, the sudden surge in spending can be either stimulus or maybe consumers decided to spent after holding back or maybe there are other incentives to encourage spending.
 
In a financial markets such rise during a down trend can be attributed to short covering or even the decision to re-balance portfolio and sometime the rise is unimaginable.
 
Sometime it takes a long time for the cycle to complete and with intermittent contradictory reactions that catches everyone by surprise. 
 
Yes, cycle exist. Cycle is a dynamic state and it is not a static ONE phase. Cycle is a combination of both actions and reactions state. It is about oscillations.
 
The best example is watching the SEA Tide. When it is high tide, the tide level does not rise like filling a bathtub. The level rises over time with occasional retreat and rising overtime.
 
Market is not about filling the bathtub with water or draining the water away where the water levels go one way UP or one way DOWN. It is about understanding the SEA tide. The ebbs and waves.
 
In my opinion, price Charts trend is the best way to track the trend within a cycle. There will always be opposing force within a cycle.
    

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