Stan Ehrlich’s highly informative lecture at the TAG 21 conference, held in Las Vegas, was entitled “Simple Cyclical Analysis.“

Ehrlich began his career as a runner on the floor of the Chicago Mercantile Exchange in 1971.

Following are some highlights of Ehrlich’s presentation:

  • The use of cycles can help a trader anticipate when a market turn may be likely to develop. The monitoring of technical studies, especially at those potential cyclic turning time periods, should help warn the trader that a turn is imminent, or in the process of occurring.
  • Market tops and bottoms often occur when the average trader may be caught up in the emotional fundamental developments of the moment. That’s why it’s so hard to pick tops and bottoms, because fundamentals are most bullish at tops and most bearish at market bottoms. This is why “contrary opinion” trading works well.
  • Cycle analysis helps the trader better anticipate market tops and bottoms.
  • When the general public catches wind of a strong-trending market and starts to trade it, that is many times when the top is achieved in the market.
  • When analyzing a market, look at the longer-term charts and cycles for a bigger market perspective. Then work into shorter-term charts and cycles.
  • Ehrlich showed the group his Ehrlich Cycle Finder. This is a neat little gadget that, when put over a chart, allows even a beginner to locate a cycle on a chart.
  • Options traders find cyclical analysis especially useful when trying to identify market tops or bottoms.
  • Ehrlich’s favorite one-day turning signal is the key reversal pattern. A bullish key reversal is defined as a day when the low is lower than the previous day’s low, and the high is higher than the previous day’s high-and the close is higher than the previous close. A bearish key reversal would be when the market closes below the previous close. He said he generally believes that if the high and low exceed the previous day’s high and low by very small amounts, then the signal will be less powerful. High volume increases the validity of the signal, while low volume makes the signal suspect.