Analysis and Trading based on Envelopes, Waves, Cycles

This thread is opened to discuss the pro's and con's of the Envelopes Methodology based on the work of Jim Hurst and Brian Millard

Hurst and Millard used Envelopes based on Centered Moving Averages and fixed width parameters

Gann will help us to determine the right parameters (Law of Vibration)

Comments and questions are welcome

Others related subjects of interest as:

- Forks (Andrews, Tillman)
- Volume (Levine MIDAS Theory)
- Congestion Areas (Wyckoff)
- Envelopes
- Moving Averages
- Speed and Acceleration (Gann Angles)

will be adressed

Good readings

the methodology uses mostly 3 Envelopes based on 3 Centered Moving Averages (sometimes 4 )

256 Time Unit (in brown)
128 Time Unit (ocre)
32 Time Unit in blue

this whatever the time unit expressed in minute, hour, day, week or month

hereunder :

- USDJPY in 24 H / 1 minute
- DAX in 24 H / 1 minute
- EURUSD in 5 D / 5 minutes
- DOW in 24 H / 1 minute

you can use the same methodology End of Day (EOD) on a Mid Term Basis - several years - on stocks - Time Unit = 1 Trading Day

you can use also the methology for longer term charts

the green Envelope is based on a 6 Year Centered Moving Average (1536 Trading Days)

it depends on you needs

If you use Waves in your Trading, you notice that the Envelope System rationalize the classification of the Waves ,

you can classify the Waves by order, degree, nature

you reduce drastically the numbers of questions you have to decide by yourself

Same remarks and results if you use Harmonic Patterns in your Trading

If you use Cycles in your Trading - it helps too

You immediately notice that UP Cycles have their Top on the Right and DOWN Cycles their Top on the Left.

these all indicators are useful but don't they make chart so messy that it hampers us making decision? I like confluence of indicators but I wish to see clean chart as well,can someone suggest few useful indicators and that is all?

messy ?

you just need some practice

if you need to clarify the structure, the best way is first to suppress the PRICE fluctuations

then by suppressing the Envelope 32 Time Unit and / or 126 Time Unit you can reach the clarity you need according your taste

USDJPY in 24 H / 1 minute

DAX in 5 Days / 5 minutes

DAX in 24 H / 1 minute

The key point is that Envelopes are excellent tools both for analysis AND trading

a) use 3 harmonic Envelopes - maximum 4 - because human mind masters spontaneously 3 parameters only

b) whatever time unit you use consider you deal with the same amount of points on your screen

c) consider that price fluctuates around an average and whatever excursion above or under the average tends to return to the average

d) theory said that cycles do not sleep and work around the clock. This explains the "gaps" positive or negative between the previous close and the next open
note that after such "gaps" very often price fluctuates in a narrow range in order to "absorb" the previous up or down move until reintegration of the averages

e) upper and lower limits of Enveloppes are relative things, not absolute

f) the "octave" system allows to very quickly determine the depth of the Envelopes in a very effective and operative way

g) the 32/128/256 time units centered moving averages system is a kind of "nominal" system - average, robust but not bad could say Hurst - available for ALL financial instruments (because it is a collection of points on a screen - that is the commonality)

h) the Envelope system allows you to estimate the maximum of a price move, then to decide to take position or not after calculation of the risk reward

g) you have also to take into account the Underlying Trend (also a relative concept) . The system allows you to visualize the Underlying Trend and to see its variation

h) Envelopes allows you to visualize "Waves" and to classify them as of the same "nature" "order" "degree"

i) The Envelope System allows you to draw Valid Trend Line then to consider Action Signal when broken

j) The Envelope System allows you to consider the 3 Centered Moving Averages and the 6 Envelopes limits as potential Support or Resistance depending on the Price Trend

Up to now we are in a corrective Downtrend - Price is above the (VTL) Valid Trend Line 54° (green)

as soon as this VTL will be significantly broken we could take a Short position

first Target : 13010 (estimated position of the lower limit of the Envelope 128 (ocre)

second Target : 12998 estimated position of the lower limit of the Envelope 256 (brown)

Previous scenario was not bad !

I will wait the break of the Centered Moving Average 256 TU (in brown) before taking a Short position

Long Position

All 3 Envelopes are oriented UP

Stop Loss at the Level of the last Low

Long Position Sold + 27 points slightly above the upper limit of the Envelope 256 TU (brown)

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DOW in 24 H / 1 minute

DOW in 5 Days / 5 minutes

Envelopes parameters are DOUBLED in comparison of those used in 24 H / 1 minute