Cyclical Analysis - How I Made $4k Today (myFXbook verified)

Trading Psychology

With the recent news in Bitcoin lately, all of this fear, people call it FUD but i don’t really like that term. Uncertainty and doubt is something you should never have as a smart trader. You have to embrace the chaos. You wake up expecting risk. This idea that you are only going to take risk when you are certain couldn’t be farther from the truth. Let’s just get this clear, you will never be certain. The day you feel certain is going to be one of your biggest losing trading days.

I thought this price action the last day would be a good opportunity to explain not only how you should be managing your core long trade right now, but to also let it serve as a lesson in the psychology of trading. This lesson is what I call “letting the market take you out of a trade”.
Psychology is critical in trading and investing when you’re taking on risk. What ends up happening is that money creates a lot of emotion for us as humans and the fear of losing money plays right into them. If you’re not aware and careful, those emotions can drive your trading decisions. As traders, we need to remove that emotion from the equation.

I can tell you from experience, the feeling you get when you have a lot of risk on and the fear that is associated with losing money can be absolutely paralyzing. I’m sure many of you have felt the same way at some point with your trading. I remember back when I was trading Treasuries. I’ve been on the bid in the Treasury market for $200 million 10’s, started getting filled, and I’ve had screens go down where I didn’t even know my position. I have had customers who I planned to sell my position to cancel their orders. Other times I’ve been filled on $1 million, $3 million, $5 million lots so quickly that it was just impossible to add up both screens and figure out my position (we actually used a dedicated back-office staffer for this) and then the market starts dropping. When you buy a $50 million or a $100 million dollar position and the market starts dropping on you rapidly or your screen drops, the simplest things like being able to count up your fills and total up your position is hard to do because the fear is just paralyzing. You literally cannot do simple math.

There’s a lot of emotion involved once you get inside a trade like that. It’s no different when we’re trading Bitcoin. I see a lot of emotion come out when we get to big points in the market, which is totally natural. As a trader, you always want to work on yourself and you’re always trying to get better. That’s what I love about trading — it’s a lifelong process on getting better and more disciplined. There are so many things about yourself that you can work on to help you be a better trader.

The easier thing to do when you’re trading is take the “you” out of the equation. This means taking your ego out of the equation. It’s much easier to trade without emotion. One of the ways to do this is removing yourself and then letting a trading model or a process take over. My trading tends to be much more mechanical because I’ve gotten to the point where I use my model and I constantly ask myself things like:

What does my method say?
What’s the chart doing?
What’s the process here?


By doing that over and over, I don’t get emotional about trying to figure out where the market is going. If you often find yourself saying “I think Bitcoin is going to double…” or “I feel like Bitcoin is going to crash this far…” — you are doing way too much thinking using too much emotion. It’s your ego that says those things. When you start building that into your mind and energizing an idea like that with your emotion, you are going to ignore so much of the other market information that’s coming back at you. The ego is going to take over and you will defend a position, an idea that you have emotionally charged, “I know I’m going to be right”, “This has to happen”. When it doesn’t happen, the human brain will actually start to defend these ideas and you will start to block out the other information that’s telling you you’re wrong. As a trader, that’s where I see so many people blow up accounts.

One way to minimize this issue is to constantly be aware and try to monitor your emotions, but it’s easier just to let the ego stuff go, just get rid of it.
You don’t need to work on changing yourself — we all have different personalities — but just leave the ego aside and let the model trade.
We can tie this into deciding when to exit a trade. Your decision could be based on fundamentals, a news story, or something else that happens and changes your mind, leading to you deciding you need to get out. It gets to the point where you will talk yourself out of a position. I call that “you” taking yourself out of the position; the ego is taking you out, not the market.

I have several strategies for getting out of a position. There’s different trailing stop methods you can use, but one of the most powerful is obviously just staying in until the trend breaks. If we want to play something long, we’re going to play that 80%-90% of the time with the current uptrend. Some of you who have been out of Bitcoin for whatever reason you’ve created, that’s the ego. So now you don’t know what to do at the highs because it’s already had a good run. You really shouldn’t be buying right in front of the all-time high resistance.

When I’m trading longer term, my mindset is I have a core piece that I will never sell. For example, back in the 80’s where you bought Apple with the mindset that you would never sell it. You would be glad that was your game plan. Some people, after it doubles or triples, they say “oh that’s it, I gotta get out of everything” and then they lose their position. These markets will tend to run farther than you think. $25,000 is a good price target on Bitcoin but what if it goes crazy and goes to $40,000 first before we have a big correction or a big bear market? Instead, we need to have something happen in the market. The trend needs to break down or there are some sort of metrics that take you out of the trade completely, not just you deciding to exit. The market gets to decide or a trading process gets to decide.

In my trading, I don’t get out of a position until price breaks trend. For me, I can see that on the daily or weekly charts when I’m talking about the longer-term. Simply put, the weekly chart of Bitcoin clearly shows price has been making a series of higher lows and the direction of the 8 period moving average is still rising. You’re not going to get me bearish or completely flat Bitcoin unless price takes out the higher low pivot and takes out the bands, all the way down. I will get heavier with my position at certain points. We recently got more aggressive and have taken some profit into the highs, but I’m not going to get out of my entire position until it breaks trend.

Techniques need to be learned. Some of that also comes from experience. I’ve been there so many times, where I’ve exited a position because I thought the market was done going up or picked some magical point in time and on the chart, that it should stop going up and it just keeps going and going. Those are some of your biggest winners because no one can believe how far the market went. They start shorting it, and then it takes out the shorts and just keeps going and going but you’ve lost your position because you just decided when you were going to get out. A simple thing that you’ve got to start thinking. Let the market take you out. You shouldn’t be ending the trade — the market, something in your process, the price action changes and it does something on the chart — that’s what gets you out. It’s not your decision

Section 3: Position Sizing and Timing

There are many in the industry who have taught traders a far too simplistic approach to entering and exiting positions. I am not sure how or exactly why this style of market play has become so pervasive, but it has. When I am asked about a particular trade or maybe about the direction of a market and it is usually followed up with a need for specific “price targets”. The problem with most traders mentality and their approach to the market is the fact they rely on just one entry and maybe two or three exit points/price targets. This is restrictive and binds the traders optionality, limiting their odds of success.

A new trader tends to plunge all of his or her capital allocated for a particular trade into the market all at once — at one particular price, at one specific moment in time. If you truly think about this concept, it is quite naive.. Trading is hard enough as it is to try and get both direction and time right. Why is it that some traders think they can pinpoint the exact moment in time and an exact price point to commit ALL of their hard earned capital? This limits your odds of success right from the beginning. It is not just the one entry method that restricts your probability of success, it’s this concept of two or three “price targets”.
I trade based on an oversold and overbought method using the cycles to my advantage. Employing a strategy where I do not buy in one lump some at one price but scale in over several entries while adding and reducing my size of positions further compounds my results. I exit positions based on the cycles and time, when a market becomes overbought and oversold, not just based on specific price targets.

Timing is far more important than fundamentals and valuation.

It’s important to understand why I use an approach to trading that values the importance of understanding time and cycles as a prerequisite to learning about price action and any type of trend analysis.

Technical analysis covers price action and trend, but it is in the field of cyclical analysis that we begin to advance into the understanding of space and time.

We view space as the area of price action on the chart — the distance of highs and lows relative to each other. When we begin to understand the aspects of time relative to a markets’ price action, then we begin to discover the keys to market timing. Timing increases one’s probability of picking specific highs and lows within the trend. We also begin to increase the probabilities of recognizing potential trend changes. When diving deeper into timing analysis, it helps to anticipate the beginning and end of a move which naturally leads to higher success rates in trading.

My favorite way to take time into account in a chart is with a Pi Line. Let me begin with an understanding of a few basic concepts surrounding time and cycles and how we use these cyclical approaches in our trading to produce high probable market setups. One of the core concepts is what I call the Pi Line. Pi is the ratio of the circumference of a circle to its diameter and Pi’s mathematical significance is well known throughout many fields. Its origins go back to antiquity.
Pi is represented by the Greek letter “π”, and because its definition relates to the circle, π is found in many formulas in geometry and trigonometry.



Pi appears in other sciences such as number theory and statistics. It is also found in thermodynamics, mechanics and electromagnetism. We can see the numerical significance of Pi in cyclical wave structures. Sine and cosine functions repeat with a period of 2 π. This oscillation and wave form creates a rhythm of time. These are the oscillation and wave formations that we try to identify in our trading. Much like the rhythm of a pendulum, we look to trade around the same rhythms of time on the chart.




This oscillation through time creates a cyclical rhythm and these mathematical constants show that there is an underlying structure and geometry of not just space but also of time.



The price action on a chart is simply energy moving through people in what we call the markets. Everything moves in waves — it’s how energy travels. This is why I built a model around such wave formation cyclical vibration. Pi defines the circle and thus it is the perfect cycle. I originally began to search for ways to incorporate this cyclical and mathematical phenomenon in my trading model. What I discovered next was really very simple but it produces amazing results on the price charts on all time-frames.

I decided to put Pi on the chart. I was looking for a longer moving average to incorporate into our trend analysis and decided why not take Pi, 3.14 x100, and put a 314 simple period moving average on our chart. When I did, I was astonished at the accuracy and the frequency in which price made prominent highs and lows putting in tops and bottoms, oftentimes to the exact level as the moving average line itself. The incredible number of failures and bounces off this line was eye opening. I find it happens regardless of the time frame. I knew in my 15 years of trading and institutional experience talking to some of the largest and most well respected traders, that I had never heard of anyone using such a moving average. It’s fair to say that most traders never even go past the well used 200 period moving average. So, the idea of a self fulfilling prophecy with everyone using the same 314 period moving average was not a contributing factor as to why this was doing such a spectacular job at defining price action. There was clearly more to why this moving average line worked so well. This was proof of an underlying cyclical structure to how energy moves.

In my trading, I do not use any one particular moving average nor do I use simplistic moving average crosses to determine when to buy and sell It is a little more complicated than that. This simple Pi Line concept is evidence that there is a hidden design to markets and under the surface of what seems to be chaotic random events. Underneath the complexity lies repeatable cyclical patterns and the Pi Line concept shows this. Both highs and lows with the Pi Cycle are very common across time-frames and in all markets.

I do not just simply buy and sell when price hits the Pi Line nor do I go bullish or bearish just based off price being above or below this line. This model, to reiterate, is more in depth and the process only begins with the Pi Line. But as an overall good general rule, the Pi Line acts as a great starting point to begin an individual’s trade. Many successful trade setups occur at or near this significant cycle line.

Hello Jason Jenkins.

I flew over your thread-- saw the mathematics.. and asked myself.

When I start with 50k.... trade a year... reach 113800 Euros... but have around 50% Drawdown..
What do I have then?

Yes-
In this case YOU made 28% and not 128% - just for clafification.
The orange curve shows balance, the red/brown curve shows equity at your Myfxbook.

Equiti is the money what we can withdraw.

By the way- for me it looks like you closed the profitable trades and kept the losers (curvefitting).


Good luck with your trading.