Analysis and Trading based on Envelopes, Waves, Cycles

- Channels and Cycles -Brian Millard - Chapter 7 - 1999

In order to isolate the 52-week cycle we can use a smoothed 21-weekaverage, knowing that this will remove the 21-week cycle and the random data. Now that we know the process we place the channel boundaries as exact duplicates above and below the original position of this average we can leave it out of the plot, Figure 7.20.


This channel is super-imposed on the channel drawn in Figure 7.19. The boundary positions have been adjusted so that the main peaks and troughs in the inner channel just touch the outer boundaries.

The depth of this second channel is just over $18. Since the channel rep-resents the 52—week cycle, this means that the channel contains all fluctuations of wavelength of less than 52 weeks, i.e. wavelengths of 21-weeks or less, and they have a combined magnitude of $18.

Since we have established that the random movement is just over $8 in magnitude, this leaves a difference of $10, which is our estimate of the magnitude of the 21-week cycle. We know the latter in the original data to have been $10, so this estimate is excellent.

Although we could draw a third, outer channel by selecting a smoothed average with a span greater than 52 weeks, it is hardly necessary in this case because the outer channel will be running horizontally.

The upper boundary would be drawn to touch the 2 peaks in the second channel just drawn, while the lower boundary is drawn to touch the troughs in this channel.

The depth of such a channel is the vertical distance from peak to a trough in the second channel. This is approximately $26, and is due to all the cycles and random behavior present.

From the way the test data was created in the first place, this total should include :

- $10 for the magnitude of the 52 week cycle,
- $10 for the magnitude of the 21 week cycle
- and $8 for the magnitude of the random behavior,

i. e. a total of $28 in all.

Thus our estimate of $26 is quite good. By difference between the 2 channel depths, we estimate the magnitude of the 52 week cycle as being $26 - $18 = $8.

The reason for the estimate of this magnitude being slightly low is be-ause of the overall effect of the application of averages in reducing the magnitude of the cycles which the average lets through.

We saw this effect in Figure 7.15.

VERIZON - Daily

Notice how the 1536 ( 6 Year) Centered Moving Average (in yellow) shows you the 6 Year Trend (even witha 768 Days Lag ! )

Notice how you can use this 1536 Centred Moving Average as a Template to build the Envelope

JOHNSON & JOHNSON - Daily

Now, had I been using the full layout, I probably would have taken a small short just prior to NFP after looking at the Daily and 4 hour.......pretty clear we were at a junction and perhaps overbought... and usually 2 days prior NFP cable will buy the rumor and upon announcement sell the news....

Swede This way you dhow to yourself and to the others the interest and the necessity to practice post mortem analysis.

You are on the right track

ps...would you not have liked to take the trade at 3750 for the swing...nice and clear turning point

Hi MoenYzz......this is the situation with MT4 that you need to be aware of.

First, Parisboy uses Tradingview charting, and has his own settings and templates exclusive to the platform he uses, so no point asking for those settings from him since he is not familiar with that aspect of mt4 or how we duplicate his settings.

That being said, a moving average is a moving average, and an envelopes amplitude is the same from on platform to another with only minor exceptions and we can duplicate all of his settings in mt4 as his Tradingview platform.

You can make up all the envelopes using the envelopes that come with mt4. The problem is very time consuming, takes a ton of adjustments only to have to repeat the process another 2 envelopes, and then another complete downloading for all your additional time frames, daily, 4 hour, 1 hour, 15 min, 5 min, 1 min. etc.

And that precisely is the reason so many just give up....most have a hard time with moving averages, let along Centered moving averages and envelopes etc, etc. and we know from experience many are not prepared to do any real work in their analyzing price charts so they discount it as of no consequence. Too Bad for them.

But then along comes a great mt4 coder by the name of Sohocool who took all the work out of the process and all you have to do is make one setting per price time frame by using the indicator I have listed below. That is the number one thing that needs to be downloaded for certain......he has a couple other variants, but this one has the color and is one of the latest.

1. Remember, envelopes are only zones of interest, they do not have to be precise, rather when price enters the zone, lets say over/under the 256 on the 1 hour ( like the chart posted above), its time to get down to your trading chart to watch price action etc. for potential entries.

2. Every instrument has a different setting, for example, the average daily range for Euro over 20 days is about 65, Gbp 80, Gbp/JPY 105, NZD 67, Cad 86...so it stands to reason the setting of the envelopes will differ, one currency from another.

All you really need to do is use the indicator on this page and use settings that make sense. For example, the 1 min GBP setting I use is 175, on the 1 hour I use 1250, and once you plug those number in you can adjust to where you like the way the envelopes contain price in most cases. Of course news like NFP or Brexit or things of that nature can skew the settings, but that is up to you to adjust going forward.

Anyway, try that, and if you have questions please let us know.....happy trading Mate!

Just.. wow.

Boy, did I know jack about moving averages : ))) !

Simply amazing. Thanks Parisboy for taking the time and posting those very valuable information from the book. It was just awesome for me to read and re-read them, which is what I've been doing for the last 5 hours. Shifting, alignment? Who would've thought... damn. Looking forward to more of course.

Swede, thank you for explaining it to me. 'Cuz I did download the template and the indicator, but I was like what?! How should I know what parameters I need to use.
And reading the stuff Parisboy posted put them all in perspective.

As for the persistent MT4/TradingView controversy lol, I like TradingView 'cuz it's very smooth, but of course we need to switch back and forth to our trading workspace, which is difficult for us 'cuz of brokers and all. Let alone the need to purchase a membership for more than 3 indicators.

Now I think it's time I go experiment with envelopes and those moving averages and see what kinda opportunities I could've had.

Thanks guys! Really appreciate all your help. All the best.

Mt4 is as good a platform as any out there and it’s free. I have worked successfully with it for at least 15 years after I dumped a few others like ensign. Now that we have some excellent indicators it gives exactly the same info as Tradingview...did I mention it’s free. Lolol

Parisboy & Swede
Fantastic set of posts
Giving just a simple like does not do them justice
Thank you:

Thans to both of you Swede and MoeinYzz for your postings and explanaions.

I will add my 2 cents on computers, EA and how to determine the "settings " of an Envlloppe.

Let's begin by the most cherished pair of Swede GBPUSD 1 mn

Chart here is the default screen chart given by TradingView

GBPUSD 1 mn Price Range = 1,35380 - 1, 35230 = 0,00150

We calculate the Octave (Gann) : 0,00150 / 8 = 0,0001875

Let's use this parameter to buil the Envelope 32

Centered Moving Average 32 - offsetted 16 Time Units back + /- 0,0001875


You get this Chart . Not bad isn't it ?

I asked to my programmer friend to try to write an indicator based on Hurst MA.
It plots projection line of each MA and calculate TP Long or Short for breakout... this is a beta version

I'm studing: jm hurst Trading Five

To build the Envelope 128 you just DOUBLE the Envelope 32 parameter

Envelope 128 parameter = 2 x 0,0001875

To build the Envelope 256 , you repeat the process you DOUBLE the Envelope 128 parameter

Envelope 256 parameter = 2 x 0,000375 = 0,00075

You get this chart

Not terrible . What to do to solve the problem and get an operative chart ?

Yuo DOUBLE again the parameters

You get this chart which is much more operative for this Timeframe and this screen.

Let's remember that this screen shows you the maximum data possible in 1 mn using TradingView

If the previous chart is not to your taste , you DOUBLE again the parameters

You get this chart which is also operative

Note that both operative charts gives you the same informations relatively to the Trend(s)

excellent Helioss ! I have many ideas about what to program about Hurst

Peter Amaral of TradingFive was my initiator about the use of Centered Moving Averages

in short we have determined that 0,0001875 is the DNA of GBPUSD

ALL Charts were built on this initial parameter

But what about others Time Units

Let's try with a GBPUSD 5 mn Chart

Keeping the 1 mn parameters I could live with this 5 mn Chart

For this GBPUSD 15 mn Chart I will DOUBLE the parametrs again

For this GBPUSD 30 mn Chart you can keep the prevvious parameters or DOUBLE the parametrs again - your taste

Do you get the general idea ?

For this GBPUSD 1 Hour Chart IMHO you can keep the prevvious parameters no need to DOUBLE them