Jim Hurst method

The originator of this method is fromthe writings of Jim Hurst.

James(Jim) M Hurst is a legend to knowledgeable individuals interested and involvedin the study of cyclical price movement in the financial markets.

By training and background anaerospace engineer, he was the first true pioneer in the computerized researchinto the nature of stock price action, devoting many years and over 20,000computer hours to this study. His conclusions were first documented in hisgroundbreaking classic, The Profit Magic of Stock Transaction Timing.

The work of Hurst inspired cyclesanalysts who came later, and represents the most important factor behind thework later done by such cycles luminaries as peter Eliades, Jim Tillman, WalterBressert, and Brian Millard.

First,let's review some basic cycle terminology.

Jim Hurst published his methods in the bookcalled 'The Profit Magic of Stock Transaction Timing'. Hurst determined that aprice series may have dominated cycles that can be used to time stocktransactions for profit.

How would Hurst Trade:

In short he would:

1) Find the dominant cycle or cycles: Onecan use the basic eyeball method or as we prefer the readtheticker.com 'RTTCycle Finder Spectrum' tool to determine dominating cycles within a priceseries.

2) Find the sub cycle by dividing thedominant cycle in half. (Example: A dominant cycle of 80 would have a sub cycleof 40). Of course, you can use other lower period cycles that have a goodBartels value.

3) Time your stock transaction with turnsof (2) within the trend of (1). See more on the subject under the post titled PI:Priceto continue or reverse?

Note: We use the RTTHurstDPO or theRTTHurstROC to time price action to the dominant cycle.

To use the full set of Hurst tools yourequire a membership to RTTIndicators. Standard indicators have limited HurstCycle functionality.

Please review the 80 period cycle withinthe SPY ETF (image below). The dominance did not really start until mid 2008,then it has led the way of nearly all major market turns. You will need tosearch far and wide to find a better leading (not lagging) stock timingindicator than the Hurst cycle. However, like anything a cycle dominance canfade, dominance can shift, therefore one has to be diligent and monitor a priceseries closely. The chart below is an example why Hurst was successful. Priceand their underlying cycles can be predictable and therefore stock transaction timingis very possible and can be very profitable.

The Hurst cycle we use is a sine wavefiltered by price, the higher the correlation of price to the sine wave theless the sine wave is altered. Thus allowing one to view good and poor periodsof price cycle behavior.

If you find multiple significant cycles,you can plot them together and then combine them to see the master cycle.

Or it might be best to study multiplecycles individually.

Cycles do exist in the market or any timeseries. Just check out these cycles lows found on the Dow Jones.

Once we determine the dominant cycle, ascientific method is required to measure the performance of price relationshipto the cycle. Future price action is always 'unknown', but we can say thatfuture price action will take one of the three forms:
(i) Conform to the cycle.*

(ii) Temporarily trend in an inverse mannerto the cycle. *

(iii) Break the cycle, as to render cycleinfluence as random.

*These periodsare excellent opportunities to profit.

The following chart highlights the twotools we use to measure price action with the dominant cycle, the RTTHurstDPOand the displaced moving average. Hurst expected price to conform to the cycleby the completion of the half cycle, but Hurst understood that price in trendscan temporarily inverse to cycle, this is accepted as long as price reaffirmsits relationship to the cycle by the next swing.

When price action fails to obey the cyclethis is called an inversion. How to judge possible inversions is a technicalart that the Hurst analyst must master.

Methods available are:

1) Apply a displaced simple moving averageto the price, displacement being half of the cycle period. If price fails tobreak the average then the price is likely to inverse to the cycle.

2) Apply the RTT HurstDPO. If the DPO pricebreaks the cycle swing, then the price is likely to inverse to the cycle.

3) Apply the RTT TrendPower tool, todetermine if the strength or weakness of the trend concurs with expected cycleoutcome (note: if the cycle period is 80, then use 40 within the RTTTrendPower indicator).

4) Apply methods from the Wyckoff and Ganntool chest. Gann Angles, Wyckoff market phases and volume patterns willincrease your odds of correctly determining a price inversion to the cycle.

Example:Gann Angles help with the determination of price inversion to the dominantcycle.

Readtheticker.com Cycle FinderSpectrum

We have incorporated the latest advancedmathematics to find within a price series sample:

1) Cycles with significant amplitudes

2) Rank cycles with their 'BartelsSignificance Value'.

3) Determine win loss percentage of cycleprofitability to price.

The 'RTT Cycle Finder Spectrum' is designedto scan for cycles while you are building an analysis or cycle chart. There isno charting functionality within this tool.

The Bartels Significance Value

Developed by Julius Bartels, a geophysicistwho worked at the Carnegie Foundation in Washington in the 1930's. The advancedmath measures the stability of the amplitude and phase of each cycle. Themethod provides a direct measure of the likelihood that a given cycle isgenuine and not random. The closer the cycle Bartels value is to zero, the lesslikelihood the cycle has been influenced by random events, and therefore significantto the data series.

To conclude: The lower the 'Bartelsvalue' the more significant the cycle to the price series sample used.

We color code the report table for easieruse, as follows.
Red < 2.5

Blue < 7.0

Green < 12.0

Any reading over 7.0 requires an eyeballdetermination as to the cycles significance. For readings over 12 the cycle isunlikely to be significant, and more likely to be random. Cycle readings below2.5 are considered to be significant. The 'Bartels value' does change over timefor each cycle period, therefore regular monitoring of the price series tocycle dominance is required.

Examining the profit win loss percentage ofcycles is another tool to use to determine the dominant cycle. This is veryuseful when you have a cluster of low Bartels cycle scores.

Recently we found a dominant cycle withinthe SP500 index, that had a Bartels score of 2.0245, a win/loss countpercentage of 80%, a win/loss SP500 points of 85%. Knowing this cycle I madevery sure we did not invest against it. Whereas the general market participantshad no idea of this dominant cycle and most likely suffered a loss. Further, itis great to have an indicator that is 80% accurate, it is even better when youadd our proprietary RTTTrendStatus and RTTHurstDPO tool to make the percentage chanceof success even higher.

Another point to note is that a Bartelsscan is cumulative over the data sample selected, that is it examines all dataover the cycle period selected. This is not like stock scans for RSI levels orMACD levels which are at a point in time.

Example output from the readtheticker.com'RTT Cycle Finder Spectrum'.

Specification are:

Symbol: SPY

Run to last date (optional): 04/01/2010

Manual cycle period selected (optional): 78

Max cycle periods to scan up to: 150

Daily data sample size used: 750 days

Max daily data sample available: 4325 days.

See why Bartels Significance Values domatter.

This is the methodology used to determinewin loss percentage of cycles related to price time series.

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