Future Trends from Past Cycles: Identifying share price trends
and turning points through cycle, channel and probability analysis
By Brian J. Millard
Harriman House, 2010
£34.95; 265 pages
1. Cycle analysis: Establishing those cycles that are now stable and adding appropriate cycles in order to estimate the future path of the trend.
2. Channel analysis: Confirming that the trend the cycle sum calculates is supported by channel analysis.
3. Probability analysis: Proving that the trend also is supported by an analysis of the predicted probable price range for a few days into the future.
In this lucid, well written and informative book, the author makes liberal use of charts and company case studies to demonstrate how much easier it is to predict future price movements when all three components are employed together.
The book challenges the widely held view of technical analysis that virtually all securities can be analyzed for future movement. Only a small number, around 10%, have cycles that can be shown to be stable at a given moment and, therefore, seemingly predictable.
Millard details the mechanics of identifying this 10% – estimating the stability of trend positions, drawing probability boundaries for price positions and deducing the core probability of any given price trend.
He zeroes in on various forms of risk at play in the markets, uncovers the hidden mathematics of price movement and shows how to simulate future movements. In addition, he proffers ideas on the best way to read cycles, evaluate mathematical trends, plot moving averages and anticipate turning points.
The book notes that any extrapolation of cycles and channels is prone to error. The use of probability methods will alert the trader to those situations in which probable movement is not in step with oscillations predicted from cycle and channel analysis. Millard says that unless traders take a consistently disciplined approach to trading by remembering to make sure that probability is on their side, failure is the almost certain outcome.
Millard says the title of his book makes no mention of channel analysis, yet such an analysis is an integral part of any informed investment decisions. By focusing on cycles and sums of cycles, the author says he wanted to give the trader a way to choose the best time to place a trade. He writes:
“When considering a title for this book, I started by thinking about what goes through a trader’s mind when contemplating a trade. It is usually: ‘I think the price of this security will rise/fall within n hours/days/weeks/months.’ The thought process of a much smaller number of traders will be: ‘There is a high probability that the price of this security will rise/fall within n hours/days/weeks/months.’”
Readers of Millard’s books are aware of his disciplined, logical and scientific approach to trading stocks and shares. His body of work, including this useful book, will leave readers missing his insights and guidance in these days of turbulent markets.
Patrick Kelly is a freelance writer with a background in commodity market reporting.