J.M. Hurst's Valid Trendlines (VTLs) | Christopher Grafton

Valid Trendlines (VTLs) are unique to Hurst cycle analysis. They pertain to specific cycles and indicate where and when the next longer cycle in the nominal model has formed either a peak or a trough in the past. By extension, they can also be used to estimate future peak and trough locations.

For an up-sloping VTL, we simply plot a straight line joining two adjacent troughs of a particular cycle and project it forward in time. For a down-sloping VTL, it is a straight line joining two adjacent peaks of a particular cycle, again projected forward in time.

 

EURUSD (daily candles - September to October 2022). 

The up-sloping 10-day VTL was crossed down by price on 20 September X(1), indicating that the last peak on 12 September was that of the 20-day cycle. Looking at this cycle's representative semicircle, you can see that the peak is strongly pulled to the left of the semicircle. This is called peak left translation, which tells us that the underlying trend is down—this will be covered in a later section.

The down-sloping 10-day VTL was crossed up by price on 3 October X(2), indicating that the last trough on 28 September was that of the 20-day cycle. (Note: the labels next to the VTLs (8.6 day) refer to the average wavelength of the nominal 10-day cycle. This value is also shown in the bottom left corner of the chart in the 10-day cycle diamonds row.)

 Gold (weekly bars – March 2021 to February 2023).

In the longer-range weekly Gold chart above, both the 18-month cycle and the 20-week cycle VTLs have been plotted. In the week of 16 May 2022 X(1), price crossed down through the 18-month VTL. This means that the last peak was that of not only the 18-month cycle but also the 54-month cycle. One could argue that the signal is rather late, but VTLs are not the only way we place peaks and troughs and establish their magnitude—more on other methods later. Additionally, it is valuable to know the size of that big peak because it tells us a lot about the underlying trend.

The gently up-sloping 20-week VTL was crossed down by price in the week of 11 July X(2). This tells us that the 20 June peak was that of the 40-week cycle. Notice how strongly pulled to the left this peak is, another example of peak left translation and an indication that the underlying trend is strongly down at this point.

Finally, in the week of 10 October, near the right edge of the chart, we can see that price rose up to the down-sloping 20-week VTL but failed to penetrate X(3). Thus, we still cannot say for certain that the most recent price low is that of the 40-week cycle by just using VTLs.

 

Summary: VTLs are trendlines associated with specific cycles. If price crosses down through an up-sloping VTL, we can say that the peak of the next longer cycle is in. If price crosses up through a down-sloping VTL, we can say that the trough of the next longer cycle is in.

Reference:
Christopher Grafton (October17, 2022) - VTLs.

See also:
Christopher Grafton (2011) - Mastering Hurst Cycle Analysis.