Using Bitcoin as an example, I will explain the cycle-based price projection method described by J.M. Hurst. In cycle literature, this method is referred to as price projections using the Forward Line of Demarcation (FLD). [The
FLD is essentially a displaced moving average, acting as a leading
indicator of price interaction with the cycle’s midpoint and as a dynamic support or resistance level.]
Definitions:
Cycle period = time interval between cycle troughs
Cycle period = time interval between cycle troughs
FLD = Forward Line of Demarcation = price shifted by half the cycle period
Cyan line = median of the price bar
TD = trading day
CD = calendar day
Cyan line = median of the price bar
TD = trading day
CD = calendar day
In the Bitcoin example,
the FLD band is constructed by offsetting the median price (High Price + Low Price / 2) by TD = 7 and
TD = 8, which correspond to CD = 9 and CD = 10 for the nominal 20-day cycle, presumed to vary between 19 and 20 CDs.
■ H1 is the vertical distance between the last low before the median price intersects the left FLD band boundary and the intersection point.
■ H2 is the vertical distance between the last low before the median price intersects the right FLD band boundary and the intersection point.
■ The lower level of the target range is determined by adding H1 to the left FLD boundary intersection point. The upper level of the target range is determined by adding H2 to the right FLD boundary intersection point.
The price targets derived from this method are met with an average probability of 0.7 (i.e., 70% of the time), though they may vary by a few percentage points depending on the cycle length and the financial instrument involved. If one allows for the price to approach—rather than fully reach—the target range, the probability of success increases significantly.
In uptrends, upward targets are reached with a higher probability, while downward targets are less likely to be met. Conversely, in downtrends, downward targets are more probable, and upward targets less so. If a target is not reached, it may indicate a pending price reversal due to one or more longer cycles exerting pressure in the opposite direction.
For cycle periods, one may use Hurst’s nominal cycle periods (see table above) or estimated actual cycle periods, if appropriate software is available. In either case, some tolerance (+/-) around the estimated cycle lengths should be considered.
This remarkably powerful method is difficult to surpass by any other I have encountered. It produces projection targets similar to those obtained using converged Centered Moving Averages (CMA) and focal point-based projections—a logical outcome, since all are based on cycles and their inherent properties.
I hope this explanation demystifies price targets. A combination of price and time targets for turning points is a powerful tool—it helps one stay in the trend as long as possible while anticipating both the price and timing of reversals.
In uptrends, upward targets are reached with a higher probability, while downward targets are less likely to be met. Conversely, in downtrends, downward targets are more probable, and upward targets less so. If a target is not reached, it may indicate a pending price reversal due to one or more longer cycles exerting pressure in the opposite direction.
For cycle periods, one may use Hurst’s nominal cycle periods (see table above) or estimated actual cycle periods, if appropriate software is available. In either case, some tolerance (+/-) around the estimated cycle lengths should be considered.
This remarkably powerful method is difficult to surpass by any other I have encountered. It produces projection targets similar to those obtained using converged Centered Moving Averages (CMA) and focal point-based projections—a logical outcome, since all are based on cycles and their inherent properties.
I hope this explanation demystifies price targets. A combination of price and time targets for turning points is a powerful tool—it helps one stay in the trend as long as possible while anticipating both the price and timing of reversals.
See also:
