Our hope here, at the conclusion of this short course, is that we have impressed upon you that cycles are an important concept, and key to understanding how markets operate. It should also be clear by this point that the phenomenon of cycles is far more complicated than first meets the eye.
Cycles are in no way the “Holy Grail” that will enable an investor to trade any market without losing. As with any form of technical analysis, there’s a large element of probability built into the equation, which means there’s always risk.
Schwager and Moggey believe that cycle analysis is embraced by many for the wrong reason – They’re giving into the temptation to play the hero and pick the highs and lows of the market. The authors conclude:
…the problem is that picking tops and bottoms is a trait of novice (and losing) traders, not winning traders.
As mentioned earlier, the chief difficulty lies in the fact that cycles are not the only forces working to influence market prices, and often, cyclical forces are overpowered by these other factors. Further, cycles are, at best, averages of past experience, and rarely conform to the mathematical model established to represent them. Citing Schwager and Mogey again:
…the rigid application of cycle projections in making trading decisions…is a recipe for disaster.
Cycles then, can be seen as but one of many valuable inputs to the trading decision process, but should never be relied on exclusively.