Summation is one of the most important principles of Cycle Analysis. It is derived from the assumption that price patterns form as a consequence of the interaction of the various cycles present in the market in question.
The idea here is that all market prices are the result of the sum of the various cycles currently affecting the market. Accepting this assumption, once the analyst has measured all the cycles present, it becomes possible to forecast future price levels by extrapolating the cycles impacting the market and summing them.
Unfortunately, it’s not quite that simple. As mentioned earlier, cycles aren’t the only influences on any given market, and the careful analyst will attempt to take these other factors into account.
Price action is therefore the sum not just of the cycles influencing the market, but other dominant trends, and perhaps even a “noise element.”
The most reasonable position then, is to accept the principle of summation as far as the cycles themselves are concerned but be mindful of those other influencing factors and their weight, relative to the weight of the influence of the cycles themselves. See the figure below for a graphic representation of some of the other possibilities:
