FLD Trading Strategy

The Concept

The FLD trading strategy is a concept perfected by David Hickson over at Sentient Trader and builds upon Hurst’s original trading application of his cyclic principles, set out most precisely in the cycles course. The FLD trading strategy takes into account the influence of multiple cycles upon price movement, rather than just a single trading cycle espoused by Hurst. This combination of cycles results in a predictable series of interactions with an FLD, most notably the 20 day FLD used in the majority of trades on this site.

Combining Cycles

In the above gallery, image one demonstrates two arbitrary cycles (green and pink), represented by sine waves and combined to give the dark blue ‘M’ shape cycle summation of price movement. This is highly simplified of course and assumes a flat underlying trend (the sum of all other cycles larger than the blue cycle). Combining two cycles gives a series of 4 distinct movements in price from trough to trough.

Combining 3 cyclic representations of sine waves gives a much more familiar price movement in the 3rd gallery image. This results in a series of 8 interactions with the FLD, A through to H. Keen technical analysts will immediately notice the formation of ‘double tops’ and ‘head and shoulder’ patterns within this cycle. This is how they are formed – from the summation of distinct individual cycles in the market. Again, this three cycle combination assumes a flat underlying trend. If the underlying trend is up, the M shaped is skewed to the upside, if it is down the M shape will be skewed downwards. It is interesting to note that adding further cycles to the summation does not result in a different series of interactions, but 3 is the minimum it seems. In addition, these interactions only occur in this sequence when the cycle at least one degree higher than the trading FLD is at a harmonic ratio of 2:1 in the nominal model. So, trading using the 20 day FLD is fine because the cycle one degree higher is the 40 day and the cycle one degree higher than that is the 80 day.

Lets look in detail at the sequence and their individual attributes as they have different qualities and trading approaches. In each category I will give two visual examples, one using the 20 day FLD from the daily chart and one using the 15 minute FLD from the 1 minute intraday chart.

‘A’ Category

An A category interaction is a long trade that is the first cross of the FLD after the trough of your trading cycle. (80 day for 20 day FLD). It is often powerful and will usually exceed the target created at the point of crossing. It is a hard trade to get into as there can be some ‘false starts’ if the cyclic pressure is still hard down.

  • Use smaller cycle VTLs to get in earlier on this crucial trade.
  • Be patient. Sometimes a strong ‘G’ interaction can provide a false start. Use the cyclic tools to confirm the trough.

B Category

A B category interactions is a short trade only when the underlying trend is strongly down. Otherwise it is not traded at all and is expected only to bounce off or reach toward the FLD. In some cases it will track along the FLD before moving upwards away in the ‘C’ category interaction. If the trade is taken you should be expecting a straddled trough in a strong downtrend.

  • B category interactions will be subtle in strong uptrends.
  • They usually coincide with the trough of the first 20 day cycle of the 80 day cycle or the first 15 minute trough of the hourly cycle, using our two examples.

C Category

A C category interaction is a long trade when price moves upwards and away from the FLD, following the B category interaction.

  • Entry can be made on a cross of a smaller FLD, VTL or previous price peak. Underlying trend must be considered when calculating a target as the trading cycle is approaching its mid point.

D Category

A D category interaction is a short trade that occurs just before the midpoint of the trading cycle. It will lead into the 40 day trough in the 80 day cycle and the 30 minute trough of the hourly cycle, using our examples. Depending on the underlying trend it can be a good trade to take. It will, usually, at least meet its cyclic target on a crossing. If it does not, the trend is strongly bullish.

  • Often the D category interaction will form a ‘double bottom’, one sign of this particular type.
  • Price will move out of the D category trough quickly in an uptrend so be ready to exit. In a downtrend consider holding if you expect the subsequent E category interaction to be weak.

E Category

F Category

G Category

H Category

Notes

  • The 15 minute FLD is valid harmonically because the cycle one degree higher is the 30 minute cycle and one degree higher than that is the 1 hour cycle. However, there is plenty of noise at this level so be careful.
  • A single FLD is simple to setup in most trading packages. Use a simple moving average set to median with a period of 1. Set the horizontal shift of the moving average to half the current average wavelength of your trading cycle. So, for example, if the current average wavelength of the hourly cycle is calculated at 56 minutes via your phasing analysis, your MA horizontal shift will be 28. Of course if the cycle average you calculated starts to change you must adjust the horizontal shift.
  • The dedicated Hurst trading software ‘Sentient Trader‘ does all the donkey work for you in terms of cyclic tools and creates multiple FLDs in real time. I use it everyday in addition to my live trading package.

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