Points from left to right:
A – First Cycle Top; B – Second Cycle Top; C – Third Cycle Top; D – Fourth Cycle Top
The illustration shows a grey static cycle. The variation dynamic in the cycle is represented by the red one with the length parameter that morphs slightly over time.
This first effect is called contraction and extraction of cycles, or the “cycle breath.” Cycles are detected from the available data on the left side of the chart.
The first two highs (points A and B) from left to right show an acceptable fit between both cycles (red dynamic, grey static). However, the red dynamic cycle has a greater parameter length. The past data reveals that this is not significant, and there is a good fit for the theoretical static and the dynamic cycle at the first two cycle tops. Unfortunately, the future projection area on the right side of the chart where real world trading takes place reflects an increasing deviation between the static and dynamic cycle.
The difference between the static and dynamic cycle at points C and D, the third and fourth top, is now relatively high. Following only the theoretical static cycle will not provide information concerning the next anticipated turning points.