The basic theory behind the projected use of this indicator is simple: extract the cyclic component of price using the Cybercycle, measure the period of the cycle, and when the Cybercycle crosses its zeroline it can be anticipated that in one quarter period's time the turn will occur. This anticipated turning point is indicated when the white sawtooth line (the time elapsed since the last Cybercycle zeroline cross) reaches the three horizontal green lines (2 days before, 1 day before and the actual "turn" day counted out from the last Cybercycle zeroline cross). The white sawtooth is reset to zero each time a Cybercycle zeroline cross occurs (shown by the red lines). This indicator has been optimised using MC techniques to account for the lead/lag at different periods of the Cybercycle compared to the original input price series.
This new indicator, combined with the previously described Tukey Chart, will provide decision making input to the final system. Projected uses might be something like:
- if a Cybercycle zeroline cross occurs whilst prices are within the Tukey upper and lower contol limits, can anticipate a short term market turn in 1/4 period's time
- if prices reach either Tukey control limit at the same time the sawtooth reaches the green lines, a signal is given to take profits, take a new position etc.