Cycles Trading Advantages: Lunar Cycles Trading vs. Momentum Chasing


Cyclic trading is not as risky as momentum chasing either. Momentum chasing requires you to be the last one in the door, in hope that people will follow tomorrow.  Here, you buy during and after the crowd is buying, at risky RSI levels. Momentum chasers search for stocks that have had huge surges in volume, recent good news, and have attracted new investors. 

Among the most popular momentum chasing stocks are the pharmaceuticals which in anticipation of an FDA drug approval might surge the next day. Some momentum chasers have doubled their money in a day, but most have lost huge sums.

A good example of momentum chasing gone bad, was when Dendreon Corp. (DNDN), a small pharmaceutical firm had a promising drug due for a sure FDA approval in 2007. I found the stock on the day before the FDA decision but luckily my senses told me not to buy. Well, all those investors who had been buying the stock 1-2 days before must not have known about the simultaneous Congressional hearings on tightening the FDA approval process. Of course, the next day the FDA decided to put Dendreon's decision on hold until further testing was done. Although the FDA did not reject the drug, DNDN plummeted from about $17 to under $5 in just minutes! Average investors lost huge sums of money instantly and the stock’s price still trades near $5.

In spite of the hope that the FDA would approve Dendreon’s drug, the chart screams "SELL!!" If these investors were cyclic traders, they would have seen the downtrend coming anyway, as illustrated by circled indicators below:



Momentum chasing relies too much on hope, events, and spontaneous action. It can bring rewards but also failed expectations. Chasers often misinterpret news items leading to bad trading decisions. The truth is that news does not determine the direction of a stock, but the cycles do. Cyclic trading relies more on technical analysis and the analysis of cyclical patterns, not a decision, news item, or recent buyer interest. You use the charts to enter at low risk and exit when things start getting risky.  Isn't that the way life works?  You enter into safe situations, and leave upon turmoil.  Now, apply this principle to the markets and you’ll see the big difference.