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Decoding the

Hidden Market Rhythm

Part 2: Metonic Cycles

by Lars von Thienen

A dynamic approach to identify and trade


cycles that influence financial markets

www.whentotrade.com
Decoding the Hidden Market Rhythm – Second Edition
A dynamic approach to identify and trade cycles that influence financial markets
Part 2: Metonic Cycles (Release 2014)
All Rights Reserved.
© Copyright 2010-2014 Lars von Thienen / www.whentotrade.com

All materials of this book, including, without limitation, text, software, scripts,
illustrations and video are copyrighted intellectual property.

Everything presented in this book is considered licensed to you for your personal, non-
commercial home use only. You're not allowed to redistribute or sell the material or
convert it to any other form that people can use. You may not copy, reproduce,
republish, upload, post, transmit or distribute this material in any way or for any other
purpose unless you get the written permission from the author first.

This book is designed to help readers obtain trading education. It discusses ways to trade
the markets using cycle analysis in the decision process. There are no warranties implied.
This book makes no guarantee that that you will make money trading any market.

The past performance of any shown trading system or methodology is not necessarily
indicative of future results. Hypothetical or simulated performance results have certain
inherent limitations. Unlike an actual performance record, simulated results do not
represent actual trading. Also, since the trades have not actually been executed, the
results may have under- or over-compensated for the impact, if any, of certain market
factors, such as lack of liquidity.

Trading involves the risk of loss. Please consider carefully which trading instruments are
appropriate to your financial situation. The risk of loss in trading can be substantial.
However, the ability to assess risk is vital to a trader's survival. Conversely, without risk
there is no profit either.

www.whentotrade.com
This book stands in contradiction to
a quote from the world’s bestselling finance book.

“The past history of stock prices cannot be used to predict the


future in any meaningful way. Technical strategies are
usually amusing but of no real value. A simple policy of
buying and holding will be at least as good as any technical
procedure.”

Professor Burton Malkiel


Proponent of the efficient market hypothesis

“A Random Walk Down Wall Street”


2011, 10th Edition, page 161
Forward: Second Edition – Part 2: Metonic Cycles

This second edition of “Decoding The Hidden Market Rhythm”


comes in three parts with extended content. Part 1 is about
“Dynamic Cycles”, Part 2 about “Metonic Cycles” and Part 3
about “Genetic Algorithm & Cycles”.

The concepts presented can be replicated using the Standalone


WTT Charting Module or the Wave59 Cycles Plug-In.

The original cycles tools were applied prior to the first release in
2010 and they remain the same in this second release. Additional
examples have been added for explanatory and demonstration
purposes. The additional content can also be reviewed in the
video library (“Academy”) on the WhenToTrade Website.

After the initial release in 2010, the standalone WTT Charting


Module was introduced in 2012 and it marked a significant
milestone. It enabled the implementation of cycle analysis
supplementary tools. A new genetic algorithm was implemented
as a precursor to the next dimension of cyclic analysis. Researchers
can now advance cycle research and push the boundaries.

New tools, such as the Genetic Algorithm, is already available


within the WTT Charting Module for our community. The
second part “Metonic Cycles” introduces a non-linear predictive
cycles model.

Lars von Thienen, February 2014


www.whentotrade.com
Contents
Section I - Preface and Basic Assumptions ....................................................... 11
1. Natural Forces ............................................................................................ 13
1.1 Mental warm-up session: W.D. Gann ...................................................... 14
1.2 Basic assumptions Part A: Emotions drive markets ................................... 17
1.3 Basic assumptions Part B: Natural forces drive emotions .......................... 19

Section II – Cycles within Cycles ..................................................................... 25


2. Decoding the Hidden Master Rhythm of the Universe............................... 27
2.1 Earth, Moon, and Sun alignment on 26 June 2010 – Observation date ... 31
2.2 Earth, Moon, and Sun alignment – One tropical month before the
observation date....................................................................................... 33
2.3 Earth, Moon, and Sun alignment – One synodic month before the
observation date....................................................................................... 35
2.4 Earth, Moon, and Sun alignment – One lunar year before the observation
date ......................................................................................................... 37
2.5 Earth, Moon, and Sun alignment – 19 years before the observation date . 39
2.6 The Master Rhythm – The Universal Harmonic Energy Lock ................. 43

3. Building the superposition wave that drives financial markets ................... 49


3.1 Market decomposition and cyclic market cloning .................................... 50
3.2 Example: How to build the superposition wave for the year 2008 ............ 55
3.3 Building the superposition wave for 2008 ................................................ 64

4. Decoding future market turns eight years ahead of time ............................ 69


4.1 Swing trading the superposition wave ...................................................... 71

5. Swing trading the Harmonic Energy Cycles – 1995 - 2010 ........................ 75


5.1 Automated trading system........................................................................ 86
5.2 Adding position sizing according to market risk ....................................... 87
5.3 Swing trading system with market risk-adjusted position size ................... 89
5.4 Hypothetical investment comparison ....................................................... 91
5.5 Robustness test......................................................................................... 92
5.6 System analysis of the Harmonic Energy Cycles model – 1980 – 2010 / 30
years ........................................................................................................ 95
5.7 Performance Figures – Overall Summary Chart ..................................... 101
5.8 Summary ............................................................................................... 101

6. Cycles Model: “Out-of-Sample” Results and Special Findings.................. 103


6.1 Performance figures 2011-2014 ............................................................. 103
6.2 Deep Dive review and special findings for 2007 and 2012 ..................... 106

7. Function to compile a list with all entry/exit signals ................................. 113


8. Years with a similar energy alignment ....................................................... 114

Section III – Recurring Daily Sentiment Patterns........................................... 115


9. Dow Time Travel – “There is nothing new under the Sun” ...................... 117
9.1 Introduction and Technical Analysis Concept........................................ 118
9.2 Trading Hypothesis of Recurring Sentiment Patterns ............................ 119
9.3 Technical Indicator and Trading System Construction .......................... 123
9.4 Mechanical Trading System Performance Review & Equity Curve ........ 128
9.5 Annual Metonic System Profit vs. Annual Dow Index Profit ................. 132
9.6 Statistical Test & System Validation ...................................................... 133
9.7 Review: 2013 out-of-sample results ........................................................ 143
9.8 Summary and Conclusion ...................................................................... 145
9.9 Electronic Supplement - Download Link ............................................... 147
9.10 Addendum ............................................................................................. 148

10. EasyLanguage Code “Dow Time Travel” .................................................. 157


10.1 EasyLanguage Code for the Metonic Sentiment Index Indicator ............ 158
10.2 EasyLanguage Code for the Metonic Trading Strategy ........................... 160
10.3 EasyLanguage Code for the ZLEMA Function ...................................... 163

11. How-To Guide: Build a 8-year ahead looking signal list with Excel.......... 165
Section IV – The Beauty of Cyclic Time......................................................... 183
12. Non-Linear Predictive Indicators ............................................................. 185
12.1 Linear time vs. cyclical time ................................................................... 186
12.2 Combination of linear and cyclic time to build predictive indicators ...... 188
12.3 Pseude code on how to transform indicators from linear to cyclic time .. 191
12.4 How to read predictive non-linear indicator forecast plots ..................... 191
12.5 Build trading systems with cyclic-time based indicators.......................... 194
12.6 Function to build non-linear indicator plots .......................................... 204

Summary and closing notes............................................................................ 205

Section V – Special: Geomagnetic disturbances and the Stock Market ........... 207
13. Decoding and Trading Geomagnetic Ap/Cp Index Data .......................... 209

Addendum ..................................................................................................... 211


14. Cycles Toolbox and Charting Platform .................................................... 212
15. Harmonic Energy Cycles - Detailed annual trade reviews 1995-2010 ...... 214
16. Manual calculation sheet for the superposition wave 2008....................... 231
17. Bibliography ............................................................................................ 235