Wave Theory & Cycle Analysis Flashcards
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Read the first 6 Wave Theory & Cycle Analysis flashcards as text
The 'Presidential Cycle' in US stock market analysis refers to:
Answer: The tendency for US equity markets to perform differently across the four years of a presidential term, with year 3 often being the strongest
The Presidential Cycle theory observes that US markets often follow a pattern where the pre-election year (year 3) historically shows the strongest returns as incumbents stimulate the economy.
In Hurst's cycle analysis, the concept of 'summation' states that:
Answer: The price at any point is the sum of all underlying cycles acting simultaneously
Hurst's principle of summation holds that observed price action is the composite result of multiple simultaneous cycles of different wavelengths adding together to create the total price movement.
What is a 'zigzag' correction in Elliott Wave Theory?
Answer: A sharp three-wave (5-3-5) corrective pattern where wave B retraces only 38–79% of wave A
A zigzag is the sharpest corrective pattern, labeled 5-3-5 (five waves in A, three in B, five in C), with B retracing only partially and C typically equaling or exceeding A in length.
The 'four-year cycle' (also called the Kitchin cycle) in markets corresponds to approximately:
Answer: The business inventory cycle of roughly 40–54 months
The Kitchin cycle is an approximately 40–54 month inventory cycle identified by Joseph Kitchin, often observed in equity markets as a recurring pattern in market lows.
In Elliott Wave counting, what is a 'corrective wave' labeled with letters instead of numbers?
Answer: To differentiate moves counter to the main trend (labeled A, B, C) from impulse moves (labeled 1–5)
Elliott used numbers (1–5) for waves moving in the main trend direction and letters (A, B, C) for countertrend corrective waves, creating a clear visual distinction in wave counts.
What is the significance of 'right translation' in cycle analysis?
Answer: The cycle peak falls in the second half of the cycle duration, implying bullish dominance
Right translation means the cycle peak occurs after the midpoint of its nominal length, indicating that bullish forces dominate and the cycle has more upside time than downside time.