Composite Line Accuracy


#1

I wanted to post this for the newer members of Hurst Cycle analysis regarding the Composite Line(CL).
The CL should not be looked at in its past history to judge future trends.
In this example with a 30 year bond screen shot from October 26 (EOD), note that the CL is rising from October 17 into October 19 and then falling to October 21. It is then falling from October 24 through October 26 and the rising again.

Now on a screen shot from October 27 note that the rise from October 17 to October 19 is gone making it look as if the CL has be accurate in predicting those events.

My point is this. Do not look at the past events of the CL and think it “written in stone”. As you can see, the CL will retrospectively change to make it look more accurate on occasions than it really is.
From my perspective, I wish it would only change future directions based on market events so that we could fairly judge it.


#2

Dregl3

IMHO - Composite Line “repaints”.

I would prefer when I take a Trading Decision - buying or selling - to be able to “freeze” the Composite Line according to which I have taken my decision and to follow up this one regarding to this composite line.


#3

I like the term “repaints”. It is so much less ominous sounding.
My point remains that when the CL repaints the past it makes the CL, in retrospect, look more accurate than it actually is.
I do not think it should repaint the past events.


#4

Dregl3

“repainting” is a common accusation against the (eventually) prolonged part of the Enveloppes based on Centered Moving Averages I use.

In plain english the forcecasting part calculated AFTER the cut-off point ( one half-period back)

As for the Composite Line (in fact a Curve) I am more interested to see what is its forecasting accuracy.
Therefore as I have taken ACTION at point P , I need to see this Curve frozen to be able to evaluate the accuracy of my trading decision based on the Composite Curve at Time T.


#5

As far as I am concerned the CL is simply a tool to demonstrate the likely path of price according to the phasing analysis you have. It is a useful summary for presenting charts on webinars/twitter etc. Nothing more…

The humble FLD is by far the most powerful tool available to Hurst traders!


#6

Sage wisdom, David.
I was more warning new members that the CL isn’t a short cut to trading.


#7

I totally agree Dregl3, its quite tempting to think it is though…

It will be interesting over the next few years to compare CL projections to actual price movements.


#8

I am a novice of Hursr, but If used in right way, I think CL could be very usefull. We have to not forget that CL is the summation of the selected cycles we are considering in our analysis. Its function, for me, is only to give me a instant visualization about the situation of cycles summation considered


#9

Hi guys, yes indeed the CML should be used with careful understanding of what it is … and what it is not.

It is a line that takes all the cycle information that it has, based on the phasing analysis that is on the chart. It is for this reason that it always looks good in the past, because it is using a (presumably) fairly good analysis. If it doesn’t look good in the past then it indicates some discrepancy between price movement and your analysis.

In terms of the idea that the line “repaints”: yes it does of course because it is always using the current analysis. If anything changes in the analysis then the line must change to reflect that. The concept of repainting is often regarded negatively, but I think that is inappropriate here, because this is not an indicator that is “covering up its mistakes” by repainting and pretending that it was “saying that all along”.

In fact when we were developing the CML we had a lot of debates about whether we should even extend it into the future … because that is where it can become misleading. For a long time we played around with a CML that stopped at the last bar. But that was frustrating, I kept wanting to draw the line into the future!

Perhaps for the record it would be a good idea to explain what I believe the CML is, and isn’t:

  • The CML is simply another way of visualizing your analysis,
    It is really as simple as that. The CML takes the analysis on your chart and calculates the amplitude and wavelength of each cycle, then puts them together again mathematically and shows you visually what the analysis is telling you through all those diamonds and triangles.

  • The CML is not showing you what was forecast in the past.
    This is where the whole idea of repainting causes confusion. The CML is not showing you what its forecast for future price movement would have been in the past! You should never look at the CML and say “wow, what a great forecast that was!” If the CML follows the price very accurately then it tells you that the analysis is a good one: it describes price action accurately. It certainly does not mean that you could have predicted accurately every one of those turns … (you might have, but that is not what the CML is telling you).

  • The CML tells you what to expect if your analysis is correct and if the cycles continue without variation.
    That is a really important point. The line in the future is entirely based upon your analysis (or the analysis on the chart which was probably done by ST!). If there is something wrong in the analysis, such as a trough or peak that is assumed to have occurred, but which hasn’t then the CML will be wrong as well. The other important point here is that the future part of the CML is constructed entirely on the premise that the cycles will continue with the same wavelengths and amplitudes … an assumption which is flawed because we know the Principle of Variation causes constant change.

I hope that this is useful. I am always the first person to say be careful of the CML … make sure that you do not misunderstand it. @dregl3 is absolutely right to warn new users of Sentient Trader. The CML is very seductive, but you must be careful not to misunderstand it. In my opinion the CML is useful for two things:

  • To understand the accuracy of the analysis on the chart.
    If the CML follows price closely then you probably have a good analysis. If the CML is far from price then you have an anomaly: either in the analysis or in the price action (such as fundamental interaction)

  • As a way of visualizing what your analysis is telling you to expect
    I think this is very useful. I have spent so many years looking at Hurst notation charts with all their diamonds and circles-and-whiskers that I can see what the analysis is saying we should expect. But I realize this a skill that takes years to develop, and the CML should help to speed up that learning process. All the CML is doing in the future area of the chart is showing you what all those nests-of-lows and nests-of-highs are telling you to expect.

I hope you find this useful. It is a very important topic, thanks for bringing it up.


#10

David. Thank you. Thank you. Thank you.
I am sincerely happy to have your insight into the genesis of the CML.