Beware The FLD Spike 5


You are probably aware of the fact that I find the FLD (Future Line of Demarcation) a very useful tool. My research (which is a kinder word than obsession) into why the FLD sometimes provides support or resistance instead of being crossed cleanly by price gave rise to the FLD Trading Strategy.

One of the finer details of the FLD Trading Strategy is to “beware the FLD spike” (see the “Final Briefing” video in Module Three). Because the FLD is not a smoothed line (it is based directly upon median price), it is a line which jumps around a good deal, and often we see “spikes”. Spikes are single bars where the FLD seems to deviate from its course, before returning to that course on the next bar.

The warning that spikes carry in the FLD Trading Strategy is that you should be careful of entering a trade near a spike because on the next bar the “crossing of the FLD” might disappear without price actually moving.

This week provided the perfect example. The trough that formed on 9 June in stock markets is a trough of either 80-day or 40-day magnitude (see the latest podcast for a discussion of these options). Either way it represents a potential buying opportunity in my opinion. But the markets never make it easy, do they? That possible long entry occurred right at the time of an FLD spike, which was a clear warning to wait until we could see what was actually happening with the price and FLD interaction. Here is a chart of the S&P 500 (ES futures) with the spike:

The offending spike

The spike occurs on Wednesday 10 June, and we end up with price crossed above the FLD without it exceeding the level of the spike high. Here is the other possible analysis, which has the spike in a slightly different position because of the different cycle wavelengths that result from the different analysis:

The offending spike

In this chart the danger of the spike can be seen clearly. Price “crossed” the FLD the bar before the spike, but only reached the level of the spike before falling down again.

A third view of the same spike, this time in the DJIA (YM futures) shows how price can rise to the level of the spike without actually crossing the FLD:

Price fits the spike exactly in the Dow

The FLD is a very useful tool, but it can be frustrating because of details like the FLD spike. The FLD does often provide perfect levels of support or resistance, but it also often provides a rather vague level such as we have seen this week.

This could be because the FLD is based upon Median price. Hurst recommended using an FLD based upon High or Low price for “action signals”, and this is probably why. Here are the S&P 500 charts with the FLD based on High price displayed:

The FLD based on the High price

And the alternate analysis:

The FLD based on the High price

The High price FLD’s show that while price has been interacting with the Median-price FLD it has not actually “crossed” the FLD “area” created between the Low and High price FLD’s.

Perhaps the FLD is better considered as a range instead of a line. The range from Low to High price. An FRD – Future Range of Demarcation, with the Median price FLD in the center. I sense a new feature coming soon to Sentient Trader.


About David Hickson

I have been trading for over 20 years, but only had any success after discovering Hurst's cyclic principles. Unable to find any software to speed up the analysis process I created Sentient Trader software, which now pretty much does all the analysis for me. I am a film maker and a TV director, but nowadays I mostly provide consultation services to professional traders and fund managers, helping them to integrate Hurst analysis into their trading. I'm South African and live with my family in Italy.


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5 thoughts on “Beware The FLD Spike

  • Gary Becker

    Hello,

    I expect 10 week cycle bottom to have the right translation in to 10 day nominal cycle, for the slightly lower low or the double bottom on 06/15. After this market should rally in to 4th of July and then complete 40 week cycle by the end of July (07/27)
    Your FPL (future price line ) trading strategy is very cool. A bit of trivia, even J. M. Hurst had a teacher. His name was Henry Lang.

    Best Regards

  • alain

    hi David

    options could be to use low price For the FLD if the underlying trend is up, High price if the underlying trend is down. and Mid price if the underlying trend is neutral.

    Gary where is it possible to find references on this Henry Lang.

    Thanks in advance

    • Gary Becker

      Hello,

      My friend meet Henry Lang in Florida in the yearly 90th, and the time, Henry Lang was already over ninety years old. There was small, about 100 pages manual 8 or 12 chapters , some I still remember: Future Price Line (FPL), Envelops, Bisector , Top and Bottom analysis.
      I was given a chance to read the material on several occasions, but making any copies was forbidden. The name of the manual was “Cyclic Analysis of Market Prices”.
      When you consider duality of the nature of the “Cyclical market model” (wave cycles vs price cycles), the difference between Lang and Hurst becomes clear. For all practical reasons, one preferred price cycles synchronization and the other wave cycles synchronization.

      Regards

  • Jeffrey Young

    David,

    I starting thinking the same thing when you first mentioned it before I saw your quip at the end. I like that idea very much being able to shade a range and have a smoothed mid-channel line as well. Speaking of features. It is a pain to reconfigure analyses as well I have to change by pins one at a time. It would be much easier to be able to go in and lets say enter dates where you wanted the pins without having to go into creating an expert model. Like if you could click open the screen to edit troughs and you can delete them but if you could add pins in that window too that would be awesome. Just something that uses more time then I would like it too as I am playing with different analyses. As always, thanks for your great work.

  • Don

    The new concept is similar to trailing stop logic, if the offset back is fixed. If H[4] means five bars back, and H is High, L is Low and C is Close, then this Excel statement does it;

    IND IF(C>L[4],L[4],H[4])

    IND is the resulting indicator. When IND crosses Close, we have a potential trading points. The offset back can be tuned OR dynamically calculated based upon other considerations.