4-Year Cycles [jpkxyz]

16 déc. 2024

Overview of the Script

I wanted to write a script that encompasses the wide-spread macro fund manager investment thesis:

"Crypto is simply and expression of macro."

A thesis pioneered by the likes of Raoul Pal (EXPAAM), Andreesen Horowitz (A16Z), Joe McCann (ASYMETRIC), Bob Loukas and many more.

Cycle Theory Background:

The 2007-2008 financial crisis transformed central bank monetary policy by introducing:

- Quantitative Easing (QE): Creating money to buy assets and inject liquidity
- Coordinated global monetary interventions

Proactive 4-year economic cycles characterised by:

- Expansionary periods (low rates, money creation)
- Followed by contraction/normalisation

Central banks now deliberately manipulate liquidity, interest rates, and asset prices to control economic cycles, using monetary policy as a precision tool rather than a blunt instrument.

Cycle Characteristics (based on historical cycles):

- A cycle has 4 seasons (Spring, Summer, Fall, Winter)
- Each season with a cycle lasts 365 days
- The Cycle Low happens towards the beginning of the Spring Season of each new cycle
- This is followed by a run up throughout the Spring and Summer Season
- The Cycle High happens towards the end of the Fall Season
- The Winter season is characterised by price corrections until establishing a new floor in the Spring of the next cycle

Key Functionalities

1. Cycle Tracking
- Divides market history into 4-year cycles (Spring, Summer, Fall, Winter)
- Starts tracking cycles from 2011 (first cycle after the 2007 crisis cycle)
- Identifies and marks cycle boundaries

2. Visualization
- Colors background based on current cycle season
- Draws lines connecting:
- Cycle highs and lows
- Inter-cycle price movements
- Adds labels showing:
- Percentage gains/losses between cycles
- Number of days between significant points

3. Customization Options
- Allows users to customize:
- Colors for each season
- Line and label colors
- Label size
- Background opacity

Detailed Mechanism

Cycle Identification
- Uses a modulo calculation to determine the current season in the 4-year cycle
- Preset boundary years include 2015, 2019, 2023, 2027
- Automatically tracks and marks cycle transitions

Price Analysis
- Tracks highest and lowest prices within each cycle
- Calculates percentage changes:
- Intra-cycle (low to high)
- Inter-cycle (previous high to current high/low)

Visualization Techniques
- Background color changes based on current cycle season
- Dashed and solid lines connect significant price points
- Labels provide quantitative insights about price movements

Unique Aspects

1. Predictive Cycle Framework: Provides a structured way to view market movements beyond traditional technical analysis
2. Seasonal Color Coding: Intuitive visual representation of market cycle stages
3. Comprehensive Price Tracking: Captures both intra-cycle and inter-cycle price dynamics
4. Highly Customizable: Users can adjust visual parameters to suit their preferences

Potential Use Cases

- Technical analysis for long-term investors
- Identifying market cycle patterns
- Understanding historical price movement rhythms
- Educational tool for market cycle theory

Limitations/Considerations

- Based on a predefined 4-year cycle model (Liquidity Cycles)
- Historic Cycle Structures are not an indication for future performance
- May not perfectly represent all market behavior
- Requires visual interpretation

This script is particularly interesting for investors who believe in cyclical market theories and want a visual, data-driven representation of market stages.