Using Sine Waves With Trend Analysis

I do most of my charting at Stockcharts.com, but I spend most of my day using thinkorswim to monitor markets intraday. Thinkorswim is a great platform and is an excellent charting tool. One of my favorite thinkorswim studies is the Mesa Sine Wave indicator. We can use the sine wave to determine if the market is trending and it can help identify possible shifts in trend.

The Mesa Sine Wave indicator uses two sine waves, one ‘normal’ sine wave as well as a wave that’s advanced by a 45 degree angle, called the “lead wave.” We can see that when the sine wave crosses the lead wave, the security may be changing trend. I’ve put green and red arrows to show examples of crosses on the S&P 500 chart below. The sine wave has been above the lead wave since Dec. 3rd of last year, staying with the up trend in $SPX. Using the Mesa Sine Wave indicator is not going to provide perfect trending signals, nothing will. However it can be a great tool to help see trends on various time frames.

2013-04-25-TOS_CHARTSI’ve also noted the trend line that I discussed a few weeks ago in my Technical Analysis Doesn’t Have to be Difficult post. I identified the possible levels of support if we saw a trend line break in the large cap equity index. Sure enough, we saw weakness and tested the previous short-term low and bounced. We are now back above the rising trend line and it appears bulls are going to try to make a run for 1600.

Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer. Connect with Andrew on Google+, Twitter, and StockTwits.

About Andrew Thrasher, CMT

Andrew Thrasher, CMT is a Portfolio Manager for an asset management firm in Central Indiana. He specializes and writes about technical analysis as well as macro economic developments.
  • Brent Gaynor

    Hello – Came across this and it made me wonder how you measure cycle length, etc.? Is this different than Hurst,etc?

    • athrasher

      Hi Brent, I use the default setting of 25 for the indicator at thinkorswim. However, if you are asking about cycles in general, I don’t believe you can ‘optimize’ a cycle across asset classes. Different assets operate in different cycles.