India Markets

Price Patterns and Cycles

Brandon Wendell
Instructor, CMT

One of the benefits of teaching trading is the feedback and email questions I receive from students. I learn from the markets and my students challenge me to maintain my discipline and focus in trading. A recent email from a student included a chart that showed a possible chart pattern forming on the Nifty. The student noticed that the Nifty seemed to begin a trend on a certain date and end the trend on the same day of the next month.

nifty cycle

Referring back to an older article I had written called “Cycling,” we may be able to explain this phenomenon.  The markets and individual securities routinely fall into cycles that are measurable and predictable.  Due to market conditions these cycles may change but most stay the same for the duration of the trend.  A cycle is measured by the distance between lows.  This is also referred to as the frequency of the cycle.  In trader terms, the frequency will tell you when to expect lows or moves to the downside in price.  Once you identify the stock’s cycle, you have a higher probability for trading in the right direction.

As I previously mentioned, cycles are measured from the lows.  There is a tool on some trading platforms that will allow you to line up vertical lines with the lows on your price chart.  Don’t worry if the lines do not match every low, as there are multiple cycles affecting the price at any time.  You want to locate the dominant one that you can trade with.  That will be the one that contains most of the lows.

If you do not have the tool, it is still easy to locate the cycle.  Start by marking the lows and then count the number of candles in between those lows.  They should be relatively similar.  You can then take the average between those lows as your stock’s or market’s cycle.

nifty weekly cycle

We can do this study on any stock and for any timeframe.

infy 5min cycle

The cycles will be more stable on longer term charts but knowing the cycle can assist you in your trading.  If you see price approaching a supply or demand level but the cycle is not indicating a top or bottom, the level may have a higher probability of breaking.  But if the cycle top or bottom is near, the levels are more likely to hold.

cycle supply demand

So while it will not be a perfect indicator, the cycle of a security can be a good odds enhancer when you are trading.

This newsletter is written for educational purposes only. By no means do any of its contents recommend, advocate or urge the buying, selling or holding of any financial instrument whatsoever. Trading and Investing involves high levels of risk. The author expresses personal opinions and will not assume any responsibility whatsoever for the actions of the reader. The author may or may not have positions in Financial Instruments discussed in this newsletter. Future results can be dramatically different from the opinions expressed herein. Past performance does not guarantee future results. Reprints allowed for private reading only, for all else, please obtain permission.