Traders are always looking for certain patterns in the market, and attempt to make money from them. It can be said that cycles account for periods when certain events take place – for example, market trend changes. A cycle of growth changes into a cycle of decline, which is then followed by another growth cycle. There is a view that the trend movement takes 30% of the instrument behaviour on the market, and the remaining 70% is occupied by a side trend.
A Time Cycle is an analytical drawing tool used to identify cyclical price activity – repeating high and low price patterns. Cycle analysis is based on the premise that a market’s price activity behaves in patterns. Therefore, future price activity can be predicted by identifying historical price patterns. It can be difficult identifying a cycle and may require analyzing years of data. Once you identify a repeating price pattern, the Time Cycle can assist you in determining the time intervals between those patterns.
The Time Cycle identifies trends and trend reversals. It is often used in conjunction with other analysis techniques to determine the stability or the end of a cycle.
A cycle is an event, such as a price high or low, which repeats itself on a regular basis. Cycles exist in the economy, in nature, and in financial markets.
The basic business cycle encompasses an economic downturn, bottom, economic upturn, and top. Cycles are also part of the technical analysis of the financial markets.
Cycle theory asserts that cyclical forces, both long and short, drive price movements in the financial markets.
In trading and investing, we have the following types of cycles:
- Time cycles are for estimating price fluctuations chronologically
- Seasonal cycles, by which we mean noticeable price fluctuations due to weather conditions
- Event cycles, which means that certain events cause certain price movements, and this is repeated behaviour
Below Videos we have discussed how to find Time Cyle in Stock Market.
Once identified and understood, cycles can add significant value to the technical analysis toolbox. However, they are not perfect. Some will miss, some will disappear and some will provide a direct hit.