Saturday, January 8, 2011

01-08 cycles and chart patterns

If we understand how cycles form different chart patterns it can add to our knowledge and help us in analyzing where a stock/index is within a cycle.   I will use an Inverted Head and Shoulder pattern to illustrate. First - patterns are formed by the intersection and alignment of different cycles.  Here is how a Head and Shoulder (and Inverted Head and Shoulder) is formed:

That is not so complex is it?  Let's use this knowledge to deconstruct a real live Inverted Head and Shoulders pattern (S&P) from this past week to figure out what cycles are interacting and the length of those cycles.  If we can do that it could provide us valuable clues about the future action of the S&P:

With this knowledge we can project future tops/bottoms of the cycles we identified.  Hope you find this helpful in your analysis for short term trading. 

GL traders.

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