We believe in the theory that freely traded markets are patterned and exhibit fractal nature. This makes them behave in a predictable manner. By pattern, we mean that there are certain structures that repeat themselves and can be seen on charts that show prices of any tradable instrument.
The “Fractal Nature” is again an important concept which states that these repeatable patterns occur on varied time scales and can be seen on one-minute charts to daily charts to monthly charts.
The fractal structure is seen in nature across—from DNA to snowflakes to galaxies and so, it is also seen in stock markets, which reflect the collective emotions and social mood of humans.
Can you spot the difference?
The first chart is of Nifty on the weekly time scale. It shows the crash seen from February to March 2020. The second chart is also of the Nifty but the hourly time scale that exhibits the crash seen on December 21, 2020 and the rise that followed it.
Both of the charts clearly show the sharp decline in just three-four candles followed by the subsequent rise that took out the earlier highs.
This simply shows that patterns are repeatable across timeframes and technical analysis can be applied right from the tick chart to the annual charts.
Speed of execution and an eye for patterns is the key in order to make money by using Fractals.
It is for this reason why on December 22 we turned bullish again post the sharp decline and expected markets to start moving higher, which it did.
The above charts clearly show that irrespective of the events, markets are exhibiting patterned behaviour across time-frames, which are nothing but a fractal nature working across the universe.
So, how does it help in trading?
Elliott wave and Neo wave are based on this basic premise that the patterns that are working on a tick chart are also working on the bigger time frames. In addition to this by combining Fibonacci ratios and projection, one can at times predict the exact turn.
By knowing fractal nature one can know what to expect next and how prices will behave. News or events will only clutter the reasoning but what works is the ability to decipher the chart.
(Follow Ashish Kyal on Twitter @kyalashish and YouTube channel @kyalashish)
Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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