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Cycle
Lines
Description
Cycles
allow us to accurately predict events in nature:
bird migrations, the tides, planetary movements,
etc. You can also use cycle analysis to predict
changes in financial markets, although not always
with the accuracy found in nature.
We
know that prices are a consensus of human
expectations. These
expectations are always changing, and causing
prices to oscillate between overbought and
oversold levels. Fluctuations in prices are a
natural process of changing expectations and lead
to cyclical patterns.
Interpretation
An
obvious example of a cyclical pattern is shown in
a chart of a sine wave.
Although security prices rarely move with
this degree of predictability, even a quick glance
at many security charts is enough to see evidence
of some type of cyclical pattern.
Cycle
Line tools allow you to place equally spaced
vertical lines on a chart.
Since you can control the spacing between
the cycle lines, you may be able to visually
extrapolate the cycles evident in a plot.
If you extend the right margin of a chart,
the cycle lines will extend into the future.
This can help you anticipate when the next
peak or trough of a cycle may occur.
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