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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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