THE HAnDbook of TECHniCAl AnAlysisThe symmetrical triangle will therefore adopt a bearish extrinsic sentiment. This
makes the second symmetrical triangle a reversal pattern. Hence, a chart pattern
may be classified as a reversal or continuation pattern based on its location within
a price cycle.
indicator Cycles
Indicator cycles are oscillations made by the underlying indicators that also include
indicators other than price. Indicator cycles are frequently observed in volume, open
interest, average true range (ATR), standard deviation, and average directional in-
dex (ADX) and in momentum oscillators such the moving average convergence‐
divergence (MACD), stochastics, and the RSI. These cycles are most evident on
interval charts below the daily timeframe. In Figure 20.8, we observe intraday indi-
cator cycles of volumes, volatility (standard deviation), ATR, and ADX. We notice
that price tends to either reverse at these indicator cycle extremes or continue in
the direction of the existing trend in a decisive manner. It seldom remains sideways.
Many traders will therefore take advantage of this by placing straddles or bidirec-
tional orders to catch price in either direction at these indicator cycle peaks.
market Cycles
Business cycles are larger market oscillations based on the cycles in the commod-
ity, equity, and bond markets. Cycles in these markets help determine the overall
economic climate. Normally, when the markets are overheated, interest rates will
rise to combat the rapidly rising cost of living. Bond prices, being directly tied
to interest rates, will be the first to react by declining in a bullish environment.
This represents an early indication of potential bearishness. As the bond market
figurE 20.8 Intraday Indicator‐Based Cycles.
Source: MetaTrader 4