The Handbook of Technical Analysis + Test Bank_ The Practitioner\'s Comprehensive Guide to Technical Analysis ( PDFDrive )

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THE HAnDbook oF TECHnICAl AnAlysIs

within the accumulation phase, followed by the powerful wave 3 move during
the first trend phase. Notice also that volume peaks out around the top of wave
5, within the new area of consolidation, in the form of an inverted head and
shoulders pattern. The use of Fibonacci price and time projection techniques
will help the practitioner gauge the potential termination and start of each wave
within the 5‐3 wave structure. (For a detailed discussion of Elliott Waves, refer
to Chapter 18.)

4.9 Cycle Analysis Interpretation of Market Phase


We may also use market cycles to determine if a price formation is potentially a
reversal or a continuation. It all depends on where the formation unfolds with
respect to the phase of the cycle. Once a cycle period is identified, it will be fairly
simple to find out where the formations lie with respect to the cycle phase. As a
general guideline, for formations unfolding on the same cycle degree:


  1. Formations that lie in between cycle extremes tend to be continuations

  2. Formations that lie at cycle peaks tend to be distributions

  3. Formations that lie at cycle troughs tend to be accumulations


Note that if the intrinsic and extrinsic biases for the chart patterns are in agree-
ment, reversals and continuations will potentially be more reliable. See Figure 4.30.
In Figure 4.31, we see the intrinsically neutral symmetrical triangle adopting
three distinct roles, representing accumulation at the bottom of the cycle, continu-
ation in between the top and bottom of the cycle, and distribution at the top of the
cycle. Hence the symmetrical triangle will adopt a bullish extrinsic bias at cycle
troughs and bearish extrinsic bias at cycle peaks, while adopting the preexisting
trend sentiment between the cycle extremes.

figure 4.30 Using Cycles to Determine Market Phase.
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