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Technical Analysis Explained

Time Cycles

Consider the standard daily bar chart. The vertical axis gives the price scale (figure 2). But that is only the half of the relevant data. The horizontal scale gives the time horizon. Therefore, the bar chart is really a time and price chart. Our main focus up to this point has been on price movement, and not too much has been said about the importance of time in solving the forecasting puzzle. However, cyclical analysts believe that time cycles hold the ultimate key to understanding why markets move up or down.

There are different philosophies and theories represented in the field of cycle analysis. To mention a few of them:

- Fibonacci time zones: the time distance between turning points refers to Fibonacci figures (example: a trend has the tendency to last 5 weeks or 8 weeks or 13 weeks or 21 weeks etc.).

- Cycle lines: tops and bottoms occur after a constant number of days, weeks, months or years (for an example is the 9.2 year economy cycle stated by Edward R.Dewey ("The Mysterious Force that trigger Events" - Manor Books, inc., N.Y. 1973).

- Spiral Calendar of Christopher Carolan (explained below).

The Spiral Calendar of Christopher Carolan

"The Spiral Calendar is a set of time units where lunar months are measured in the square roots of Fibonacci numbers. Mr. Carolan has found that these time units separate important emotional market events in numbers greater than predicted by randomness (see Figure 41).

(Source: The Spiral Calendar - Christopher Carolan)

Figure 41

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Vocabulary

A
Apex
Arithmetic scale
Art-charting
Ascending triangle

B
Bar-chart
Bearish engulfing pattern
Bottom-line
Bullish Consensus
Bullish engulfing pattern

C
Candle Stick /-chart 1, 2
Channel formation
Chart
Chartist
Closing prices
Complete cycle
Consolidation
Continuation formations
Contrarian Opinion
Corrective waves
Cycle lines

D
Descending triangle
Divergence
Daily close
Doji
Double top/bottom
Down-trendline
Dow Theory

E
Edge band analysis
Elliott-Wave
Engulfing pattern
Exponential moving average

F
Fibonacci-numbers
Fibonacci time zones
Five-wave
Four-weekly-rule
Flag
Fundamental Analysis

G
Golden section /ratio (phi)

H
Hammer
Hanging man
Head and Shoulder
High
Horizontal triangle

I
Impulsive waves

L
Larry Williams %R
Line-chart
Logarithmic scale/chart
Long term
Low
Low-risk entry point
Lunar cycle

M
MACD (moving average convergence/divergence)
"Markets Vane"
Medium term
Momentum
Monthly close
Moon cycles
Moving Average
M-Top

N
Negative or bearish divergence
Non-trending indicators

O
Oscillator
Opening

P
Peak
Pennant
"Phi"
Point and figure
Positive or bullish divergence
Price formation
Price objective
Psychological rationale

R
Rate of Change
Ratio
Real Body
Resistance
Rounding bottom/top
Relative Strength Index (RSI)
Reversal criteria/formation 1, 2

S
Saucer
Sentiment
Short term
Sideways trend
Simple Moving Average
Spiral Calendar
Stochastic
Stop-loss/Stop
Stop-profit
Support
Symmetrical triangle

T
Technical Analysis
Technical Analyst
Technical indicators
Three-wave
Time Cycles
Time frame
Timing
Top-line
Trading
Trading signals
Trend
Trending indicators
Trendline
Triangle
Trigger levels
Troughs

U
Up-trendline

V
Volume

W
Weekly close
Wedge
Weighted moving average
Whipsaw

Z
Zero line