Monday, January 13, 2014

Nifty Fractal Nature: Why similar patterns are seen across different time frames?

The below research is by Waves Strategy Advisors. For daily free update register on
What is Fractal Nature? We are re-visiting that concept to explain the latest Fractal nature seen on Nifty.
In previous articles as well we have mentioned - Humans behave in a manner, when given a stimulus, in similar and probabilistically predictable fashion. This behavior of acting in similar ways makes us no different than the other creations of nature. Freely traded markets are the only sources that reflect the collective behavior of humans and the current social mood. Highly liquid markets cancel out the random events and what is left is the social mood of the mass and that indicates what we can expect in the future.
Indian markets have been exhibiting a similar structure on different time scales very often. The importance of Fractal nature confirms the existence of repeatable patterns on different degrees that makes the market movements predictable.
Nifty 60 mins chart (left) / Nifty weekly chart (right)
Fractal Nature example:
Nifty exhibits a classical fractal nature with prices showing similar pattern on 60 mins chart shown on the left side and weekly chart on the right. The fall in August 2013 can be compared to that seen in 2008, post that the rally September 2013 is similar to rally of 2009 – 2010. Post that Nifty is moving in sideways action and managing to protect the high made at 6415.
Such developments are indeed a thrilling experience and are exactly the reason why patterns like triangle, wedge or Head & Shoulder keeps occurring on different time scales.
Isn’t it astonishing to see such similarities across time frames. Fractal nature is one of the foundation on which Elliott wave patterns are based.
Everything in this world is systematic & patterned and there is no place for randomness to exist for extended period of time. We are against the theory of Efficient Market Hypothesis that claims humans are rational animals. This is against the law of nature and humans do deviate away from rationality and choose the path of herding thereby exhibiting trends; patterns of repeatable forms / structures, making it plausible to predict the markets.
There is no chaos in this perfectly rhythmic world which is driven by the laws of nature and freely traded markets like stock markets are no exception!

No comments:

Post a Comment