Nifty: A classical Fractal Nature!

Nifty: A classical Fractal Nature!

By Waves Strategy Advisors, For more information visit www.wavesstrategy.com or write to helpdesk@wavesstrategy.com

Fractal Nature: We have mentioned below Fractal concept on 25^th July 2012. We are re-visiting that concept to explain the latest Fractal nature seen on Nifty.

Today’s morning equity research report published before the market shows latest example of this Fractal nature. Read ahead to know more about Fractals and its implications:

We, at Waves Strategy Advisors, believe in the theory that freely traded markets are patterned and exhibits fractal nature. This makes them behave in a predictable manner. By pattern we mean that there are certain structures that repeat itself from time to time and can be seen on charts that shows prices of any tradable instrument. The “Fractal Nature” is again an important concept which states that these repeatable patterns occur on varied time scales and can be seen on 1 minute charts to Daily charts to Monthly charts. Fractal structure is seen in nature across from DNA to snowflakes to galaxies and so it is also seen in stock markets which reflect collective emotions and social mood of humans.

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. We believe that any freely traded markets like Equities, Forex, Commodities move in the form of repeatable wave patterns that exhibit fractal nature at various degrees. This behavior was first observed by Ralph Nelson Elliott in1930s and was later revisited by Robert Prechter in 1980s. This study of waves is now famously known as Elliott Wave.

We identified this important Fractal formation in Indian stock markets on 13^th March 2013.

Nifty exhibits a classical fractal nature with prices showing similar pattern on 60 mins chart and 10mins chart. This is highlighted above which shows a clear double zigzag pattern (a-b-c-x-a-b-c) involving x wave that broke out of the channel at the centre of the trend. After completion of this pattern on 60 mins chart we can observe a sharp reversal on upside from 5664 levels and if prices are indeed following the fractal development to high extent we can expect similar path but of lesser magnitude since currently it is seen on 10 mins degree compared to previous 60 minsdegree. This further conforms to our path shown on 60 mins chart. Such developments are indeed a thrilling experience and are exactly the reason why patterns like triangle, wedge or H&S that work on daily charts work very well even on smaller degree charts… Let see over next few days if we are reading the market pulse correctly!!!

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