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Here’s Why You Can Forecast Markets Just by Looking at Chart Patterns

Here are two illustrations of the fractal form of financial markets

by Bob Stokes
Updated: July 14, 2020

Nature is full of fractals.

Fractals are self-similar forms that show up repeatedly. Consider branching fractals such as blood vessels or trees: a small tree branch looks like an approximate replica of a big branch, and the big branch looks similar in form to the entire tree.

Fractals also form in the price charts of financial markets, at all degrees of trend, in both up- and downtrends. In fact, without knowing the time or price labels, you can't tell if you're looking at a 2-minute chart, a daily chart -- or a yearly one.

Fans of Elliott wave analysis have been using this information to their advantage for decades. Our March 2020 Elliott Wave Theorist gave subscribers two important real-time examples of fractals at work. Here's the first one along with the commentary:

SimilarForm

This figure offers a good illustration of the fractal nature of markets. It shows the correction in T-bond futures of 2016-2018 on a weekly chart against the correction in the last four months of 2019 on a daily chart. They look quite similar, and each one led to a run to new highs.

And here's the next example, along with commentary from the March Theorist:

PatternSimilar

This figure shows another example of the market's adherence to forms. The top graph shows the 10-minute range for the S&P futures contract on March 4, and the bottom graph shows the same for March 5. Don't they look similar?

In fact, however, the trend of the market in the top graph was up, and the trend shown beneath it was down. We simply inverted the bottom graph for our illustration. Prices rose on March 4, and they fell on March 5, in the same pattern.

Here's what this means for investors and traders: The fact that price charts unfold in repetitive and recognizable patterns makes financial markets predictable.

As Elliott Wave Principle: Key to Market Behavior by Frost & Prechter noted:

Scientific discoveries have established that self-similar pattern formation is a fundamental characteristic of complex systems, which include financial markets. Some such systems undergo "punctuated growth," that is, periods of growth alternating with phases of non-growth or decline, building into similar patterns of increasing size.

Right now, our Elliott wave experts are letting subscribers know what the chart forms of stocks, bonds, gold, silver, the U.S. dollar and more are suggesting about the next big price moves in these markets.

Learn what they have to say without any obligation for 30 days.

Look below to get started with our risk-free trial.

Too Many Investors Focus on What Does NOT Matter to Their Portfolios

Most market opinions you read or hear from the media are based on "fundamentals," like corporate earnings, Fed policy, trade with China or any other news that pundits deem important.

But, in EWI's decades of research, we've uncovered no evidence that fundamentals move market trends.

Thus, most investors make portfolio decisions on a false idea!

In truth, investor psychology drives the market's trend: Elliott waves directly reflect this patterned -- hence, predictable -- psychology.

Find out what our Elliott wave experts anticipate next for U.S. stocks, bonds, gold, silver, the U.S. dollar, the U.S. economy and more -- risk-free for 30 days.

Look below to get started.

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See Just How "Historic" 2020 Has Been for U.S. Stocks

When you look at the DJIA's past 100 years, a clear Elliott wave pattern emerges. But in 2020, another technical price pattern has entered the picture. It's a rare pattern. In fact, it's so rare, it's only appeared once in the past 100 years. Watch our monthly Global Market Perspective contributor explain the implications.

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NASDAQ vs. DJIA: Does the Recent Divergence Matter?

Since its March bottom below 7000, the NASDAQ has rallied over 4000 points to a new record high. The DJIA… not so much. It's not the first time we've seen a "languishing Dow and the ebullient NASDAQ." This excerpt from our new, August Elliott Wave Financial Forecast explains.