Hurst Cycles Trading Software - Accurately Forecast Nifty and Stock Cycles

Thursday, September 11, 2008

Fractal Theory - Building the case for the next leg down

In my last post over here, I mentioned that I am exiting all long positions and sitting on the sidelines with small shorts until I see more evidence for some more rally OR 4522 being taken out on the upside. From then the market has clearly deteriorated. I hope some people reading over here would have been saved from all long positions even if you did not take any shorts. 

Yesterday I was looking at my EOD chart for hours and some things jumped out at me...I mean it was visible before too but after yesterdays study, I am really confident on what I see...Its clear that we have started the next leg down. I will present my ideas in the chart and writeup below this but before that, let me present something known as 'Fractals' and what it means. 

"A fractal is generally "a rough or fragmented geometric shape that can be split into parts, each of which is (at least approximately) a reduced-size copy of the whole,"[1] a property called self-similarity. The term was coined by BenoƮt Mandelbrot in 1975 and was derived from the Latin fractus meaning "broken" or "fractured."

More on fractals can be read here -

Elliot wave theory is built on the fractal wave theory - essentially what it means is that similar structure keep occuring in the market, in nature and well everywhere...Its a great mystery of nature as to why this happens. I believe other theories such as Kondrateiff also have their base in fractals. Fractals are recursive. Means the same structure repeats over and over again...They can be different on a whole but there will be so many similarities and when we can spot these, it builds up a high probability trade AND you also know when it gets invalidated. Fractals are why you have similar bull and bear wave structures in the market. Google more on fractals and you will be amazed at what you find...Fibo ratios also play a very important role in fractals and in effect EWT. 

Okay now coming to the chart. See below chart...I have added a good deal of comments on it. 

Now same fractal iterations as in above chart, can also be explained in EWT terms but you already know my count ABC-X-ABC where the final C might have just started. We have a very high probability of a big sell off coming. I knew it was coming. Only question was of WHEN? 
The other interesting thing is, back in May when the last fall happened also, a lot of market participants were bullish and confused expecting one last wave up. I was also one of them. It never happened. Almost similar today. Several folks including me expected one last burst up to 4650 and 4750...Might never happen. Areas to watch now are clear - 4200 and 4160 on downside and 4450 area on upside. 

Today inflation is 'GOOD' lol...If IIP is also 'good', pray for a rally to get out of any remaining longs and start piling on shorts....If we get a rally to 4400 area again, its a God given gift to get short.

Comments welcome please. Sometimes I feel like I am the only visitor to this site. Please post and offer your views also.



Arvind said...

Nope you are not the only visitor. I visit your site daily and hold your views very highly though eventually I take my own decisions.

Keep those great posts coming please.

nisar said...


Lee said...

Hey guys...thanks for your comments...I know I am not the only visitor lol...I know there are 200+ visitors here daily...but what I meant is its nice to get comments and thoughts on the work I am doing...else it gets quite lonely...thats all!

Vipin said...

I want to learn the EWT please let me know where and how should i get stated. i want to take it up very seriously. I always here from ppl about it giving very good results and thus want to learn and start applying it ..... your analysis as always is good .. it makes me feel that it should be followed blindly as the reasoning you Provide are very clear.

Anonymous said...

Hi Princely,

Your clarity of thought is visible as usual. I regularly visited your blog everyday after the 8th for any updates but sorely missed the same. In the confusion whether to go long at supports 4280 or short after it went below it for some time, I lost the all small profits that I made. Luckily no losses. Thanks once again for your insights. My condolences for your car. Maybe you have an excuse to buy a better one now.

Best regards

Tekkiesuresh said...

Hi Mathew,
I am an avid follower of your posts.Please keep them coming. Regarding that one last leg upwards, I am also one of those confused individuals who have gone long expecting that one last leg! Like you say Iam now reduced to fervent prayers for one small ( at least !) leg up so that I can exit longs and go short.
Do you think we will penetratec downwards past 3790 in the next 45 days?


Anonymous said...

hi lee, i value ur blog very high and visit it daily before mkt opens here, thanks to u i exited all longs and made 2 shorts, got a small profit and i exited. keep up the good work man

Anonymous said...

Princly i m regular visit yr blog it such nice blog. we can trust on it very well. so pls keep posting and save us

vpbrangarajan said...

Dear Lee,

I do visit your blog often, but i also have luxory of seeing your views @vfm.

AS you felt you are only person i wanted to say that's not true.
we come see take the fruits and go.

Would request you to see my post on delta trading @ VFM. That i started long ago but never did a big check. I need expert views to consolidate the thoughts.

Good work .Keep at it.