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How to Predict Market Movements Using Overlap and Cycle Indicators

Technical Indicators

How can we detect the trend of the market? What will be the next move? Is it possible to detect a pattern? These are just some of the questions that we can address using technical analysis. In this analysis, we can use various measures depending on the asset and market you pick. However, as this will be a long blog reading, I decided to divide this series into two.

The primary objectives of this analysis include:

  1. Identifying Market Trends: Detecting whether an asset is in an uptrend, downtrend, or sideways trend to make informed trading decisions.
  2. Predicting Future Price Movements: Using historical patterns, momentum indicators, and trend-following tools to estimate potential price directions.
  3. Recognizing Market Patterns: Identifying recurring price patterns, such as head and shoulders, double tops/bottoms, and candlestick formations, to anticipate market behavior.
  4. Assessing Market Strength and Momentum: Utilizing indicators like RSI, MACD, and moving averages to determine whether a trend is gaining or losing strength.
  5. Measuring Volatility: Tools like Bollinger Bands and Average True Range (ATR) help traders understand price fluctuations and manage risk accordingly.
  6. Timing Trade Entries and Exits: Helping traders determine optimal points for entering or exiting positions based on support/resistance levels and breakout signals.
  7. Risk Management and Strategy Development: Enhancing decision-making by setting stop-loss levels, identifying overbought/oversold conditions, and managing potential risks.

It is worth discussing the technical indicators that Stockaivisor proposes: 

  • Overlap Indicator
  • Cycle Indicator
  • Pattern Indicator
  • Momentum Indicator
  • Volatility Indicator

Overlap Indicator

Overlap indicators are essential tools in technical analysis, helping to smooth price fluctuations and identify trends over a defined period. These indicators overlay price data on a chart, providing clearer insights into market direction.

  • Simple Moving Average (SMA): Calculated by taking the arithmetic average of a stock’s price over a specified number of days, the SMA helps identify overall trend direction by smoothing out short-term fluctuations.
  • Exponential Moving Average (EMA): Unlike the SMA, the EMA assigns greater weight to recent price data, making it more responsive to new market developments and price shifts.
  • Weighted Moving Average (WMA): The WMA emphasizes recent prices by applying a linear weighting system, where the most recent data points have a higher influence on the average, making it more sensitive to short-term trends.

Stockaivisor offers this analysis with a percentage and a rolling window feature by which you are able to control for the indicators depending on time and asset. Here you see Apple’s overlap indicators with a percentage of 2 and time period of 1 year.

A screen shot of a graph Description automatically generated

According to this graph, we can break down the interpretation like this:

Trend Analysis:

  • Apple’s stock price showed a steady increase from September 2024 to January 2025, reaching a peak in early January 2025.
  • A downward trend followed from January to February 2025, indicating a price correction.
  • A slight recovery is visible in March 2025.

Moving Averages Behavior:

  • SMA (Blue Line): Reacts slower to price changes as it considers an equal-weighted average.
  • EMA (Orange Line): Responds more quickly to recent price movements, making it a more dynamic indicator.
  • WMA (Green Line): Places higher emphasis on recent data, making it the most sensitive to price fluctuations.

Market Implication:

  • The convergence of these moving averages suggests a consolidation phase.
  • The divergence observed in January 2025 signals strong bullish momentum before the peak.
  • The crossover of these indicators can provide signals for potential buying or selling opportunities.

Cycle Indicators

What comes next are the cycle indicators. Cycle indicators are tools that help identify the timing of market cycles, including their peaks, troughs, and potential turning points. These indicators are based on the premise that financial markets move in cyclical patterns due to repetitive investor behavior and economic factors. Here's a brief overview of the two-cycle indicators:

Hilbert Transform - Dominant Cycle Period: This indicator is designed to identify the dominant cycle period in a time series, essentially capturing the length of market cycles.

Hilbert Transform - Dominant Cycle Phase: While the HT_DCPERIOD focuses on the length of cycles, the HT_DCPHASE aims to pinpoint the current phase within a given market cycle.

This chart displays cycle indicators over a 1-year period for Apple, specifically:

  • HT_Dominant_Cycle_Period (Blue Line): Represents the dominant cycle length in the stock's price movement.
  • HT_Dominant_Cycle_Phase (Orange Line): Indicates the phase of the dominant cycle, showing shifts between bullish and bearish cycles.

Key Observations:

  1. Cycle Period (Blue Line) Stability:
    • The HT_Dominant_Cycle_Period remains relatively stable with minor fluctuations, indicating a consistent cycle length for Apple's price movements.
    • This suggests that market trends are forming in a predictable pattern without abrupt shifts.
  2. Cycle Phase (Orange Line) Volatility:
    • The HT_Dominant_Cycle_Phase exhibits sharp spikes and drops, suggesting significant shifts in market sentiment.
    • These extreme movements may correspond to major price trends, breakouts, or reversals.
    • The repeated sharp drops to zero could indicate points where the cycle resets or experiences extreme short-term changes.

Market Implications:

  • Sharp spikes in the cycle phase indicate strong momentum shifts, possibly signaling entry or exit points for traders.
  • Consistent cycle period suggests that Apple's price movements are following a relatively stable trend structure, making technical pattern analysis useful.
  • Sudden phase resets (drops to zero) may align with major events, such as earnings reports or external market shocks, causing sudden shifts in trend direction.

Technical indicators help identify trends, predict price movements, and optimize trading strategies. Overlap indicators (SMA, EMA, WMA) smooth price fluctuations, while cycle indicators (HT_Dominant_Cycle_Period and HT_Dominant_Cycle_Phase) detect market cycles and turning points. Stockaivisor enhances this analysis with customizable parameters, providing traders with deeper insights. More technical indicators will be covered in the next part of this series.

FAQs:

  1. What are overlap indicators, and how do they help in trading?
    Overlap indicators like SMA, EMA, and WMA smooth price data to identify trends, making it easier to spot trading opportunities.

  2. How do cycle indicators predict market movements?
    Cycle indicators, such as HT_Dominant_Cycle_Period and HT_Dominant_Cycle_Phase, help detect market cycles and turning points.

  3. Can these indicators be customized for different assets?
    Yes, Stockaivisor allows traders to adjust indicator settings based on time and asset for more precise market analysis.

  4. How do these indicators improve trading decisions?
    They help identify trends, assess momentum, and signal potential entry/exit points, aiding in strategic decision-making.

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