Technical analysis helps traders determine price trends by focusing on accumulation and distribution signals on stock charts. With a proper system, you can block any noise from earnings, news headlines, or rumors.

Oliver Kell's Cycle of Price Action is derived from repeatable price action characteristics that reoccur through every market cycle.

The Cycle of Price acts as a trading blueprint and will help identify high-potential stocks and low-risk buy points within their price trends.

The Price Cycle Overview

Now, let's cover each step in the cycle:

Reversal Extension

At the bottom of the cycle is a general capitulation called a Reversal Extension. Fear takes over, and people finally sell, no longer able to withstand the pain of loss.

Using multiple time frames, we look for a definitive support level on a higher time frame. The lower time frame will become extended and then snap back up into the moving averages.

This volatile action should be accompanied by heavy volume and is used more as a sign that a trend reversal may occur. The lower-risk entry occurs in a few trading sessions and will help reduce risk as the price tightens.

Symbol: ELF
Company:
e.l.f. Beauty
Year: 2023

Wedge Pop – The Money Pattern

This is the first time a stock trades back up through the moving averages after a reversal extension.

After the stock has initially rallied off the low, it will slowly drift sideways or lower. As the price begins to trade in a tight range, we look for relative strength vs. the indices.

A pivot is formed when price and moving averages begin to tighten. Price breaks the short-term resistance area while reclaiming the moving averages, giving us a clear entry with defined risk.

The position can now be managed as we ride the rising moving averages.

Symbol: NVDA
Company:
NVIDIA
Year: 2023

EMA Crossback

This is the first retest of the moving averages following a wedge pop.

The moving averages should align and begin to rise into a consolidating price formation. As the price drifts sideways or slowly downward into the moving averages, we wait to see supportive action, then act when more buyers appear.

We can add to our position once we see positive price action with a structured consolidation into the moving averages.

Building a position at the Wedge Pop and EMA Crossback gets us into the stock early in the Price Cycle, allowing for a longer hold, provided we manage risk effectively.

Symbol: TOL
Company:
Toll Brothers
Year: 2023

Base n’ Break

The stock will now begin to move sideways allowing moving averages to catch up. You will begin to notice these tight basing patterns are defined within just a couple of weeks.

The Base n' Break occurs multiple times and can develop within the structure of a base before a “traditional” buy area, align with a breakout on a higher time frame, or after a tight flag formation as it continues to make new highs.

The moving averages continue to support the trend. We continue to look for positive price action and higher lows, allowing us to raise our stops in a trailing format.

Symbol: Wing
Company:
Wingstop
Year: 2023

Exhaustion Extension

The Exhaustion Extension marks the end of an uptrend. This euphoric blowoff action extends the price well above the moving averages on both the higher and lower time frames.

We can look to the higher time frames to verify the lower time frame signals. The price extends far off the moving averages, then reverses lower as more selling pressure appears.

The further you get into an uptrend, the more extensions from the moving averages you will see, indicating the stock may be due to form another base or has topped. In some cases, stocks will stop advancing without exhaustion, and we will see a tightening of price, followed by a wedge drop.

Symbol: AFRM
Company:
Affirm Holdings
Year: 2023

Wedge Drop

After the Exhaustion Extension, the price will trade tight into the moving averages as there are now fewer new buyers.

The Wedge Drop confirms the reversal when the price falls through the moving averages with an influx of sellers.

The Price Cycle is confirmed and a new downtrend begins. The stock needs time to form a new base as it consolidates the previous uptrend or has finally topped.

Symbol: KBH
Company:
KB Home
Year: 2023

EMA Crossback Down

Price has now lost the moving averages but is trying to rally for the first time into the declining moving averages. Like an EMA Crossback to the upside, an EMA Crossback to the downside will retest the moving averages but is now met with more resistance, pushing the stock lower.

We now see resistance forming, and the stock continues its downtrend. When resistance is found and more sellers show up, the stock will snap back downward.

Base n’ Break Down

Price will continue to build small basing patterns as it cycles downward. Like the Base n' Break to the upside, the Base n' Break to the downside will trade sideways into the declining moving averages.

The moving averages now act as resistance, sending the stock lower.

Eventually, we will see a Reversal Extension, which will restart the Cycle of Price.

Symbol: PHM
Company:
Pultegroup
Year: 2023

Oliver Kell's Approach

First, Oliver looks for the strongest game-changing growth stocks with the biggest increase in earnings and sales. Price and Volume, however, guide his decisions.

The foundation of everything revolves around price action. Clean and simple charts help us focus on this number one indicator.

The stock market goes up when there are more buyers than sellers and goes down when there are more sellers than buyers. It's that simple.

Volume confirms the price action. We look for volume to confirm price movement at the beginning of a cycle, as a stock moves through a pivot, and when the stock reverses. Volume = Price, Cause = Effect.

Moving Averages follow price and show the direction of the trend. They are a secondary indicator that helps act as a visual to watch when price forms a pivot.

  • 10 and 20-day exponential moving averages guide us through the intermediate-term trend
  • 50 and 200 simple moving averages help us stay in tune with the longer trend

Multiple Time Frames display the fractal nature of the price action cycle. Depending on your personal style, you can look for confirmation on lower time frames that align with a higher time frame analysis.

  • Weekly charts provide a bigger picture of the larger move
  • Daily charts are where we manage our trades
  • Hourly charts help us look closer when we are ready to execute the trade
  • We can then drill down into a 15-minute time frame when ready to buy

Lower time frames cause overtrading – Look at the bigger picture to plan your trade, then utilize the lower time frame to execute the trade.

Putting It Together

Symbol: TSLA
Company:
Tesla
Year: 2020

Our first goal is to focus on the right stocks with large growth potential and positive characteristics.

Take advantage of momentum shifts to enter stocks at the right time following the Cycle of Price Action.

Minimize losses by using proper position sizing with logical stops.

Maximize profits by understanding where you are in the current price cycle.

Oliver Kell's Cycle of Price is a framework for interpreting price movements, allowing one to stay in line with the trend.

Understand how far along the stock is in its Cycle Of Price when you plan your trades.

When the cycle begins, stay patient as the price moves through the phases. Later in the cycle, be quick to take a profit and become more defensive.

When a stock tops and turns into a downtrend, step aside and let the cycle play out.