Cycles

When all the Pending 1-2s inside a node are resolved, and the node’s correction continues close to its starting point, that node turns into a cycle. Cycles can be positive or negative and, depending on their position, will have different effects on market movement. A proper understanding of cycles is one of the most important parts of the N2N strategy, because it not only completes the market structure but also has a direct impact on node counting and predicting the market’s next direction.

Positive Cycle

Every positive cycle consists of an upward trend and a downward corrective trend. These trends can include 2 or 3 nodes. In fact, a positive cycle represents the completion of an upward move followed by its downward correction. The schematic of a positive cycle is as follows.

Negative Cycle

Every negative cycle also consists of a downward trend and an upward corrective trend. These trends can include 2 or 3 nodes. A negative cycle is the reverse image of a positive cycle and represents the completion of a downward move followed by the market’s upward correction. The schematic of a negative cycle is as follows.

Cycle Evolution Zone

Cycles usually close within the 79% to 92% range from the start of the left-side node’s move. This area is called the Cycle Evolution Zone. This zone is approximate, and the main criterion for cycle completion is the resolution of all the main 1-2s of the left-side market nodes, but in most cases the last left-side nodes are located in this same area.

To identify the 79% to 92% zones, we can use the Fibonacci Retracement tool. Place the Fibonacci Retracement from the beginning to the end of the left-side trend so the Cycle Evolution Zone can be identified. If there was another completed cycle before the start of the trend, place the Fibonacci Retracement after that cycle. This results in a more precise and logical measurement.

Cycle Evolution Zone in Main Nodes

When 3 nodes are completed, if the market direction in the higher timeframe (larger fractal) is still upward or downward, the market correction will usually reach the Cycle Evolution Zone of one of the main nodes, after which the market continues its upward or downward trend. In this situation, 3 scenarios may occur.

• The market reverses from the Cycle Evolution Zone of node 3:

  In this case the correction has less depth and the market quickly returns to its main trend.



• The market reverses from the Cycle Evolution Zone of node 2:

  This is one of the most common patterns and shows a relative balance between the strength of the trend and the depth of the correction.



• The market reverses from the Cycle Evolution Zone of node 1:

  In this case the correction is deeper and can be a sign of a temporary weakening of trend strength, although the main direction is still preserved.

Cycle Evolution Zone in Internal Nodes

In less common situations, when 3 nodes are completed, if the market direction in the higher timeframe (larger fractal) is still upward or downward, the market correction can reach the Cycle Evolution Zone of one of the internal nodes, after which the market will return to its upward or downward trend. In these conditions as well, 3 scenarios may occur.

• The market reverses from the Cycle Evolution Zone of internal node 2 – main node 3:

  This happens when the market trend is strongly upward or downward.



• The market reverses from the Cycle Evolution Zone of internal node 2 – main node 2:

  This also happens when the upward or downward trend pressure in the higher fractal is high.



• The market reverses from the Cycle Evolution Zone of internal node 2 – main node 1:

  This occurs when the market direction in the higher fractal is still upward or downward.

Change in Market Direction

When the market passes the 92% zone, it will likely also break the high (in a negative cycle) or the low (in a positive cycle). If the market breaks the cycle’s high or low (100% Fibonacci), the closed cycle remains valid, but the market direction will change.

Effects of Cycles on Node Counting

As mentioned, cycles have different effects on market movement depending on their position. Below we examine all possible cases and the impact of each on market movement and node counting.

Cycle at the Beginning of Market Movement

In some cases, after the left-side market trend is completed and before nodes form and a new upward or downward trend begins, a closed cycle forms at the start of the trend. This cycle is called an End Point and is the market’s last attempt to continue the previous trend, which fails and can be one of the signs of a market reversal. An End Point can form in the following 2 ways.

in the first case:

• At the end of upward trends a negative cycle forms that breaks the low of the left-side node 3 and then, by returning close to its starting point, forms the End Point.
• At the end of downward trends a positive cycle forms that breaks the high of the left-side node 3 and then, by returning close to its starting point, forms the End Point.

In this case the market will usually reverse and will go at least to the Cycle Evolution Zone (CEZ) of the left-side node 2.

In the second case:

• At the end of upward trends a negative cycle forms that does not break the low of the left-side node 3 and then, by returning close to its starting point, forms the End Point.
• At the end of downward trends a positive cycle forms that does not break the high of the left-side node 3 and then, by returning close to its starting point, forms the End Point.

In this case a market reversal is not certain, and after resolving the Pending 1-2s inside the left-side node 3, the market may continue its upward or downward move.

It is possible that after node 3 is completed, the market forms several End Point cycles and then the market direction changes. These patterns are usually seen at important market peaks or bottoms.

Cycle After Node 1

If a cycle closes after node 1, that cycle can form in the following 2 ways:

• In upward trends the formed cycle does not break the high of node 1, and in downward trends the formed cycle does not break the low of node 1. In this case the formed cycle has no effect on node counting and will be part of node 2.


• In upward trends the formed cycle breaks the high of node 1, and in downward trends the formed cycle breaks the low of node 1. In this case the formed cycle will be attached to node 1 and the counting of node 2 starts from the end point of the closed cycle. If several cycles form in the same way after node 1, all of them will be attached to node 1.

Cycle After Node 2

If a cycle closes after node 2, that cycle can form in the following 2 ways:

• In upward trends the formed cycle does not break the high of node 2, and in downward trends the formed cycle does not break the low of node 2. In this case the formed cycle has no effect on node counting and will be part of node 3.


• In upward trends the formed cycle breaks the high of node 2, and in downward trends the formed cycle breaks the low of node 2. In this case, according to standard counting, the formed cycle will be node 3.

Cycle After Node 3

If a cycle closes after node 3, that cycle can form in the following 2 ways:

• In upward trends the formed cycle does not break the high of node 3, and in downward trends the formed cycle does not break the low of node 3. In this case the formed cycle has no effect on node counting, but if the market continues its upward or downward path, the previous 3 nodes can become a new larger node 1 and the market can start forming a larger node 2.


• In upward trends the formed cycle breaks the high of node 3 and then returns below node 3, and in downward trends the formed cycle breaks the low of node 3 and then returns above node 3. In this case the formed cycle will be an Anchor that price will eventually break through, and the previous 3 nodes together with the Anchor will form a new larger node 1.

Overall, cycles play a key role in completing market structure and determining the next direction of price. Correctly identifying the type of cycle, its evolution zone, and its effect on node counting helps the trader anticipate different scenarios in advance and make more precise decisions.