What are Waves?
Stocks, markets, or any tradable instrument do not move up and down sequentially but go through the various stages of price action, accumulation and distribution. The varying prices start forming patterns that are similar to sea waves that also look like ripples in the water.
It’s a natural phenomenon that has evolved over the period of time to maintain balance in the stock market.
SBER Wave Theory
SBER wave theory says that the market algos will evolve to maintain a natural balance between demand and supply and for any kind of disruption, the balance must be broken by either party domination (bulls & bears).
Till the time the market remains in a balanced state, the price action should continue between certain dynamic pricing levels which are not far from the precedent level. These levels continue to represent price action in a waveform. Breakout from the balanced wave shall lead to good price action and thus, a set of new waves will start emerging. These waves are random and don’t follow predefined patterns of Elliot/ new wave theory.
The price levels which have the highest probability of reversal are called wave nodes. Wave nodes also represent the crest and trough (expected high and low points within which the market will continue to maintain its balance) of waves. Wave nodes should form on all the time frames which will represent the dynamic nature of the stock market.
The standard deviation from wave nodes can be represented by the formation of clouds. The cloud becomes an area that contains any micro time-based movement of price action. Thus, clouds overcome the limitation of analyzing price action on a micro timeframe. In short, clouds are the area for micro-level accumulation and distribution forecasted based on price action.
Thus, wave clouds become a forecasting tool for upcoming action in the stock market and they inform about the balance and the imbalance in real-time.