Aaron
Lynch
 

Following on from last week’s article, let’s focus on the more recent swing ranges that RIO has produced since the middle of July. The process of calculating swing ranges and identifying the harmony that they produce is made very simple with the Safety in the Market software. Without it I would be back to constructing my charts by hand. I am aware that there are a number of traders out there who still do their charts by hand. This process is critical in cementing your knowledge and if you have the time I would recommend that you still chart at least one market by hand to keep in touch with these skills.

The chart below shows the RIO swings. I was asked by students during the week what ranges should we be comparing? I take the approach to compare both up and down swings to each other and look for any harmony. The most important thing that I am looking for are ranges repeating, this forms a big part of my analysis. Looking further outside that though, I do not limit my comparisons from one range to the next, I look at all the swings within the current trend and utilise whatever the chart is trying to tell me.

So when comparing these ranges, the major harmony that my analysis shows is that for each of the up swing ranges 3, 5 and 7 they are all around 2/3 or 66% of the previous down swing 2, 4 and 6 . We also see areas where ranges are repeating, ranges 3 and 7 on the up side with 2 and 6 on the down side once again show where swing charts can isolate a harmony that other chart types may ignore.



click chart for more detail

As RIO continued its move down we see ranges in harmony and in cases repeating, lower tops with lower bottoms. The move down appears in balance until swing number 8. This price movement down is smaller than the 3 previous down swings. In drawing our swing chart we notice the first higher bottom, signalling a possible change in sentiment. In essence the bears were not as successful in driving down RIO as they previously were.

I visualise this chart pattern a bit like a spring that is being forced down, eventually the spring cannot be compressed any further. The next swing up acted like the spring that had just been let go and we see swing 9 forces up RIO and take out all the swing tops since April of this year. This up swing was 4 times greater than the previous swing, certainly the harmony in regard to the previous ranges has changed.

The previous swing top before swing 9 was swing 7 at $32.00. Combining our knowledge of how the ranges had been in harmony previously, we can instantly detect when they lose harmony. When RIO broke the $32.00 swing top (looking back on the chart history we see a double top with the $32.00 high on the 10/6/03) we may have taken entry based on these two signals. The breaking of the double top with the understanding that the ranges were no longer in harmony with what had been the predominant trend.

In constantly evaluating our ranges we are always in a good position to gauge when a market is progressing in a structured way, or flagging a change in that harmony. Swing charts and watching ranges can be used as a primary means for trading in the market or combined with other styles and used as a secondary supporting tool. Either way, once understood, watching for harmony in the ranges can provide an excellent tool for profiting in the market.

Good Trading

Aaron Lynch