This weeks article has an example of a more advanced technical approach that will blow you away and get you thinking about your future education.
Technical Analysis has been gaining an ever-increasing following over the past couple of decades and has simply exploded with the increased capabilities of computers to aid in analysis. However, in years gone by when mainly fundamentalists roamed the market place, it was widely considered that all movements in the markets were ‘random’ or that ‘Random Walk’ theory applied. You will still find those who will tell you that the markets are made up of random, chaotic movements. This idea goes completely against the basis of theory underlying Gann analysis.
The example that I will provide for you this week is one that was sent in by a Safety in the Market Video Series client. This is his own analysis, working from home, for his own trading. Now the primary aim of this example is to dispel any doubt that the movements in the markets are all random, as I said, it will blow you away.
Chart 1
In Chart 1, we have the SPI 200 from the beginning of August 2002 to the latest market action in March and April 2003. You will notice that we have two blue lines marked on the chart, one running from the 23 August top to the 10 October low and the other from the 7 January high into the recent, 13 March low.
Focussing on the first range down, the market moved 311 points in 48 days, now that calculates out to be a rate of 6.479 points per day. (Is it necessary to go to three decimal points, I hear you say!) Looking at the run down from the January high into the March low, the time frame here was 65 days. Now 65 days at 6.479 points per day calculates out to be 421.1 points or 0.1 points from exactly the range down from top to bottom once more. Now that is awesome! Random, think again!
Now for some focus on what’s been happening since the low. In Chart 2, I have drawn an, ‘Inverted’ angle at the same pitch as the run down.
Chart 2
The first thing that you notice about the run up in the market since the March low is that it is trading above the ‘Inverted’ angle. So if you thought the run down was a strong trend, take a step back and look at the run up. Now the Smarter Starter Pack has provided two excellent ABC Trades on the long side since the March low – any surprises there? For those that have found themselves trying to short the market, have been left with little or no reward for their efforts. When you stand back and look at the market from this point of view you get a sense of why short, was not the go. While this market remains above this angle short positions may be fraught with danger.
The theory demonstrated here touches upon a technique taught by David Bowden in his Safety in the Market Video Series. A classic Gann Set-up involves not just price or time. It is a combination of Time, Price, Position, Pattern and Volatility. This is an example of one way that Time and Price can come together.
Until next week, all the best in your trading and analysis.
Noel Campbell