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It always amazes me when people tell me that techniques are too simple to work. I’m not pointing the finger here, I have done exactly the same thing myself. For example, take Gann’s rule of markets moving in equal sections.
In his Ultimate Gann Course, David Bowden compares this to Elliott Wave breaking the market down into three sections. While Elliott would describe the pattern as “5 Waves”, being three impulse waves and two corrective waves, Gann would call it three equal sections, with the impulse waves and the sections being labelled the same.
When I first saw a diagram of Gann’s sections of the market, I thought to myself “that’s all nice in theory, but in reality, the market never moves in three equal sections.”
Since then I have seen literally hundreds of examples of a market moving in equal or close to equal sections, on all time frames from daily to weekly to monthly charts, as well as intra day charts.
The bull market we saw on the Euro (EC-Spotv in ProfitSource) from March 2009 to November 2009 was made up of three almost equal sections, as shown in Chart 1 below.
Chart 1
click to enlarge
There are a few things to note about this chart. Firstly, the second and third sections are very similar in terms of price, with both being larger than the first section. Also, with the second and third sections being almost equal in price, there is also a relationship in terms of time, with the third section taking four times longer to complete than the third section.
As a sidenote, those students who attended Safety in the Market’s Master Forecasting Summit in September 2009 might like to review the homework I set them on the Euro based on the work we did on the last day of the summit. The homework led you to forecast a major top on the Euro on November 27th. The actual high of the year came one trading day earlier, on November 25. Now to wait for the Dollar/Yen forecast!
But for now, back to the Euro! From the November top, we have seen the Euro decline. I am looking for the Euro to start its next bull campaign towards the end of the first quarter of 2009 and then move on to a strong 2010. But first it needs to make a strong low. Chart 2 below shows the important percentage levels of the 2009 bull market range. The most important level, the 50% milestone, is highlighted in red.
Chart 2
click to enlarge
The 50% level is worth watching for two reasons (other than the fact that WD Gann said you could make a fortune trading this one rule alone!).
Firstly, it gives us a potential price support target to watch for, and secondly because it allows us to rate whether the move on the Euro is strong or weak. If the Euro can find support and make a bottom – possibly in mid-March – above the 50% level, it will show it is a stronger market. If it can’t hold the 50% milestone, it will show that it is in a weaker position.
Be Prepared!
Mathew Barnes
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