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Welcome to this month’s Safety in the Market monthly newsletter. This month I’m going to help you come up with your own Price Forecast on the Euro, EC-Spotv in ProfitSource.
Now don’t worry, I’ll still give you the number I am looking for, but I will start you off and those who wish can go and do the work themselves to see what they come up with before comparing their answer with mine.
It’s very easy to simply scroll down to the bottom of this article and get the number – but you will grow as a trader if you follow this simple lesson.
The lesson is from David Bowden’s Number One Trading Plan, Section 11 – Price Forecasting. Depending on the version of the manual you have, the lesson on “Prime Numbers” starts on page 145.
Your first job is to re-read pages 145 through to 153 (I am assuming you have read them at least once already!)
While doing this, you will come across two key things on page 149. The first is a phrase from David that has now become a big part of my trading. He says, “It is from yearly or seasonal ranges that you get the ability to call the big moves. There is no other way.”
The second is a chart of the SPI200 (AAI-Spotv in ProfitSource) from 1993/94, where David is highlighting a range of 256 points. Now, recreate this chart in ProfitSource as I have done in Chart 1 below.
Chart 1
click chart to enlarge
Note that the market made a range of 256 points to the upside and then made a later top at 2368? The entire range up was four times 256 – the First Range Out.
The second thing you will notice from David’s chart is that the 256 point range in fact repeated several times throughout that range and even continued on the downside. Note where David has drawn a coloured rectangle of the 256 and 512 (2 x 256) point ranges in his chart.
You can play around with this for yourself by using the ABC Pressure Points tool in ProfitSource. Simply left click once on the tool, left click once on the 1341 low as your Point A (start of the range), and once on the 5th January high as your point B (end of the range).
You will now be able to project this 256 point range forward, by moving your mouse and applying the point C to future lows. You will quickly see the power of this technique at work.
So what does this example have to do with us traders in the year 2010, 17 years later?
Well, this is a technique that is always worth watching in the market, but it happens that the current bear market on the Euro is unfolding in the same manner.
In Chart 2 below, I will get you started. We begin at the November 25, 2009 top and head down 929 points.
Chart 2
click chart to enlarge
I have provided the basic structure for you to look at in Chart 2, now have a go at recreating David’s work.
I will provide some more evidence of the price in a moment, but will just add that David’s 256 point range example has always fascinated me as a student, but seeing David’s work on my own market has been a real thrill. I thoroughly encourage all students to pull apart their own market using David and Gann’s time and price techniques.
In Chart 3 below I will apply the most recent major bear market range to the November 2009 top, to compare this current bear range to the last bear range and also give us a price forecast.
Chart 3
click chart to enlarge
Chart 3 shows the bear market range from the All Time High in July 2008 down to the October 2008 low.
In Chart 4 we will use a smaller picture range to project going forward.
Chart 4
click chart to enlarge
As you can see, there is a number that is coming up repeatedly in all these exercises and it is a number I believe the Euro will reach by the end of the year.
The number to watch is around 1.1480, and I’ll be discussing this more at the Hot Commodities Summit in Sydney. Hopefully you have recreated these charts and put the forecast together for yourself, as I said from the start, you will get a lot more out of this exercise that way.
Be Prepared!
Mathew Barnes
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