Market respects a prior swing

Take a look at the chart below, this is what I use for the ABC to D set-up I designed (this is using a derivative of Robert Miners techniques, namely his APP method of projecting future swings. [Please note, This set-up is defined clearer and in more detail in my soon to be published Money Manual]

The thing to note is that point D (along with other points between points C&D – not shown or detailed) were projected at the time the market made point C!  It’s only since that the market has filled the space between C&D.

I wanted to show you this example as the market obviously replicate 100% of the swing A-B – Hopefully food for thought for you to study and research further.

Timings

Why weren’t I getting nervous at point C back in December?

Because IF the market was bullish then the power would still be to the upside and support of some description had to be found by the market – It tracked to the tick a key Fibonacci level and then bounced upwards – eventually hitting the 100% A-B swing from point C @ point D

Now with this level of analysis it is impossible to tell at point C whether or not the market would hit point D – But we could have had target levels between point C & D (levels not shown) and once those levels are reached I would take off a certain % of profit just in case the market failed to reach point D.

The questions you should now be asking are:

  1. Are there any further levels above point D?
  2. What are the levels underneath point D (coloured lines shown)
  3. Why has the market RALLIED when all the news and opinion over debt and Europe so NEGATIVE?
  4. What’s next for the market?
  5. How is this possible to virtually predict market swings?

Well let me try to answer those questions:

  1. Yes I have levels above point D – not shown on the chart.
  2. The coloured lines and levels under point D are Gann and Fibonacci levels of the range point A-D AND the range C-D.  If the market has a tempory reaction against the upward trend then these are the possible support levels – I know there’s many, but using these with your other analysis could help identify possible turning zones – I only detail Gann levels in my Money Manual, nowhere else on this site.
  3. The markets work to their own hymn sheet – not the news, economists or governmental thoughts.  The market will do what it wants whenever it wants.  The key point is that market swings of any size are in direct relation to prior swings somewhere in history – so the market has to form and complete that swing before it can correct/react – I have found evidence that this is exactly how markets move – not randomly!
  4. That depends upon your timescale – as a daily trader I’m expecting sideways to upwards movement over the next few days probably price will be contained under the May 2011 highs and a reversal could be on the cards – If that is the case we are now looking to pick a TOP in the market in the next few days.  My personal choice would be to wait for any reversal, let the market find support in the A-D range AND see what the reaction that should occur, does – if it fails to clear the top it could be time to short – I’m not showing the weekly or daily DTosc’s but the weekly (higher time-frame) is way Overbought on both the 13 & 8 settings – this to me suggests a downward reversal at some stage over the next few weeks – even if all the market does is stall and move sideways this kind of market action will agree with the weekly DTosc’s positions.
  5. The market moves in waves, each one of those waves is as a direct result of previous swings in history, if a new wave/swing is linked mathematically to prior swings then it also stands that it’ll represent in some form a % growth of those swings/waves – obtaining the exact detail is the hard part!  My analysis above is based only on Fibonacci ratios, there are other ratios and techniques you could also use but that requires a greater depth of understand and is a future course.

Can I just add that although I’m looking for a downward reversal – I don’t know to what extent, it might find support in the range A-D and just ponder about in there, moving sideways for a few weeks and then blast to the upside or it might take out the low at point A and carry on down – the point is we at this stage just do not know – we have to follow the market action and constantly update our analysis rather than just diving in and taking any old trade – W.D. Gann said back in the early 1900;s follow the trend!  Wise words.

Those that follow the trend are now looking to be BULLISH – I’m open to that but I’m also aware of the overbought nature of the markets and how easily price could fall – if you look at the market from Oct 2011 to present the TREND is clearly to the upside, so we now have a trading conflict = Higher highs and higher lows = Uptrend, BUT my other analysis suggests a top is forming be it short-term or long-term – at least I’m waiting and prepared for a minor correction or major reversal – either way I can wait for the train to stop in the station and board it either direction.

You will also notice that from the chart above the market has advanced a bit over the past few days – I’ve not had chance to update the chart – the Gann and Fib levels between points A-D have changed slightly as the market made a new high, higher than point D.

The purpose of this post is to show you that the market respected to the tick the swing A-B, projected from point C

Newer traders will be thinking to themselves why can’t I just find points ABC and project to D?  You can but you have to be aware and accept that the markets are dynamic, they move to a set of rules – if you are not aware of those rules you are guessing at likely turning points.  There is no 100% certain way of success in the markets – that in itself is another blog post but for the time being it means that sometimes your analysis and trading will fail occasionally – what I’m trying to do here is reduce the failure rate and increase the probabilities to my favour – That’s why I use Time, Price, Trend and Momentum all in combination to determine trading possibilities.  I would love to just look at a chart for 2 seconds and say right this and that WILL happen!  It’s not possible to do that.

I’ve also run market timing cycles and ratios for the above chart (not shown) and they suggest Friday 3rd Feb and Monday 6th Feb 2012 as dates for a high probability turning point – obviously this is not set in stone but we have timing suggesting a turn around on those dates, the daily DTosc is approaching the Oversold zone and a reversal this week might push it up fast into the OB zone which would add weight to the reversal option – lets watch and see.

Remember I don’t really like trading indexes – the shares that make up the index move greater %’s than the actual index itself and some can be rallying whilst the main index is falling – think about it!

As usual any questions please ask via email: thehovistrader at gmail.com

In the meantime hope you have a great couple of weeks.

Remember this post is based on my own analysis and thoughts on the markets – I can be wrong do not use this to base trades off – hence why I very rarely provide live up to date charts – it stops the followers from copying trades and potentially getting into trouble.

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