Complementary technical tools are an important adjunct to the primary Elliott Wave analysis that is used to generate trades. This was demonstrated in our previous article on Compuwave in the August/September 1988 G&EW, where standard computer generated technical studies are used to help conﬁrm the current Elliott Wave count. Now with the development of the widely used Market Proﬁle analysis, new insights into analytical and trading techniques can be gained in conjunction with Elliott Wave analysis, to form the concept of “Market Waves”. This article will illustrate one particular application as it was used in the generation of day trades in the Bond market.
I recently spent a of long and tense hours at the hospital bedside of a close relative. I noticed that a nurse would appear in the room at regular intervals, chart in hand and instruments at the ready. Her primary duty was to measure and record the patient’s vital signs. She would rapidly check to ascertain whether the patient was still living, and if so, how well. Having noted and recorded pulse, blood pressure, respiration and temperature, she would as quickly move on to see if the patient in the next room’s signs remained vital.
In that I have yet to lose my interest in attractive nurses, and charts have long held a fascination for me, albeit my experience is more with stock charts than medical charts, I reﬂected upon this periodic hospital ritual. The nurse’s job appeared to be primarily one of recording data for the doctors who would, I hoped, turn the information into both a diagnosis and a prognosis. Their ability to look at all of the available data, combined with their skill and experience over many years, were the key to the decisions they would be called upon to make.
Time is the most important factor in forecasting market movements. The future is a repetition of the past and each market movement is working out TIME in relation to some previous Time Cycle. W.D. Gann. Time is: the most important dimension in market analysis, yet it is the most ignored factor. The best most traders and analysts can come up with in timing the market is to look for so called cycles of fixed length periodicity. This is a simplistic view of market movements that does not reﬂect market activity at all. The key to market timing is found in the above statement by Gann, “Each market movement is working out TIME in relation (proportion) to some previous Time Cycle.” Gann described three primary methods to determine time periods when change could be expected in market activity.
Gann’s general forecast in 1920 was for two bull and two bear campaigns. The ﬁrst bull swing was to culminate around April 22-24 with the bearish reaction ending in mid-June. Another bull rally was to be born in this decline and the ensuing uptrend was to have lasted until August. Gann warned about the last four months of 1920 having serious declines, ending in a panic around December 20.
While Robert Prechter was grabbing headlines for “Dow 3686″ and posing with miniskirted models in People Magazine three and-a-half months before the debacle of 1987, Jack Frost was quietly sitting on what may yet turn out to be one of the great forecasts in stock market history. On September 21, 1985, with early September”. Frost was not rattled by the subsequent drop that corrected 60 percent of the third wave advance from 1984. After all, he had foreseen a 50 percent drop that would have taken the Dow down to within 62 points of the October 19 close.
After the crash he predicted that the next sell-off on the Dow would hold above that October close, which it did in early December, and that the Dow would yet record that when it came to calling the ’80’s bull market, the celebrated Robert Prechter was not playing in the same league as his senior co-author A.J. Frost, who wrote the ﬁrst draft of the Elliott Wave Principle.
If one stores up gold and silver when the Sun enters Simha (Leo) and sells them in the ﬁfth month, he will get proﬁt.”-Brihat Samkita (Ancient Indian text). Futures trading and ﬁnancial astrology are much older than one might imagine. Over 5000 years ago, ancient Indian texts explained in great detail how to forecast and make a proﬁt on metals, sugar and grains. Some of these seemingly simple principles still have a profound degree of usefulness today and form the historical roots of Western ﬁnancial astrology. A close examination of the Indian system of astrology reveals that it has predictive power above and beyond that of Western astrology. W.D. Gann obviously realized its value since he went to India and studied it.
Between 1983 and 1987 1 had the fortune of writing a monthly column for The Market Technicians Association Newsletter entitled, “Personal & Professional News.” The column focused on interviewing notable technical analysts and strategists in our industry, many of which could be described as being legends in their own time. In fact, I probably have enough material to publish a small book.
One of the many things I learned writing the column is that you don’t have to be famous to be right. Most famous analysts got where they are because they regularly appeared on ﬁnancial television programs, spent huge sums of money running ads or hiring expensive public relations ﬁrms. I guess I fall somewhere in the middle of this group. There are other technicians, however, who don’t seek publicity and don’t promote themselves who have, in my opinion, more important things to say than they are given credit. One such individual is A.J. Frost.
Afew short years ago, most stock and commodity traders would have laughed at the thought of a relationship between planetary movements and price action. The advent of mini-computers and sophisticated astrological software has changed all that! Now a trader has access to huge data banks of price and time parameters to analyze various astro-harmonic cycles. The following is one such example.
The planet mercury makes its revolution around the sun in approximately 88 days. This fast moving planet – only our moon moves faster than Mercury is usually visible in the sky each night.
In the previous issue of the Gann and Elliott Wave. I described in detail the Gann, Elliott and Fibonacci methods I used for an actual trade in the gold market. The methodologies described resulted in a trade that was entered within just two trading days and $10 of the major intermediate term cycle high of June second. That article was completed in mid-August when the open short position described had so far resulted in over $50 proﬁt ($5000 per contract). The article ended with the time and price objectives the market indicated for the termination of the move.
Let’s brieﬂy review what those time and price objectives were in mid-August and see how it came out. The price objectives for the termination of the short trade fell at the 418-423 zone, 396-397 zone and the 384. All were based on the December,1988 gold contract. The intra-day low for that cycle fell at 395.50 on September 26, just .50 below the projection! See the article in the previous issue of the Gann and Elliott Wave for how those price projections were calculated.
Gann made millions in the markets by doing extensive historical research to determine how angles, numbers and astronomical cycles coincided with trend change dates. Much of this research was never revealed in Gann’s courses, and many believe that he placed his advanced knowledge in coded form in his published works.
We do know with certainty that Gann believed the relationship between numbers and price cycles was the key to successful market trading. His research convinced him that in an unknown way these mathematical principles seem to cause the market to move toward given price targets within certain time periods. “If you wish to avert failure in speculation we must deal with causes. Everything in existence is based on exact proportion and perfect relationship. There is no chance in nature, because mathematical principles of the highest order lie at the foundations of all things, Faraday said, ‘There is nothing in the universe but mathematical points of force.”’