040903
In this showcase page, we'll take a look at a nice time and price trade that setup earlier today on MSFT. The first tip-off came from the standard Fibonacci tools. MSFT had made a nice zig-zag decline and was rallying as part of the fourth leg of this pattern:
So the price level that we just bounced off is 78.6% of the last swing C-D, as well as 61.8% of the larger swing A-D. It's actually pretty easy to spot these clusters as long as you don't get too carried away with using too many different ratios. There are lots and lots of magic numbers that are important, but watching them all will just drive you crazy. Sticking with 61.8, 78.6, 127.0, and 161.8 will give you most of the big stuff.
Now that we know we're at an important cluster, let's take a look at our Gann fans:
The problem with a lot of Gann tools is that they require a very fine understanding of chart scaling if they're going to be of any use. Strangely enough, it's Gann's most famous tool of all that lends itself to an approach that doesn't require any special scaling. Gann fans are based on the key 1x1 angle that defines the scale for all the other angle lines. So once you set this 1x1 angle, you instantly know how steep the other lines need to be when they are drawn on the chart. Rather than using a special scaling factor, we can just let the market determine the appropriate slope. In the case of the red fan, the 1x1 angle runs from point A to point D. You can see it on the chart. The idea is that the market has a pretty good idea what scale it's running on, so rather than worry about what numbers to use just let the market figure it out. The blue fan is set so that the 1x1 runs from point B to C.
So these two fans are running on different scale factors than each other, but both are in tune with the market since they are based on actual price swings. This means the lines that complete the fans should have some bearing on future support and resistance levels. If you take a look at the last bar on the chart (point E), you'll see that it's hitting an intersection point between both the blue and red fans right now. This tells us that the market is at a key price level here, especially given the condition of the Fibonacci retracement levels as shown before.
Now let's take a look at time:
First turn your attention to the bar counter at the bottom of the chart. It's counting backwards from E, and is counting in Fibonacci increments. So point D hit at 13 bars, point C at 21, point B at 34, and point A at 55. This is a very clean pattern, as everything is very accurate. When you see a countdown like this, pay attention!
The other tools on this chart are mirror image foldbacks. The last showcase went into detail about how to use multiple mirrors to find turning points, so please review that article in the archives if this is new to you. The red mirror is anchored at point A, and the green at point D. Note that both of them show a turn due very close to point D. The red mirror is forecasting a bottom, but we aren't really concerned with direction here - only the fact that there's a turn in the right spot. Not only that, it's important that two separate mirrors are giving us a turn in the same location on the chart.
So there's a lot going on here. Let's take a look at what happened:
This bar marked the top of the rally and MSFT dropped strongly for the rest of the day. So it definitely pays to keep track of the time and price trades. They definitely take a little work to find, and you're not going to be able to catch them all unless you're really good. But the good ones always happen at cluster points, so you can use that information to help you locate them. First find the cluster using tools that are easy to apply, such as Fibonacci retracement levels. That gives you a potential turn to examine more closely. Then check out the Gann techniques, ratios, counts, and the astrology. (Incidentally, Pluto was giving us an indication at point E in conjunction with all this other stuff.) If you find that an overwhelming number of tools are all coming together right at this point, then you know you've found a good trade and can get in with a fairly tight stop. If not, it's just a minor cluster so move on and wait for the big one that's just around the corner. These show up every day, so they're not that few and far between.
Good luck, and stay tuned...