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Welcome to the first showcase page on the new website! Things have been busy over here lately, but I finally found some time to write the next installment in the showcase series. In this issue, we'll take a look at how to zero in on time and price setups.
The chart below shows the 9-5 Count and Stochastics running on MSFT data:
Both the 9-5 Count and SlowK have been very good at catching the swings over the last year or so as can be seen on this chart. As it currently stands, the 9-5 Count has just registered a blue 9 and Stochastics have dipped below the oversold threshold level. These tools are telling that we need to be paying attention here because MSFT might be near a bottom.
You can consider these two tools as part of an early warning system. They are designed to let you know how close you are to a potential turning point in a very straight forward way. The 9-5 Count in particular works very well for this kind of thing, as long term Wave59ers know. Once the tools have given us a potential trade setup, it's up to us to study the chart and decide whether or not this presents a good trading opportunity. One of the best ways to discover this is to analyze time and price relationships happening at a given point.
It's usually tough to keep on top of all the time and price relationships happening at a given time, but it's pretty easy when we only have to check a particular zone. The chart above shows that MSFT is "counting down" to 0 using Fibonacci numbers on a calendar day count. Note that we have four important calendar day counts all terminating within a period of 2 days. Three of them all hit on the very next trading day. The market likes to count down to important points, so it's always good to take a quick look and see if something like this is happening.
The next chart shows more:
This chart details some important price relationships forming here. The market is currently resting just above the 78.6% retracement of the swing A-B. This is an important number because it is the square root of the critical 0.618 Fibonacci number. Additionally, we have a very close symmetry in the two legs down that moved price from the high at point B to current levels. The fact that we're sitting at a cluster like this is very important to notice.
Here's more:
The red lines represent a Gann Fan dynamically scaled to the swing at A-B. What this means is that the 1x1 angle was set to move exactly from A to B. This puts the fan in exact harmony with the vibration of this particular swing. Note that price just touched the 1x32 line from above. You can see that the other lines in the fan have been important in this decline.
Additionally, price moved down to the 12.5% level from B. This is a Gann technique where the price at a particular point is multiplied by certain percentages to get key support and resistance levels. The fact that MSFT is at the 12.5% level means that it has lost one eighth of it's value from the high at B. Eighths are important numbers in Gann Theory, and form the basis of the Murrey Math system currently popular today.
Needless to say, there are a ton of time and price techniques all coming together at this very spot. So the 9-5 Count did a good job telling us to pay attention here! This represents a very good trading opportunity, as our risk is very closely defined. The market really can't fall much more than it has without invalidating the entire price end of our analysis. The result is a trading opportunity with the possibility of a close stop. In other words, the risk-reward is very good right here for a long trade.
Let's take a look at what happened:
As you can see, this analysis correctly nailed the bottom for a nice rally of four points. The object here was not to show that time and price tools work, but a method to keep them all manageable. A lot of Gann books show all kinds of time and price trades, but the authors expect you to sit there and crank the numbers on every single bar. This is difficult to do on a daily chart, and impossible on an intraday one. It's just too much work. A better approach is to take a few indicators that catch a majority of turning points, then use them as the early warning system. The 9-5 Count and Stochastics filled this role very nicely in our case. Once the early warning system goes off, you know to get busy with the analysis because a turning point is imminent.
Happy trading, and stay tuned!