Gann Shapes other than the Square of Nine

The Square of Nine and the Hexagon are the two prominent Gann numbered "square" charts. There is an abundance of writings concerning these two tools and their usage. The majority of the writings about Gann's usage are mere speculation, although some speculators seem to have some pretty good evidence to back up their theories.

Concerning the hexagon, Square of 4, and other numbered charts; I've made an interesting observation. At a basic level, the x-agon numbered "squares" are just fancy quadratic equation calculators. ie the hexagon maps out a parabola or rate of change at one rate, the pentagon at a slower rate, the nanogon at a higher rate, etc.

These contrast from the square of nine in that the square of nine is more of a constant whereas each of the numbered squares is a variable rate. For example the spacing between 180° on the square of nine is the same regardless of where you are on the 180° line. But on an xagon, the spacing increases/decreases with each ring.

One way to view the difference is that the sq9 is the speedometer and the other numbered squares would be tachometers. Your rpm's can be different even though your speed or velocity remains the same depending on what gear you're in, whether you're ascending/descending a hill, weight load, etc.

Gann more or less explained it when he described the hexagon:

"Since everything moves in a circle and nothing moves in straight lines, this chart is to show you how the angles influence stocks at very low levels and very high levels and why stocks move faster the higher they get, because they have moved out to where the distance between the angles of 45° are so far apart that there is nothing to stop them and their moves are naturally rapid up and down."

Let's take a look at GE. GE is one of the biggest defense contractors so I chose the Pentagon shape just for poops and giggles. Instead of dividing by 4th's or 8ths like a square, the pentagon divides evenly by 5ths or 360/5 = 72°. Halving that = 36° increments. Going around the circle, the divisions would be:

0°

36°

72°

108°

144°

180°

216°

252°

288°

324°

360°

Price made a high of 42.14 on 10/02/2007 at approx. 21:30 GMT. Converting price to a 3 digit number = 421. The most recent low is 12.58 on 11/20/08 at apporx. 16:35 GMT. Converting that price to 3 digits = 125 or 126. That is a drop of 295 points. That is also 288 trading bars or 414 calendar days. 290 trading is off by a few days. But converting each day to a degree would be 288 traded days. It is also 1997 hourly bars or converted to 3 digit = 200. (Halving 36° = 18° which is where 200 falls on the 'wheel'.) Below is a chart showing the correlation between 36° increments and the numbers 421, 125, 414, 288(290), and 295.



One technique taught by some of the Gann Masters such as Ferrara, Mikula, Myles Walker, Earik Beann of Wave 59 fame, and others is to plot the locations of the planets on the squares. For example, if the Sun is at 220°, mark on the chart 220 and see if there is a correlation or aspect to either price, time, or other planets marked off on the chart.

When it comes to the hexagon and other x-agon charts, I think the correlation with mapping out planets comes into play by taking into account the point of observation of a planet's orbit. Since the planets are in elliptical orbits, the speed at which the planets travel would appear to speed up/slow down depending on your point of observation. For example if you were to be looking lengthwise at an ellipse and angled the plane of observation to be perpendicular or close to it, it would appear parabolic and the planet would appear to speed up the closer it came and slow down as it went away from you. In the next installment I'll show the planets on the pentagon and how they correlated to the big down move and picked the high/low intraday within 5 minute windows.

Links to articles about Gann numbered squares/shapes:
http://www.sacredscience.com/ferrera/ganncube.htm
http://www.wave59.com/showcase/121304.asp

Wanna see me naked?

Akuma99 privileged me with the opportunity to write some guest articles on his blog. Since he's primarily a naked trader.. meaning trading with no indicators and not necessarily in the buff although I suppose those aren't mutually exclusive.. I wrote the series on using some simple time counts to provide market turn timing marks on a naked chart.

Links:
http://beginnertrader.com/blog/technical-analysis/naked-time-part-1
http://beginnertrader.com/blog/technical-analysis/naked-time-part-2
http://beginnertrader.com/blog/technical-analysis/naked-time-part-3

Be sure to check out all of Akuma's blog posts. Great stuff. Especially the MT4 programming. He's made some tools for me in the past and his work is top notch. He definitely knows his stuff. He's also been a huge inspiration considering the health battles he's one. So here's to you, Adam. Cheers. *clink*

True Market Geometry Part 2

Fancy geometric patterns on the chart are all fine and dandy but the question is, "can the pattern be used as a practical tool for actually making trading decisions?" The answer is a resounding but qualified yes. While the patterns may map out paths of price and provide price and time projections, the basics of sound trade decision making still apply. Such as buy support and sell resistance. I don't recommend trading anything based on one condition alone and these patterns are no different.

The first chart started as a peak to peak measure of price that perfectly projected a swing low. From the swing low a new geometric pattern was created that essentially was a measurement of the decomposition of the cycle. In other words, the waves start to get smaller as the energy dissipates. Note how price interacted with the lines and arcs within the pattern. Interesting but nothing really sticks out as a trade until price rockets to the top of one of the circles. Now the triangle apex becomes a legitimate target of both price and time.



This next chart shows the exact same picture of price but overlayed with a pattern that was based on a low to high swing. Price interacted with lines and arcs but again, nothing too tradeable until price shot up to the boundary of one of the circles. So now price is being held by two different circles. The triangle apex on this pattern is now a legitimate target of both price and time although it is further out in time and lower in price than the previous pattern.



Now that it has been determined that price is at resistance the next step is to formulate a trading plan.

From the first chart, the line projections from the initial yellow pattern create a trading channel. Channel trading is one of my forte's and I had designed an entire multi time frame system around the concept of channel trading.

The premise of channel trading is to buy or sell when price has reached a channel boundary preferably in the direction of the channel. IE buy the bottom of an upward channel or sell the top of a downward channel. The example setup isn't ideal in that price is at the top of an upward channel. However, there are a few things that make the trade acceptable. First is the fact that circles on both charts are acting as resistance. Second is that the move up was a rocket. What goes up that fast will likely come down at at least 50% of the way most of the time. So the initial target is the middle line in the channel or the median which is also the triangulation point. The upper channel and circle also provide a good area to place a stop above.

The second chart gives a triangulation point that is pretty close to the rising trend line that price had followed previously. That trend line is a high probability target and another reason why it's worth trading against the channel of the first chart.

The Plan:
1) More than one condition indicating a turning point? - Check.
2) Identifiable price target(s)? - Check.
3) Additional indications that the price target(s) are valid? - Check.
4) Discernable and logical placement for the stop/loss? - Check.
5) Positive risk/reward ratio? - Check.

The first chart shows the entry point but not the stop which I added after the screen shot was taken.




The channel median line and triangulation point of the first chart hit spot on. Target 1 achieved. One thing to note about these triangulated points in price and time. Price doesn't always take an exact path to the point. As is shown, price actually dropped below the target area and meandered into it. It's not common for the target area to get surpassed and then price retracing back to the projected point. So it's important to have other exit criteria than just the projected point.

The triangulation point from the second chart also hit spot on. Target 2 achieved. There was positive price to oscillator divergence on a different chart (that I didn't capture) so I chose to exit.

I hope this example shows that price does truely behave in a geometric fashion and that there are some very outside the box and creative ways to apply geometry to map out price behavior.

The final part of this True Market Geometry series will show some interesting correlations between geometric patterns and price action that shows how 4 dimensions are represented in a 2 dimensional price chart.

Manual Gann Square

Here are the step by step directions for creating a Gann Square manually in Metatrader 4. It's actually doable in any charting software that has trend lines and preferably a static cycle tool or bar counter.

Background
The Gann Square or Master Chart is a geometric chart dividing a square into 4th's and 3rd's horizontally, vertically, and diagonally. The standard square is typically a perfect square. IE a Square of 90 is 90 bars x 90 points. However, not all trading instruments and time frames work out to be perfect 1 to 1 price to time relationships. Moreover, applying other Gann techniques such as squaring a range of price and/or time can yield good results as well. So adjustments are perfectly allowed.

Usage
My usage of the Gann Square is to divide time and price on also create a 3rd axis in space. The vertical lines divide time, the horizontal divide price, and the angles divide space. The play is to watch price reaction at intersections of price and time, price and angles, time and angles, or all 3. Horizontals and angles will more often than not create support resistence. The 1x1 lines are the balance lines. Price tends to gravitate towards the 1x1 lines.

Construction
Constructing the Gann Square is actually really simple. No more difficult than connecting the dots. Only our dots are evenly spaced around the square.

Step 1: Determine the starting point and square size. The starting point is usually from a signicant swing high or low. For double tops/bottoms, try both and see how things look. Try to avoid picking spots out of consolidation. It's also advisable to choose a spot that has enough price action to the right to get an idea how valid the square size is as it's being built. If the first few lines added have no correlation to price action whatsoever, choose a different square size.

There are many ways to determine the square size. Gann numbers such as 360, 90, 144, 52, etc., all work well. These can be days, bars, degrees, or whatever measuring device suits your fancy. All will work because of the harmonic nature of charts. But ideally, one is chosen that fits the data profile. For example, it may not be practicle to choose a 360 hour x 360 pip square for data that swings 600-700 points in a move for the time frame. In that case, 360 hours is probably fine, but the heighth could be adjusted for the more recent price range. Or adjusted to the nearest whole circle number which would be 360 x 2 or 720. Or by degrees from the square starting point which might be 90° on the square of nine as the most appropriate price range. Again, there are no hard rules. 39 x 42 is perfectly acceptable. (Any square will work imho because anything divided evenly will yield proportion within itself. As long as the square starts from the right point, that self proportion should still correlate because price moves are nothing but various degrees of proportion.)

For this example I chose a range of price for the height. For the width I chose 360 bars. I use the MT4 cycle tool to measure out 360 bars from my swing high. In MT4 it's important to use the cycle tool because MT4's chart scaling is different on the empty space right of the price area. This creates a lot of charting issues when dealing with visually "squared" charts. If a verticle line is used, it will move out of proportion. What started out at 360 bars out will end up creaping up and up around 315 bars out as time advances. The cycle tool will stay consistent.



Step 2: Divide the square. The next step is to divide the square into 4ths. I start by taking the cycle tool and shortening up the cycle. So 360 now becomes 90 with the fourth line being the last line. From there, I draw in 45° trend lines from corner to corner. Where the 45° lines intersect the verticle lines are where the horizontal lines will go.



I also divide the square into 3rds. Add another cycle tool and adjust it to divide the square vertically. 360/3 = 120. I typically change the line style to dots or dashes. Where the 1/3 verticle lines intersect the 45° diaganol lines are where the 1/3 horizontals go. I also set these lines to dots or dashes.



Step 3: Add more angles. Additional angles are drawn in connecting the corners to the mid point of the square boundaries. In other words, from the top left corner, a line is drawn to the 4th verticle at the 2nd horizontal. Another line is drawn from the top corner to the 4th horizontal and 2nd verticle. Repeat for four corners.



Lines connecting the mid points to the other mid points are added. I usually dot or dash these. The square is now complete.





Validation
It's important to validate the square. As mentioned in step 1 it's important to have sufficient price action to the right of the square start. Ideally, it was easy to validate things as the square was built. Validation is simply observing how price reacts at horizontals as support/resistence, at verticles as price reversal/acceleration points, and at the angles as support resistence.

The chart below has highlights on where price was relating to the square. The hits aren't dead on exact in terms of support/resistance, but the first vertical line was a hit and the 2nd vertical is shaping up as a good hit. Also note that smaller squares can be created and divisions of those squares will typically yield hits. The upper left corner shows an additional division line where two angles intersect. Any intersections should always be observed as possible reaction points.




Conclusion
The Gann Square is a great tool for measuring price and time and can encompass many Gann techniques. I find the tool invaluable not only as a timing device but a device that saves time hunting down price reaction areas. I mean which is easier... glancing at a Gann Square or working up a Square of Nine? Circles and additional squares can also be added to create even more levels of harmonic proportion. I'll update as this square plays out. Based on the hits so far, this square should result in some finding some good trades.

Edit: I'd also like to add that drawing the squares by hand is a good mental exercise. It focuses the mind on a single purpose of syncing to the vibration of the chart. It also trains the eye to see proportion on a naked chart. After enough practice, you'll be able to eye ball a chart and guesstimate where all of the lines are based purely on price re-action points. The eye and mind seek harmony and proportion just as the ear seeks harmony and melody.

True Market Geometry Part 1

There are multiple types of market geometry. There are geometric ratios where price and time have geometric relationships that can coincide with calculations from geometric shapes. Ala fibs, harmonic ratios that result in retracement levels, Gartly Butterflies, and what not. But one of my favorites is actual on the chart geometry.

Three basic shapes. The circle, the triangle, and the square. Sacred/contemplative geometry has used those three basic shapes to create patterns of the platonic solids throughout the ages to describe the universe physically, spiritually, and philosophically. Kind of new age'ish, but actually old age'ish.

In physics and chemistry, the platonic solids are literally three dimensional manifestations of vibration. IE, crystals, the periodic table of elements, cymatics (the image in the upper left), the solar system, etc. So why couldn't a platonic solid or pattern map out the vibration of price?

One of the concepts I've taken is that since price is visually a vibration, hand drawing the 3d representations of vibration.. ie geometric designs.. helps sync up the eye and mind to the vibration of the chart. Sort of like tapping your foot to the song that's on the radio. I also think that on a conscious level, using basic shapes in an artistic manner taps into the creative side of the brain so that the experience uses both sides of the brain. Subconsciously, I think more goes on than that, but ultimately the subconscious also becomes in sync with the experience. Maybe it's first. I don't know. Chicken or the egg. But the point is that everything gets in tune... the chart, the body by way of physically drawing the objects, the conscious, and sub conscious.

I'm going to quote a trader friend of mine from a post he made in a discussion a year ago concerning price and time relationships.

"If you think about it, to trade, we don't really have to arrive to the vibration factor of time through some calculations, it is also possible and much simpler through simple observation when trend changes the first 2 swings or so can tell us the vibration factor of time." - Soso Beton

From Soso's quote, "the first 2 swings or so can tell us the vibration factor of time". That is so powerful because a swing or two can literally map out a geometric form both mathematically and visually.

Below is an example where I started with a simple Merkaba star tetrahedron with one of the sides based on the final swing of an up move. From that shape, I derived vertical points of time where angles within the shape crossed. But the grand daddy was price and time convergence at the apex of one of on of the triangles. The lines of the star also projected out into space and time birthing another star. This new star triangulated an exact point for the swing low in both space and time. Price just barely missed being another dead on triangulation towards the termination of the star cycle. Also note the vertical lines highlighting angle crossings coinciding with price reactions.



While I've seen geometric shapes used as market timing and projection tools, I've never seen follow through on the geometric growth of the shapes and patterns themselves. I find that ironic given amount of information out there concerning growth cycles in the markets.

To really get into market geometry and ratios be sure to check out WD Gann, Michael Jenkins, and Brad Cowan.

In Part 2 I'll show a trade unfold using this type of geometry.

e=mc2

Scientists prove E=MC^2 on the sub atomic level with quarks and gluons. They found 5% of the mass was matter which means 95% was space or energy. What does that have to do with trading? I don't know. But there was a statement at the bottom of the article that has everything to do with trading.

http://news.yahoo.com/s/afp/20081120/sc_afp/sciencephysicseinstein_081120235605

"For those keen to know more: the computations involve 'envisioning space and time as part of a four-dimensional crystal lattice, with discrete points spaced along columns and rows.' "

So energy and mass form a lattice structure in 4 dimensions... just like I've been trying to show that price and time do. 3 spacial plus one for motion. Again, I'll refer to Brad Cowan when it comes to the 4D structures of markets.

The crystal lattice is a good study for price-time trading. http://en.wikipedia.org/wiki/Crystal_lattice

Just a sneak peak of a series of posts coming soon....

Some chart art.

Update on Euro shorts

Wed's CPI or PPI or whatever news release shot upward taking out stops. I'm pretty sure a lot of people playing the triangle pattern got taken out. The spike up peaked on a timeline of one chart and bottomed on a timeline of another. On the 4H, price squared up right at 90 deg. price and time and my cycle line before continuing south to the bottom of the larger triangle trendline. 2 winners, 1 smaller loser, 1 b/e on the whole position. In hindsight, I should have closed some if not all of the position when price got in a small triangle. I knew something was up and was thinking a Ross hook might catch me on the chin which it sure did. Either way, the cycles proved to be accurate even though my execution in the end was not.

Bullseye Shot on the Euro

On Thursday I shorted the Euro based on a 4h triangle forming. Normally, I don't like trading inside of consolidation, but on the 4h there is usually sufficient range for swing trading. Especially the past few weeks where the daily ranges on the Euro are over 200 pips. Initial entry was based on the trendline as well as confluence from price-time squaring analysis.

Through the Euro session into Friday, price fell into a channel on down to the 50% area and bottomed on one of my time points. A very profitable start and a good place to exit. However, the plan was to swing trade the larger pattern. I figured price would meander on back to the 23.6 or 11.4 for a setup to add on to the short. Again, being a swing trade, I wasn't too concerned about the retrace eating up the profit of the 1st position because the 4h pattern is strong.

Price congested at the 50% mark after time and there were no signals when price reached the minor time lines. Price finally busted on through the 23.6 with gusto and that made the next time marker the key time marker. I used a trend line cross on the 15 min. as a time mark which also coincided with a 13 bar count from the recent low on the 30 min. Remember, time lines are most important when price is falling or rising into them for 5-8 bars or more.

When price breaks through a key resistence/support area with gusto against the larger pattern or trend, it is many times a false breakout or pattern failure. I was not shaken out because there was still one more key Fibonacci level of resistence. Also, price had gone parabolic. I didn't draw it on the screenshots, but it's plain as day. See if you can see the parabola. Parabolas are nice setups because what goes straight up must come down in time related to the angle of ascent.

When price reached the price level right at time I didn't even wait for a closed candle. This setup is like getting AK and then flopping a full house. 11.4 and it's 88.6 opposite are relatively unknown fib ratios but they're so powerful when they hit. Combined with the 13 bar count, there is no choice but to short. Based on time, I'll be holding on for possibly 3 full trading days and watching for more price-time squaring or key levels of support to fall to add on . A pretty good ending at the end of trading Friday.

One last bite of sushi....

Shorted GBPJPY at a trendline. Closed on a time line. The beauty of trading time is being able to walk away and come back when the time line is up and see how things are going. 160 pips or so. Nice way to end the day. There isn't a reversal signal yet, but I'm outta here anyway.

Another short trade

Static time cycles, oscillator divergence, 360* of price, and a larger frame double bottom led to a nice trade on the GBPJPY today mid morning. Candle charts are 15m. The one showing sq9 squares is 1h.

Entry:
http://img219.imageshack.us/my.php?image=tp_70Nov13.gif
http://img219.imageshack.us/my.php?image=tp_71Nov13.gif

Exit:
http://img219.imageshack.us/my.php?image=tp_72Nov13.gif

The exit was a bit pre-mature in that I existed at the cluster of pivot levels without waiting for any kind of reversal or end of move indication.

A bit later today or tomorrow I'll post some other trades I made yesterday that show that even nailing tops and bottoms to the minute don't guarantee profitability.

Scalping Yen in the Asian Session

I had some time to kill yesterday after work so I decided to scalp the USDYEN pair in the Asian session. I haven't scalped in ages so I thought it would be a nice way to break in to trading again. The Asian session is usually pretty mild so I wasn't expecting any monster moves.

I started with a 1m chart and setup a few static cycles off of some of the most recent major highs/lows. In my research, I've found that any number will work as long as it comes off of a point of change. I'll usually start with Gann or Fib numbers like 12, 13, 45, 68, 120, 144, etc. I may also divide the number of minutes in the session evenly. So for the US stock market it would be 390 minutes divided however. Forex can be 1440 for a 24 hr period or 480 for a specific session.

I didn't have a lot of time to get intricate with top down charting and analsysis so I just went with basic trend lines, channels, chart patterns, pivot points, and oscillator plays.

The first trade was based more on price hitting the top of a down sloping channel and hitting a pivot line. There was upward divergence from the oscillator and a time line had just barely hit, but I felt the pivot and trend line would be solid resistence. I waited for 2-3 candles to close to make sure price wasnt' going to push through and then went short. (Charts are clickable thumbnails.)



Price moved on down to the next pivot line and bottomed at the next time division at which time I closed the short and entered long. Normally, I wouldn't trade against a channel, but price was coming down to a lower range pivot which is usually strong enough support to get some action. Price had also pushed through the oscillator trend line.



There was some erratic action for a few bars and I took a chance adding another long when the next time division came up. The target was the next pivot line. Also, there is a cluster of 3 time points coming up.



Price achieved the target and both trades were closed. Now the task was to wait for price to drop into a time line for another chance to go long and see if price could push through the pivot line convincingly. I jumped the gun on the first opportunity and went long before the candle closed on the time line. It's best to wait for the candle to close at the earliest. It's usually best to wait one or even two candles after a time line especially if there is no discernible support/resistance. I also drew in some saw wave lines to gauge cycle overlap. That provided enough confidence to wait for the next time line to add another long.



Price moved on up through the pivot but did not break the previous highs. The saw wave showed the cycle was up as well as price rising into a division of time so I exited both positions for small profit.



All told, the trades yielded about 75 pips in just under two hours during a relatively quiet time. I wanted to stick around for another opportunity to go long and see if price was able to reach the next pivot (which it did) but the wife showed up. Either way, the first scalp session was a good example of adding some simple time cycle techniques to traditional chart analysis for picking market reaction points to the minute. I don't know if I'll make a habit of scalping since I don't like sitting around in front of charts for more than 20-30 minutes. I much prefer 20-30 minutes of analysis, set entry orders, and then coming back later to see how things played out.

I'm back

I took the last year off from trading in order to focus on school and some other things. I've actually been back to watching charts for the last few months to try and get my "legs" back so to speak. In doing so I've had to re-learn quite a few techniques and figure out what the heck some of my old blog posts were even talking about. On the bright side, I've also gained a better understanding of some of the things I used to do and added some new dimensions.

One of the things I haven't done in a long time is intraday and scalp trading. I've got a whole statistical based system that did quite well for intraday and scalping but like most systems out there it doesn't do a good job accounting for time, although it does give a general ball park.

The problem with scalping and intraday is that things can happen on such a wide scale without the benefit of getting too intricate on the analysis. For example, it wouldn't be the most practical to use my new crop circle method on a 1 min. chart because it would take 10-15 min. to get the patterns right. However, by simplifiying things and just going with some static cycles along with basic price measures such as square of nine price levels, pivots, Murry Math levels, fibs, or just trendlines and support/resistence, there are plenty of spots to pick market turns on the pip and to the minute.

Intraday and scalping also present another aspect that I haven't dealt with in a while and that is trading with the poker mindset. When I say poker, I don't mean gambling. I mean sitting there making quick decisions based on a small amount of information. Folding hands ie cutting losses and moving on to the next hand.

Anywho, I'll be updating the blog shortly with some new findings.