Secrets

[hwsteele]

100 years??? Talk about playing the long game...

I have the same feelings about Gann too - I think he was one of the early snake oil salesmen. None of this stuff has anything to do with why people would take a position.

HWSteele - has your Gann journey yielded profits yet? I see you as a bit of a Tom Hanks - looking for clues along with your husky maiden. Just wondering if you found the actual grail yet?

The simple answer to your question is, yes I have had some very nice returns based on what I have learned from my "Gann journey". The grail? I think I have answered that in post #9.

As far as Gann being a snake oil salesmen, so to speak, I have uncovered too much now to believe that to be true. I have no idea how much money he made in his life but he did seem to know a thing or two about forecasting the future based on the past performance of observable cycles. But that will be talked about later in the thread.

 

[hwsteele]

Sorry, it has taken so long getting back at it here but I have been mostly in bed the last week. When i couldn't stand it much more I would sneak out of bed and get online for a short while but I would get tired way too fast and have to go back to bed.

One quick thing that comes to mind about cycles, now that the meds have mostly cleared the blood stream, is about priced returning to old levels when cycles are over/restarting how ever you would like to express it.

When Gann worked with price charts the United States of America still had real money and not simply a worthless currency. As a result there was very little long term inflation. More shorter term inflation, but the longer term stuff worked out to be much less. As a result prices would actually return to levels they had been at long before before that main cycle had crest and ebbed. Think five, ten and twenty year cycle lengths, and longer also. As a result forecasting price was a easier thing to do with cycles then than now.

More to come...

 

[MoonRocket]

More to come...

Just while we are waiting....Did Jesse Livermore and Gann ever meet?
As I remember it, Livermore was critical of technical analysis.
Gann was perhaps the most extreme TA practitioner that ever existed.
Two of the most wealthy traders, living in the same era, one pooh poohing another's methods................................
So there, nothing ever changes.

 

[hwsteele]

Just while we are waiting....Did Jesse Livermore and Gann ever meet?
As I remember it, Livermore was critical of technical analysis.
Gann was perhaps the most extreme TA practitioner that ever existed.
Two of the most wealthy traders, living in the same era, one pooh poohing another's methods................................
So there, nothing ever changes.

I don't remember which book of Gann's it was in but he talked about Livermore.
I will have to spend some time digging to see if I can find it as I don't want to miss represent what Gann had to say about Livermore.

Something along the lines of Gann losing money because of Livermore running a brokerage firm into bankruptcy that Gann had an account with. Gann said that he was paid back, as was everyone else, when Livermore again had the means to do so. Gann then went on to say something along the lines of backing Livermore when he was short on money because he had proven before that he was an honest man. Gann then faulted Livermores' not trading in accordance with "natural law" as the reason he did not know when his "luck" was running short and should have exited he massive trades.

Like I said I will look to see which of Gann's books what I read was in and then let you know when I find it.

 

[hwsteele]

I don't remember which book of Gann's it was in but he talked about Livermore.
I will have to spend some time digging to see if I can find it as I don't want to miss represent what Gann had to say about Livermore.

Something along the lines of Gann losing money because of Livermore running a brokerage firm into bankruptcy that Gann had an account with. Gann said that he was paid back, as was everyone else, when Livermore again had the means to do so. Gann then went on to say something along the lines of backing Livermore when he was short on money because he had proven before that he was an honest man. Gann then faulted Livermores' not trading in accordance with "natural law" as the reason he did not know when his "luck" was running short and should have exited he massive trades.

Like I said I will look to see which of Gann's books what I read was in and then let you know when I find it.

The book was Gann's "45 Years In Wall Street". It starts on the second half of page 117 and is about half a page long. I am not going to reproduce it here as I don't have permission (or know if I even still need it) But you can find and read it easy enough if you want to.

 

[hwsteele]

OK, this post will be going back to the SQ9.

I only covered a little bit on that so I will go back to it for a short while. (A post or two.)

Here is the picture of it again...

Notice that this wheel ends at the square of 19. (19X19=361)
This is considered important do to the fact that the square of 19 is so close to 360. 360 degrees is, of course, the number of degrees in a circle. When talking with most people I have found that they believe that 360 is simply an arbitrary number that people of long ago used to dissect the circle, but that is not the case. I will go into more detail about that in a later post as it would take away too much time from the SQ9 right now.

Keep in mind that you can use the formula for going around the SQ9 instead of having a SQ9. The most basic way of using the SQ9 is to find the price that your market was at at a high or low and then go around the SQ9 45 or 90 degrees at a time to find support or resistance price levels. Doing this for the SPX or DJIA would require a very large wheel. In cases like this the formula is just easier to use.
The formula is:

Find the square root of the number you are working with.
Add or subtract .5 to or from the square root number.
Then square the new number.
Doing the above will take you 90 degrees around the SQ9 at a time.
If you add or subtract 1 to or from your square root number then you will go around the SQ9 180 degrees at a time.
Adding or Subtracting .25 would move you 45 degrees.
I am guessing that you get the idea by now and can do the math for what ever number you like.

Before long you will be understanding that working with the SQ9 is simply working with the square roots of numbers. I encourage you to do a little research on the math of energy/mass/and the laws of physics. You may get some interesting insights into the markets.

One way that I have seen the SQ9 used is to use the degree that the Earth is around the sun on the outer circle around the SQ9. The start of Spring would be considered "0" degrees while the start of Summer would be considered 90 Degrees and then so on. This is a much more esoteric method to use as you would have to have either blind faith in it or a basic understanding and belief in what I referred to before as The Law of Vibration.
The very basic idea would be the SQ9 and a market are harmonic with each other and with the earth/sun. So when you make a calculation with two or more of the above the one or more left out would still be mathematically/harmonically related to the ones used.

So if you used the position of the Earth around the Sun on the SQ9 the numbers that show up would in theory be harmonic to the markets that are in harmony with the SQ9, at that point in time. This is the reason that Gann used more than just the SQ9. He used number wheel charts of different shapes as they will be harmonic with markets that are not harmonic with the SQ9.

More to come...

 

[hwsteele]

Today, I will take on a different subject than the SQ9.

What I will be talking about today will be Squaring the market.
This is also sometimes called squaring the range, but that is really doing what I am about to explain, but with a smaller amount of price.
Don't worry that will make sense shortly.

This is one of Gann's best techniques as it is easy to do and can be done on or off a chart. You can draw lines on a chart to do this but you can also just keep a record of the market squaring in excel or even on paper easily enough.

This can also give you an idea as to whether or not your market is in a bull or bear phase.

The basic method will be explained with the SPX. I won't be using charts right off but you will be able to follow along on one if you like.

The idea is that price and time, as on the chart, are really different directional spatial units of the same thing. Or you could simply say that price and time are the same thing simply measured in different directions on the chart.

A horizontal line on the chart measures a single price that could be at many different times.
A vertical line on the chart measures a single point in time but at many different prices.
An angle, or vector, on the chart measures both a single price and time, but over multiple examples. Really a vector on the chart is a series of points connected to form an angled line. You could say the same thing about the vertical and horizontal lines but unlike the angled lines the other two only change values along a single axis.

The method of use is simply to start counting from 0, in whole numbers, from points in time where the market has made an important high or low. By important I mean the more important the better.

Now the units you count will be in both price and time. That means you will be increasing the price unit by one at the same time you increase the time unit by one. You may use any time unit, minutes, hours, DAYS, weeks, or months.
Notice I put DAYS in all capitals as this is the best time frame to use for this method. (At least from what I can tell.) The others work but days are the most fundamental. (I think.)

So I will be using days for the first few examples.

This method is where the Gann lines come from. The 1X1 line is simply 1 unit of price moved per one unit of time moved. The 2X1 is two units of price for each unit of time. 1X2 would be one unit of price for two units of time.
I hope you get the picture.

If you use the lines on the chart then your chart needs to be scaled correctly or the tool that has the lines needs to plot them at the correct scale.

More to come...

 

[hwsteele]

The basic idea on using the Gann angles or lines is not a hard one to grasp.
You are not seeing into the future with them so much as you are just giving your self support and resistance lines that are squared to important points in the markets history.

Once a major turn has been established on the chart you can put the lines up to use as the support and resistance lines and to see if you are in a bull market or bear market in relation to the important turn that you are using as the square starting point.

In the most basic form if you have used a low you would want to start the squaring count from 0 and if you used a high you would want to start the count from the high and count down from there.

Where price is in relation to the 1X1 line lets you know if the market is still bullish or bearish. If starting from a low, as long as the market stays above the 1X1line you know you are still in the bull phase. When you fall below that then you are entering into the bear phase. That's the basic idea any way.

If you have ever read any of Gann's stuff you may remember him talking about strength and weakness in the markets because of where the price was in relation to certain lines. To be more accurate it would be where price was in relation to the lines when the market made a smaller low or high after the major/important low or high. (Think high or low of the year or even all time for your important ones.)


In the next post I will use the low from March 2009 in the SPX as an example.

 

[hwsteele]

Starting from the March 6th, 2009 low we will start at 0 and add 1 to that number for each calendar day that passes for the 1X1 line.

By the time the first real high after this low happened on June 11, 2009 the 1X1 line was up to only 97. The 4X1 line was up to only 388 so the information being gathered would be of little importance at that point in time. You should then still be looking at the lines coming down from the all time high back in October of 2007.
The 1X1 line from that high was down to a price of 967 while the market had a high of about 956 On June 11, 2009. That means that as far as we would have been concerned at that point the market would still have been a bear phase.

From the low in the beginning of July the market started moving up strongly again. Kind of a stair stepping up for many months. The first of those steps up was a top on August 7, 2009 at a price of 1018. The 1X1 line coming down from the all time high was then at 910. That meant that if the market did not pull back below that line we would no longer be considered to be in a bear phase and now be in a bull phase "ruled" by the 1X1 line coming up from 0 starting from the March 6th low. The market only made it down to 978 on August 17th, 2009 which was still very much above the 1X1 line from the all time high. So at this point we know that we are in a bull phase and truly have been since March 6th.
At this point all of the usable lines (4X1-1X4) are way below the price of the market so we can, for now, consider the market to be very bullish.

The market keeps moving up all year (2009) with the largest retracement coming in October. That high was at a price of 1101 on October 21, 2009. The 4X1 line was then at the 916 price level so the market was in a very strong place so to speak. As long as the retracement stays about the 4X1 line we stay in that powerful bull phase we were in. The low came November 2, 2009 at about 1029. The 4X1 line was at 964.

The next big high was January 19, 2010 at 1150. The 4X1 line at that time was at 1276 with the 3X1 line at 957. At this point the market was not in as strong a place it was before but was still in a very strong bull phase as long as the price stayed above the 3X1 line. The low came in on February 5, 2010 at a price of 1044. The 3X1 line was at 1008. So we know that the market is still strong. Not as strong as it had been but still in a bull phase by a factor of 3 so to speak.

The market moved up almost non stop 'til April 26, 2010 to a price of 1220. The 3X1 line was then at 1248. Even though the market moved very strongly up it could not keep up with the 3X1 line. A short time after that line passed price the market broke down the worst it had since the March 6th low.
Just like the last time we could not stay with a line (4X1) at a high the low that followed was right around the next line down(3X1). As long as the low stays above that next line down then we stay in a bull phase, simply with a lower power factor.
The ultimate low of that retracement happened on July 1, 2010 at a price level of 1010. The 2X1 line was then at a price level of 964. Again we moved all the way down to where the next lower price line was with but a small buffer between price and the line. So we were still in a bull phase but now it is again less powerful than before.

Then the market made a top on August 9, 2010 and moved down to the next low on August 25, 2010 at 1040. The 2X1 Line at that point was at the price level of 1074. From that low that was just below the 2X1 line the market made a huge move up that lasted about 6 months. When it made its top at 1365, it was the 2nd of May 2011. At this point the 2X1 line was at a price of 1574.

Once again the market could not hold the line so at this point we would expect the retracement to last longer and be deeper as the next line down is the last one of the bull phase, the 1X1.

For the most part price really moved sideways from February to July in 2010. After that there was a large drop in the markets price. The first big low happened by August 9, 2010 to a low of 1101. The 1X1 line was at that point at 886 so we were in good standing still. the market moved sideways again to a final low of 1075 on October 4, 2010. Again, way above the 1X1 line.
This started a nice strong move up that we are still in today. The most recent high we have had was at a price of 1419 on March 27th. The 1X1 line was then at 1117. So we are still in a bull phase from the low of March 6th, 2009. The next time the market make a large move down it will most likely come down to the 1X1 line. As time goes on that line gets higher and gives the market less and less room to move down and still be in a bull phase. Once we are out of the bull phase of the market we will stop making higher highs and start making lower highs. ( I'll bet you knew that's how bull and bear phases worked! Higher highs and lower lows.:cheesy

So keep in mind we are not trying to guess when the highs and lows will happen, with these lines, we are just using them to gauge strength and magnitude and phase type.

The main things to gather from this post is that when a line passes price for the first time at an extreme, the next extreme in price will most likely fall short of that line and the market will retrace to around the price level of the next line down. The typical loss of momentum can be seem more easily with the lines. (for some)

Next time Secret number 2...

 

[hwsteele]

Once upon a time people in the old days who traded the markets did so by tape reading. There were very few people who had charts to look at. The ones who did had their charts because they would make their own by hand. A few others would subscribe to a company that would send them charts at different intervals.
Once a week, month, or longer.
The people who kept their own charts would have to have a set scale for the chart since it was kept on a piece of paper of some kind. Because of this people had a different view of markets price/time action than most of us do today. They thought of the markets as more of a sold and less fluid than I think most people do today.
Also, in those days the price moved in eighths of a point not in 1/100 like they do now for stocks. To make matters even more different the markets traded SIX days a week not the five that they typically do now.
Gann liked to keep a three day charts and knowing that the market traded six days a week would make that time frame make much more sense. In fact the three day chart was really just the 1/2 week chart.

Getting back to the fact that people would hand draw their own charts we can come to a few conclusions...
1st
That they had a better feel for what the market was doing as they spent time with it each day, and would be the ones creating the chart picture.
2nd
They would be more likely to notice the fact that the size and shape of moves in the markets tend to repeat. This is something that you would not notice as easily if your charts are made by a computer and the scale of the chart changes when ever price moved past the set scale range.
3rd
The people in the past who had all these great results trading and made incredible calls/forecasts did so because the they had charts and most people did not. Most people would just read the price in the paper at the end of the day and not keep track of it, or if they did would do so in ledger format not as a chart. The people who had the charts and investigated the chart patterns would soon find that there are simple geometric shapes working in the markets.
Squares, triangles, circles, and others when plotted on the chart in the correct manner would measure out moves with a high level of accuracy.
If you have charts that rescale them selves automatically you will not be able to use the shapes like the so called greats did in days of old.
4th
Armed with this simple information, that was in truth easy to see with a chart, people of old could make them selves look a lot smarter than they really were.
People like Gann saw the patterns, but wanted to know what caused them in the markets. The likes of Gann, and to be honest a great deal of others in his day, believed it to be the movement of the planets that caused the shapes in the markets. That was the information that they did not want to share and would hide.
You do not have to understand how or why the markets have the shapes in them like they do to be able to use that information to help with the trading.
The reason Gann believed that it was the planets was because he looked for a correlation in all areas of science he could study and found the closest with planets.

So you may believe what you like about the markets but, I can tell you this as I have done the following myself...
Spend a few months drawing a daily chart of something (like the SPX) by hand and you will see that market in a very different light after you do. Put at least a year (two or three is better) of price history on the chart and then add to it in real time for a while (months) and see how you see things in a different light.
It does not matter if you believe you "need" to or not to trade well, you WILL see the market differently after you draw it by hand for a large hunka, hunka, chunk of time.

So there you have secret number 2.
When price stays in scale at all times simple shapes start to become some of the most useful tools to have.

I will give some examples in the next few posts...

 

[hwsteele]

To draw squares on a chart and have them be useful you need to have your chart scaled. The chart examples I am going to use are of the EUR-USD. They are 4 hour charts set to the scale of 10 pips per bar.

As you can see from looking at the chart it is up to date, as in the most recent price data.

MT4 does not have a tool to draw squares like we need them so we have to build them our selves. Other charting software like Wave59 has what is needed to just plot the square with little work at all, but like I said I will be showing you how to do this stuff with as much free charting as I can.

The tool we will be using to make our squares is the "Trendline By Angle" tool...

Let me explain a little about the tool to make it a little easier to follow along when I use it in the examples. When you place the tool on the chart a horizontal line to the right is both 0 and 360 degrees. Moving around the circle in a counter clockwise manner counts up from 0 degrees...

This picture shows a "Trendline By Angle" at 16.1 degree above the the "starting point". If the line were staight up it would be 90 degrees. If it were horizontal pointing to the left it would be at 180 degrees. I hope you get the idea.
All the way around 'til it gets back to 360 degrees...

Examples to come...

 

[hwsteele]

Here is the EUR-USD 4hour price chart scaled to 10 pips per bar again...

This is the chart we will draw some "squares" on.
The first thing to do is find an important high or low.
We will use the low from March 14th. The market had been moving down for two weeks at that point so this is an important bottom on the four hour chart without question.

To start we will draw a simple horizontal line at the low...

The next thing to do is go back in time and find the last important retracement top that the market made going down to the March 14th low and put a horizontal line there also...

The next step is to do the same thing for the first top before the first retracement of the new move up starting March 14th...

At this point we now have the tops and bottoms to the "squares" we will be drawing. The next step is to find the swing high and lows that the market makes moving UP in the new trend. Mark these with vertical lines on the chart at this point in time. Here are the first four. Notice that in both cases we have a low and a high being made with consecutive bars...

The next step is to find the "squares" of these swing highs and lows. To do this we will use the "Trend By Angle" tool and put a 45 degree angle going up starting from where the vertical lines are to mark the swing tops and bottoms.

Notice that I only put the 45 degree angle on the first line of the two groups of two. The reason was to keep the chart cleaner. Marking both is not needed. In most cases both lines would catch the same turn or a consecutive top/bottom (or bottom/top) like what caused them in the first place.

The 45 degree lines always start from the lowest horizontal line (Highest if you started with a top.) when starting with a low. When the 45 degree line crosses the other two horizontal lines the market should make a swing top or bottom then.

The "square out" may happen on the last bar of a move or the first bar of the new move or between the two bars. So keep that in mind if you ever use this method.
Looking at the chart above we see that the first 45 degree line marks only a small retracement that lasts only one bar.
The second "square out" from the first "45" times the top on March 20th. The first "square out" from the second "45" also gives the same top but about a bar and a half latter. ( this is really a close double top but can be considered the same top in the "bigger" picture.)
The second "square out" from the second "45" gives us the nice clean bottom from the 22nd of March.

This chart is just a little more confusing to look at with five "45s".
The first two are the ones we looked at before. The middle one (third) is the first new one. The first "square out" (from the third 45) times the same bottom that the second "square out" from the second "45" times.
The second "square out" times the bottom on March 23rd.

The fourth "45's" first "square out" times an uglyish top right before the March 23rd low. The second "square out" times the top on late March 25th.

The fifth "45's" first "square out" times the same high that I just talked about, while the second "square out" times the last of three bars that make up the sideways top of March 26th.




More to come...

 

[hwsteele]

Ok, I have finally got some time to sit down and write out a little more for this thread.

 

[hwsteele]

Ok, I have finally got some time to sit down and write out a little more for this thread.

AS I talked about in the last post "squaring" the price works very well if your scaling is good. This is a method that we know Gann, at least said he used, and talked about in some of his courses. Now it does not matter what you believe about why the squaring works (Gann most likely gave credit to the planets as the cause. He never just came right out and said that but I think that's what he believed from studies.) the fact is that it does (work) if used correctly.

If you step back and look at what's happening when you "square" an open minded person (Who is not stuck on an "it's magic that man kind will never understand", or "this is a load of crap that should not even be giving a second thought" kind of mentality.) should come to the conclusion that you are simply measuring a cycle and then making those same measurements into the future.

Knowing that you are measuring cycles when you "square" it becomes important to find the best cycles to measure. It seems to me that the best to use would be the most fundamental cycles. Like I showed with the charts the first move in a new trend direction after an important high or low is a great place to start.

The fact is once you measure that first cycle you can count the number of bars and simply use that count from each smaller high or low. You don't have to draw lines for them all.

More to come...

 

[hwsteele]

So it has been a while and now I have a little more time so...

This post will be a little about the things I look at when looking for a trade setup.
These are just some of the things but if you don't already look at this you may want to give it a try to see if it helps you at all.

You have most likely noticed that the EUR-USD tends to respect the round numbers. Take a look at this chart to see what I mean...

Not only that but when the market moves (EUR-USD) it tends to move in multiples of 50 pip increments.

These two pieces of information can be a very large help when watching the market. For instance, when the market moved down to the 1.3000 Major round number level I was 90+% sure that it would bounce off of it and move back up.
Not just because it was a Major round number (When I say Major I mean that it is a 1000 pip level. i.e. 1.2000, 1.3000, 1.4000. The round numbers would be like 1.3000, 1.3100, 1.3200. Mid level round numbers would be 1.2500, 1.3500, 1.4500.) but also because the market had already moved down 200 pips to get to it. Other reasons also, but they are beyond the scope of this post.

The other big thing I look at is how much the market has moved from pause to pause. Look at the chart below to see what I mean...

First look at the black line at the bottom.
It is at the 1.3000 price level.
Second look at the two black circles around the price action that moved to that level.
The smaller of the two shows where price made a very strong move to the down side. Then the price action slowed down and paused, and then moved down again in the second black circle.
What I look at is how much the second push down moves in relation to the first move down. I expect the amount to be about the same in total price change.
I used to call this 50:50 price action, because when price makes a very strong move it almost always has a pause around the half way mark.
In truth it is almost never perfectly half way through the move but it almost always falls in the 40-60% area.

So looking at the price action leading up to the bottom at the 1.3000 level I see that the strong move down had a pause so when it gets to the 1.3000 level I know the market will be "balanced" so to speak.
Also, the fact that the lower part of the whole move down is a little smaller than the upper part tells me that momentum is slowing.

Now look at the first picture again. You see how price moved from the 1.3350 area on the left side of the chart to the 1.3050 price area? 300 pips. The price then moves back up 150 pips before making the last big move down to the 1.3000 price level.
This was a larger version of what we were just looking at. Again the second half of the move was smaller and at the 1.3000 price level so this let me know that chances were better that the market could move up from there.

More about the second chart later...

 

[neil]

EURUSD trade setup must be done over long time frames. Since the movements are related to the increase in the Volatility and the general trends present in the markets.

Why is this guy Neeraj spamming so many threads today ?

 

[hwsteele]

Why is this guy Neeraj spamming so many threads today ?

I'm guessing a mod got to the post already as I can't see it, so to whom ever cleaned up the mess...

 

[hwsteele]

Here is the chart again...

Looking over the post a made yesterday again it dawned on me that some people may be wondering why I didn't include the little bit of the move down that came right before the first black circle.

The reason for that is simple. (At least for me because of the way I tend to look at price) The market was in an "up channel" and it was the price action that is IN the first circle that broke that channel. The smaller choppy move down that came before that first circle I consider to be part of the channel's price action.

Another way to look at it might be that the price moves in the circles are impulsive and the first choppy move down was corrective.

In any case that is why I did not include that price action in the circles.

 

[Dick Lexic]

ha, no bother jason i got it from my mouse mat nice thread.

 

[hwsteele]

Same chart again but with a new red trend line and new green one.

Look at the black line in the middle of the chart.
It is quite easy to tell that line shows resistance first and then support later.

Now look at the three smaller green circles.
Notice that the small but strong moves in all three of those green circles are about the same amount of price.

Looking at the right side of the chart here is my thought process...
The price moved up to the top of the up trending channel (Not market on chart to keep things cleaner. I'm sure you can see what I mean.) then made the first of the three moves down. It moved to the bottom of the channel and then retraced some.
As the top that was just made in the channel is a new higher high there is a good chance that the first strong move down (to the bottom of the channel) is the first swing in a new 50:50 (or balanced three swing move) If I am right with this idea then the price should break the bottom of the channel and move down right about to the first level of support. (The green line.)

It does that and then retraces again.
The retracement moves up to a resistance area and then starts to move back down. When it starts to move back down it could stop at two places that I would take a long trade at.
The first would be the same price level that the market just made a bottom at. (Bottom of the second green circle.)
The second would be the big black now support line.

To me the second would be more likely because the market would have to make a move about the same as the first two to get to that point.
That does not mean it is a 100% thing to make that move but better than the other I believe.

It does make a move to that big black line and give us a nice double pin setup.
Price then moves right back up to that bottom channel line.

If you look at the left side of the chart you will see that the market did almost the same thing there as it did in the example on the right side of the chart.
One of the differences is the fact that the first move down (in the example on the left side of the chart) was not a strong move so I would not be sure at that point what the market was going to do.

More to come...