Wow, article number 100 for The Educated Analyst.  This is a great achievement and I want to thank all our contributors who have provided so much excellent content to The Educated Analyst.  It truly is becoming what we have visioned - a great free resource for any trader who wants to learn not only how to survive in the markets, but to excel.   If you are looking to further your education beyond what is in The Educated Analyst, the articles give you a great way to “sample” the techniques used by the contributors, many of whom provide education to traders around the world.

Well what a week it has been!  The biggest single day fall in the market since Lehman Brothers failed.  Followed on Tuesday by some of the biggest one day gains in nearly two years, and then down again.  As history has shown us before, we can expect a lot of volatility over the next few weeks.  I sincerely hope that you have read the countless articles here in The Educated Analyst, particularly those on Money Management and the protection of your capital.  I know the bitter pain from previous years of firstly trading in markets that I could not afford to be in, and secondly from holding positions I should have liquidated when the loses started.  I truly believe that the most important skill for a trader to posses is the ability to be able to pull out of a losing trade, mentally reset and look for the next opportunity.

If you have been burnt in this last week you face the unenviable decision of reviewing your whole strategy and deciding how, or even if, you can even continue to trade.  I am always reminded of the old adage “If something does not kill you, it will make you stronger”.  Nearly every trader I talk to can tell of examples where they were burnt badly in the market, but the trick is to take those lessons, build them into your strategy and then become a safer wiser trader.

I have to confess that I was out of the market this last week.  With the stage of beta testing that we are in with Market Analyst 7, I have had very little time to focus on trading (I learnt a long time ago not to trade when I was not fully focussed on it!).  As soon as I heard of the market turmoil though, I straight away went to what has become one of my favourite tools, The Gann Squares, and examined what Gann squares were occurring in Time and Price.  Anyone who has been following The Educated Analyst for a number of years will have read my previous articles on the topic1.

There is a new tool in Market Analyst 7 that is now my main “goto” whenever I want to do this analysis.  It allows me to write formulas to quickly check different scenarios.  Normally I search in bars, calendar days, I even use 3.14 (Pi) as a factor from previous major turning points in the market.

Many of you who have also been following the work of Michael Jenkins will know of his public demonstrations of how the March 2009 low in the S&P could be forecast from the 2007 high by applying Tan(30) to the price2.  The chart below shows the Gann Square Marker tool with the formula panel showing.

(Click image to enlarge)

This is obviously an amazing discovery. As a big believer in the cyclical nature of markets, and always being someone that looks for relationships, this set me off looking for other notable cyclic relationships.

Taking multiples of 30 I tried Tan(7.5) 7.5 being a quarter of 30.  Immediately you can see how significant this price is.

So what we have from nothing more than the top of the S&P 500 in October 2007 is extremely accurate calculation for both the bottom, and also now what looks to be a major top in the market.  

Gann said that Time was more important than price, so I am always interested in Time calculations.  In the Gann Square Markers tool I simply changed the Tan(7.5) calculation to show me the interval in Time instead of Price and you can see that, while not perfect, it does show a significant date in the S&P.

This is all great in hindsight, but the hard work is in doing all the analysis to see what are the best values to use.  The Gann Square Marker coming in Market Analyst 7 will make the task much easier and quicker, but it still takes work to uncover what to use.

I wish you all the very best with your trading during this time.  Remember your stops, targets, and money management rules are your safety equipment in what can be a very hazardous occupation.

Mathew Verdouw
Editor
The Educated Analyst


P.S. For more information on Market Analyst 7, please goto www.mav7.com and make sure you subscribe to be notified as we get closer to the release of Market Analyst 7.

1: Introduction to Gann Squares  http://www.educatedanalyst.com/introduction-to-gann-squares

Trading Between the Lines      http://www.educatedanalyst.com/trading-between-the-lines

2: Michael Jenkins Site  http://www.stockcyclesforecast.com

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