Given the overall hectic and volatile trading in markets, it has never been more important to incorporate geometry in your analysis.  My conclusions are drawn from 47 years as a professional Technical Analyst.  During that time, I have participated in three major stock market crashes and you never stop learning. I now spend my days and (some nights) happily watching the markets on MARKET ANALYST 6 – much more interesting than any TV.

The secret in successful trading and investing is to have a trading plan as well as a good piece of software, and in my opinion to keep some hand drawn charts especially for the big picture – they really give you perspective.

The “Global Financial Crisis” presented some extraordinary opportunities for traders and investors who went short after the 2007 high and then closed out into the panic lows in March 2009. A stop and reverse situation which has paid off handsomely given the current uptrend.  

Market participants are continually confronted with predictions using Gann, Fibonacci and other methodology and a plethora of technical indicators to help you safely navigate the trend which remains your friend (until it is  about to end). This is where the real technical skills come in to pinpoint the reversal when it comes and not to find yourself on the wrong side of the boat.

The right side of the chart is the most important and difficult one.  I am a firm believer that price is your best indicator, with other tools serving as backup.

In this article I am showing you the charts and indicators that will continue to serve you well, and where you can build a good trading plan around them.

(1)  No. 1 chart would be a half hourly chart on the ASX 200 Index (or any other market you trade).  I find half hourly good for our local market, but hourly charts are used by Michael S. Jenkins and Robert Prechter Jr. who claims he does his best wave counts from this type of chart which must be done by hand and not computer.  Market Analyst 6 tic data makes this an easy task. 

(2)  Point and figure charts are not widely used by traders and while some software programmes have them, they are not as efficient as the ones you would draw yourself.  Market Analyst 6 tic data allows you to draw really accurate charts. It is always exciting for the first 40 minutes or so on APCSpot to maintain a P&F chart likewise the final 30 minutes trading.  

(3)  The best back up system in my view is DIRECTIONAL MOVEMENT devised by J. Welles Wilder Jr.  I had the privilege to learn it at a Seminar at the Sydney Opera House in 1980.  A point of interest is that the early computer systems were devised as a result of the 1970’s commodity boom.  I put it on every chart – line – bar or candlestick I choose to analyse.  If you understand the principles of DM and abide by its simple rules, you will never be wiped out in a market.  The best example for me at the time of the 1987 top was that prior to the crash there were three weeks warning to get out of long positions, and it totally convinced me of its true value especially in the big picture.  For traders it works well even on one minute time frames.  For the purpose of this article, I have reproduced the hand drawn half hourly chart back to the 11/1/2010 top and a daily chart on the ASX 200 Index showing DM.

(4)  A group of harmonic moving averages (5/15/30) period which I learnt from the late Phyllis Kahn at a Gann Seminar in San Francisco in 1985.  The first task was to draw up a Gann square plastic overlay which serves to illustrate the geometry in the markets and  I use this extensively in my analysis.  I do not use Elliott Waves – best left to others.  The harmonic moving averages provide other useful information – i.e. “clustering” when they all come together there is usually a big momentum move.  They need to be in their natural progression – for an upmarket the price on top of 5, then 15 and 30.  The converse applies to a down market. The simple reason why these work is the accumulation (or distribution) periods getting ready for the next trending move.  After a long move up (or down), there is an “even stacking” signal i.e. the distance between the averages is approximately the same.  It is a warning that a correction is imminent and that you should watch for a reversal signal bar.  The market can continue to advance after the “es” but the implications are for a move back to the 30 period m/a.  In strong trends, the 15MA provides support.

As a point of interest, the uptrend which commenced at the March 2009 lows, these averages have taken the shape of Dr. Dologa’s famous pitchforks.  You will be amazed at this phenomenon.

A combination of these technical tools has provided the signals for successfully trading the trend since the January 2010 top.  Space precludes a bigger time frame but in essence the principles are the same, allowing you to trade the volatility.  Sudden reversals should not take you by surprise if you do a thorough piece of analysis before you jump into a trade.  Money management is another extremely important part of your trading plan and you have a head start with Market Analyst 6 software.

There are many other fine indicators to use for monitoring trends.  Mathew Verdow is to be congratulated for his continuing research and application of new developments in Market Analyst 6 which will take you into the 21st century. Market Analyst also have an excellent support team.

There are many roads to Rome and there are excellent textbooks you should have on your bookshelf to read and study.  For traders, Dr Mircea Dologa has written three textbooks on INTEGRATED PITCHFORK ANALYSIS for beginners , intermediate and advanced which cover just about every conceivable technical trading system.  It is an amazing piece of work which took over three years.  If you could only have one textbook this would be it!  

One of the true advantages of the Point and Figure method are the clear entry and exit signals.  There is no need to judge whether it is the right time to enter the market or not.

Likewise the investor or trader will always know the exact time to exit the market with profits.  The method is very suitable for identifying support and resistance levels – one of the keys to successful investing and trading.  Equipped with the power of the Point and Figure method, the investor or trader has a clear picture of the forces of supply and demand.  These are the forces that determine price movements.  With this information the investor or trader can correctly anticipate stock price movements and be positioned correctly for great gains!  The Point and Figure method is so simple to put into practice that there is no question why it has stood the test of time, and why it has been proven profitable again and again for over a century.  The law of supply and demand is a universal law, and it will never change.  When demand overcomes supply, the prices will rise.  When supply overcomes demand, the prices will fall.  Learn how to identify the forces of supply and demand using Point and Figure method and you will hold the key to consistent stock market profits.  

More proof – in an article in the 2010 IFTA JOURNAL, by Professor Hank Pruden, an authority on P&F. The Wyckoff Method passed a real time test.  A chart on DOW JONES – 100 Point box from April 2002 to September 2003 gave an upside target of 14,400 and that is precisely where it went in mid 2007. The edition of the Journal is well worth reading.  The chart speaks for itself.

ASX 200 Half Hourly Chart is a very special chart and serves to well illustrate the trading from 11/1/10 top. The full measurement on 1 mm graph paper = 82 cm on the horizontal axis and 27 cm on vertical. It had to undergo a series of reductions to get it to A4 size suitable for this Newsletter.  Some of the really neat pivot points in intra-day trading are so precise to the 1 mm.  I have drawn in most of the significant trendlines and angles which go to make up this amazing and informative chart, but have tried not to make it too busy.  Every line is important and especially the 45 degree support and resistance lines – the 45 uptrend from 26/2 one such trend up to 10/3 high which then ushered in a 4 day correction.  It then took off again making a higher high on 24/3 – a short 2 day dip to 26/3 low before continuing the uptrends of  3-4 day durations making higher highs and higher lows consistent with a strong uptrend.

The “clustering” of the m/as and “even stacking” and crossover of Directional Movement  from short to long markets have been labeled.  The low after 8/2 “es” supported a rally to 23/2 and then a correction to 26/2 thus establishing  support line (A) travelling at a rate of 22 ½ % (1/2 of 45). I drew in a parallel trend line with the market running up to 10/3 high.  The 45 degree angles significant in the short term corrections.  Currently close (9/4) to the magic “5000” level in the ball park for the coming week.

Given some important cycle dates in S&P & Dow  it is not a market to turn your back on.  The night traders have enjoyed a bonanza – managing to capture the Wall Street overnight impulse moves.  Attention to detail will give your trading the edge!  The 30 period moving average appears on the chart as dots.  What is interesting is that the current price is closing to the rising 15 m/a.  Experimenting with a compass allows you to make counts and arcs for target areas.

A section of this chart from 22/3 until 6/4 is a good example of using this methodology in conjunction with the half hourly.  It too presents good support and resistance levels.

Worth noting is the base ¼-6/4 which supported the move up to current levels, also the uptrendline from 16/3 in close proximity of the case area.  This P&F makes trendlines not evident on other chart styles as well as identifying the key S&R levels.  Both charts provide excellent signals for the alert trader – well worth the effort with hand charting.

The impulse moves mostly generated by Wall Street.

A good historical chart from 2002 to 2003 which supported the bull market into 2007.

ASX 200 INDEX – 1 day Candlestick Chart – Market Analyst 6.

This chart shows the 8 period Directional Movement from the end of the “Santa Clause” rally and the 11/1/10 top.  I normally use 11 period but the 8 can be good in  fast markets.

Also on this chart is a 3 period moving average which combines with 5 period for good exit and entries.  The 8/33 Stochastic also provides good signals. 

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