The Commodity Futures
Trading
Knowledge Network can Benefit your
Trading! You are capable of immensely Increasing your Wealth
and Freedom thru Power of Knowledge and Education which we offer. Our
goal is to educate traders on all the opportunities they may achieve
by using the latest teaching methods, so they can benefit from all the
financial resources we offer.
What is a Reversal?
One thing, which is as certain taxes, is the term Reversal
not meaning the same thing to every person. I get questions from time
to time, especially after posting a reversal forecast, as to what those
Reversals mean to us, the trader. Although this subject has been discussed
in the past, I'll go over it again here for those not aware of this.
First, the term Reversal is self-explanatory. It simply
means a "change in direction." If price is moving down and then makes
a Reversal, we can assume it will then be moving up. The reverse goes
for price that is moving up, as it will then move down following a Reversal.
Issue-22 Commodity Futures Traders Club News.
Access the web's most comprehensive stocks and commodities
trading & day-trading Knowledge Source.
Learn about Amazing Trading Secrets .
Trader training course on video tape.
Wealth of investing and trading knowledge.
Other terms for Reversal are Swing or pivot. They are
pretty much used interchangeably. A Swing goes from up to down to up
again, continuing in this pattern indefinitely. A Pivot can be likened
to ones pivot foot in basketball, where you can pivot from facing one
direction to facing the opposite direction.
The first thing to understand when we are discussing
Reversals is this . . . "What is the Time Frame in question?"
You can have Reversals occur in any time frame. And
just because it occurs in one time- frame, say a 5-min. chart, it does
not mean that it will show up as a Reversal on a much longer time frame,
such as a daily or weekly chart. So the first thing you certainly want
to make clear is the Time Frame Reference for the Reversal.
Yesterday I posted a Reversal date for the S&P-500
market. The time frame in question is the daily time frame. On your
daily price chart, you should note a bottom or top form for the Reversal
date in question, followed by at least 2-price bars or more forming
in opposite direction.
Example: Obviously we can see that on a daily price
chart, SP-500 has been forming price bars with lower highs and lower
lows the last couple of days. When one is expecting a Reversal for this
market at this time, you would be looking for a price bar to make a
lower low within a standard deviation of one price bar of this reversal
date.
Following this price bar which forms a lower low, you
would expect at least 2 or more price bars making higher lows then the
newly formed Reversal bottom. The easiest way to visualize these Reversals
or Swings is to learn how to plot a Swing chart. There are rules for
one-day SC's, two-day SC's, and three-day SC's. When dealing with Reversal
dates, you would want to use the one-day variety.
Say you have a daily price chart in front of you in
paper form. If you were to take a pencil and draw lines from the very
top to the first bottom, then up to the next top, then down to the next
bottom and so-forth, you would in simplistic terms be drawing Swings
or Reversal points.
One book I have come across which teaches how to
draw swing charts is called "pattern, price and time Using Gann Theory
in Trading Systems" available through Wiley Books.
In short, as long as price bars form lower highs
and lows, you continue to draw your line down to the most recent lower
low. Once a bar forms a higher high and higher low than the bar preceding
it, you then Swing up the line from that lower low to the new higher
high. This process continues till end of your price data on the chart.
Those peaks you drew are the Swing or Reversal tops,
and those valleys (or upside down peaks) are the Swing or Reversal
bottoms. Therefore, when you have a Reversal date to work with, you
are looking for the price bar that forms this Reversal or Swing to
occur within a standard deviation of one price bar of that date. Therefore,
going back to SP500 at the moment, since the price bars formed are
making lower lows, we keep drawing a line downwards looking for the
next Swing which can only be one thing, a swing bottom. Swings always
alternate from bottom to top to bottom . . . and on and on and on.
One final note for the less experienced in Reversal
Date use. At times the market can quickly form a Swing top and then
a swing bottom within just one-day of each other. You've seen this
happen many times. Market makes a bottom, shoots up and makes a top
the next day, then drops again like a rock. How would you decide on
the swing associated with any Reversal date?
For one, if they both do not occur within one price
bar deviation of the date, then only the swing that does fall within
this deviation can be considered. If they both occur within this window
(one on the very day and one is a day late . . . thus one standard
deviation off), you would then employ other aids or stand aside. Such
aids are moving averages, support/ resistance price zones, etc. This
post will not be dealing with these aids, but it is worth a mention.
Hopefully for those who were not clear as to what a Reversal is, this
is now much clearer. Let me state that, when I deal with a Reversal
Date, I'm not looking for an one-day swing. What good is that? It
is expected that Reversal dates will produce swings followed by 2
or more price bars moving in the opposite direction. When this is
with the trend, it is very useful.
W. D. Gann and Market Timing
William D. Gann was extremely interested in planetary
alignments. Gann mapped an equal 360-degree orbit for each planet
in our solar system. The 360-degree cycle is also the foundation for
price and time projections using a Gann Wheel.
Gann then studied planetary alignments relative to
earth. The concept is similar to finding confluence points of overlapping
Fibonacci price projections. A planetary confluence point in time
for Gann would suggest a high-risk time objective for a trend reversal.
It does not imply a market top or bottom. Just a change in direction.
Confluence points in time relative to planetary alignments
is a hypothesis that remains to be proven if it is valid or not for
the markets. However, if there is validity to Gann's planetary alignment
work, the solar system alignment we are approaching 5/5/00 with key
dates through 5/28/00, can be viewed as single greatest confluence
point within our lifetime.
The inner orbital planets of our solar system has
aligned May 5, 2000. Being aware of this time objective certainly
merits intellectual curiosity as this will not occur again for nearly
6000-years.
The above articles appeared in Commodity Traders
Club News are very informative and educational.
Material ©Copyright 1999-2007 by commodity-futures-trading.com
| 
