Thursday, November 29, 2012

USDX Harmonics

I was recently asked to explain my charts and how I would use them as a trading tool.
The chart below of the US $ encapsulates pretty much what I look for in the squaring of a pivotal advance or decline. I hope this is somewhat coherent:
  • The entire geometric structure is based on the decline AB--which is used to form the square ABCD. It is hypothesized that all pivotal movements in markets are related to each other in a fractal nature...that the characteristics of significant pivot will effect the behavior of future market activity. In this example I use a previous decline and project the geometry forward. It is also effective to 'square' the first impulse wave of a trend..the first wave of this years advance in Feb-March 2012 would be an example of a rally that could be extended forward geometrically. If a projected decline and advance show signs of harmony this becomes an incredible powerful tool.
  • The square is duplicated and extended out in price and time. Square CEIF is an example of the progression of square ABCD
  • The next step is to take the diagonal of ABCD (DB) and form a square DBEF. The squares project forward in a geometric expansion based on the diagonal of each successive square forming the pattern 1, 1.414, 2, 2.828, 8......The squares are color coded on the chart.
  • As the grid begins to take shape the corresponding harmonic angles are formed, such as 1x1, 2x1, 3x2, 1x2....
  • In the chart below note what has happened at points C, F & I. Prices were near these intersections (corners of the primary red square. (time-price harmony). Points C,F & I were also at or near major pivots in the USDX chart. (Pt. C being an acceleration) Follow the path A-B-C-F-I-G. Where are prices at those points?
  • D-F-G is providing support resistance while its 'root' A-C-I is also delineating support and resistance.
  • Note the center points of each progressively larger square--what do prices do?
  • Note BF || EG  &  BD || EF || HG

SO what does this mean NOW? 

  • The USDX is entering an important time price harmonic--Pt. G) The market has progressed 3 primary (1.00) squares, 2 green (1.414)squares and 1 blue (2.00) square.
  • Prices have touched the harmonic fan lines as they approached pt. G
  • HG is proving support but EG (2.00 square) has been violated similar to the break in October. Resistance is formed by DG, AG, BG (root points of each progressive geometric square)
  • If 80 is broken prices are likely to continue to decline, however the USDX could quickly rally to pt. G over the next few sessions to form another price-time harmonic. (represents a larger break than the October break in prices)
  • A clear and decisive break above point G would support the case for higher prices ahead.
  • A sharp rally to point G over the next few days would be pretty incredible to watch materialize.
Bottom Line: Market geometry is suggesting that an important time-price harmonic is nearby and the market is likely to react in a pivotal way--or an acceleration. At this point traders should do the following:
  1. Assess portfolio for computation of risk-reward scenario to determine size of position (# of contracts based on acceptable loss amount (% of portfolio) to undertake. (money management is the most important aspect of trading)
  2. Monitor your favorite trading tools: RSI, MACD, Candles, Bollinger Bands.....
  3. Set up an execution plan--void of emotion--at stick to it.
Here is an example of a PHI based geometric projection.


HOPE THIS HELPS

TRY THIS: Stare intently at the chart and visualize some of the three dimensional  shapes. The patterns of the market will become significantly clearer. Picture the structure as a multi-faceted diamond.

5 comments:

Gaurav Gupta said...

Very nice. Thank you for the explanation!

Once we rally to 81 and start breaking, we should quickly drop to below 78.

Which software do you use to draw your squares - incredibly neat!

Dolemite said...

Thanks dude that was really helpful!!

Chartrambler said...

amazing chart and thanks for the explanation !

Fibocycle said...

Inkskape and MS Paint. SIMPLE !!!!

Free download: http://inkscape.org/

Fibocycle said...

Try this: Visualize the hexagon ABEIFD as the front face of a 3D structure..stare at the hexagon then look 'into' the hexagon.....and watch the market bounce off the sides of the structure.