How to “See” the True Message of the Markets (Part 3)

02/04/2009 10:29 am EST


Timothy Morge


Now that I have a general feel for the market structure and the current trend, I move on to more detailed analysis.


I add back in the red, down-sloping Median Line and its parallels. By adding in the lines the trader originally used to “see” the market, I have now connected him to his original thoughts and feelings about this market. And, remember that his secondary analysis used geometric ratios as a way to frame his view that this market was experiencing a pullback in a downtrend because price was unable to break above the 61.8% retracement of the swing lower from pivot C to pivot D.

Like all traders, I have my own favorite way to use tools, and geometric ratios are no exception. My favorite use of these mathematical tools is a simple equal measured swing. I simply measure the distance price traveled when it moved down from pivot A to pivot B, then I go to the next major swing high at pivot C and project that same distance. If price moved the same distance starting at pivot C, where would a swing down of equal length end? I find that equal measured swings are often deadly accurate.

Looking at the chart above, you’ll see that the distance price traveled from pivot A to pivot B, when projected from the next major swing high at pivot C, would have given me a probable target for pivot D (well before it even formed) that matched where price ran out of downside directional energy and turned, forming the new pivot. I chose this type of analysis for two reasons: 1) I like using measured swings, and find that they project useful targets for the length of swings; and 2) Because the trader had originally used a Fib ratio to justify his pre-trade view, I used a tool from the same family when doing my own analysis while he watched—connecting him again visually to the work I was doing.

In my general analysis of the markets, I see price unfolding in swings that have a particular frequency or length. And often, these swings can be projected quite accurately if the right tools are used. If I project a measured swing, where the distance from A to B equals the projected distance from C to D, and I see the actual swing travels the distance I projected for swing C to D and then changes direction, I know two things from experience. First, price has probably completed the current swing in that direction, and second, an important high or low has most likely just been made by price because price ended its travel in one direction where it should run out of energy. The swings unfolding in this market will likely continue to unfold in an orderly fashion, and I should be able to project them successfully using these tools.

More tomorrow in Part 4…

I wish you all good trading.

Timothy Morge

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