Most of us of course know what an A/D line is but for those who are new to this an A/D line is a price area that the market has assigned significance to for one reason or another. (There are ways to determine this also but that’s for another day and beyond the scope of this discussion) The A/D line however is much more than that. In a very real sense it is an energy equilibrium point. In my humble opinion if one where to think in terms of chaos theory the A/D line can also be thought of as a “attractor” because it qualifies as a point where a set of numerical values tend to evolve if we assume the market a dynamic system. We can also consider this within the context of Energy Flow but that’s really advanced (like chaos theory isn’t
) and don’t want to go there. Having said that though I suggest that you think in terms of energy because in essence that is what we are defining here … to be more specific, dominant energy and subordinate energy. Once we get away from the complexities of theory the approach is quite simple. In this example the A/D line is the manifestation of a dominant energy signature. How do we know this? The reasons are obvious. First we see market reactions as it hits the line, and second of course is time. The market has obeyed this line time and time again and in a real sense has been stuck within it pull (attraction?) over and over again unable to completely break away from it. Since we have identified the dominant energy signature all we then need to do is identify subordinate energy and energy exhaustion to find potential energy (price) targets.The first chart is just a simple extrapolation using energy exhaustion swing points A-B-C and is using pi expansion ratios. There were a couple of others that I could show you but this is pretty basic and you get the idea. [As a traders note the 82% rule worked perfectly coming off of the lows on the 27th also] It is the next two charts that I think you might find interesting. In this chart the drawn line is defining energy minima or subordinate energy. I will not go into the details of how I do this or the criteria used other than to say it is somewhat subjective and will take practice to master. Some will see it right away, others will struggle. Using Fib ratios from the point where price breaks the energy minima line (subordinate energy) and does not return we are able to nail the bottom perfectly! In the third chart we are using Gerbino Sequence ratios which are using the exact same measuring points as in the previous chart. However this time around we are measuring off of energy maxima (dominant energy). Again we nail the bottom perfectly! Just so you don’t think this was some kind of fluke I give you charts 4 and 5 which are employing the same technique. In this case we are using Fib ratios in both. In chart 4 we measure from energy minima break, and chart 5 we measure from energy maxima break. Not bad if I don’t say so myself.
As you can see there are many ways to uncover the secrets that the market holds. This technique is but one of them and hope you enjoyed it.
All the best,
Joe
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