Price market behaviour - Gann's pointer to trend confirmed

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Price market behaviour - Gann's pointer to trend confirmed

Post by gezza » Thu Feb 07, 2019 2:49 am

I'd like to share an intriguing feature of price market behaviour uncovered during my research. The behaviour points to a connection between past and future, influenced by the present. I've included some possibilities for Wave 59 users.

I found that the close price direction for the next bar is indicated by a combination of the current bar's price behaviour and the close of the prior bar. It is as if the present acts as the link between two dancing partners, the past and the future.

More specifically, using daily bars as an example, the close price for tomorrow will be greater than the close of yesterday if today's close is greater than today's mid price, generally around 70 or more per cent of the time.

Similarly, if today's close price is less than today's mid, then tomorrow's close will be less than yesterday's close, again around +70% of the time.

This observed behaviour appears to apply to all active price markets and all timeframes. The percentages can vary from around high 60's to the mid 80's but is usually in the 70's. It also applies across all market types (ie secular bulls, bears or combinations).

Another interesting observation is that the percentage accuracy improves to around high 70's to low 80's if tomorrow's mid price is used as a target instead of the close. However, a mid price forecast is not generally considered to be as useful to a trader as a close price forecast.

Other nuances exist which have not been mentioned here and left for the reader to explore.

It seems that W. D. Gann was correct when he noted that the future was linked with the past. It is interesting to consider how this observed behaviour sits with the Random Walk Theory which argues that no systematic relationship exists between past and future prices.

Things are seldom what they seem - maybe the charts provide visual clues of a reality not yet contemplated by economists?

However, in practice, the observed behaviour does not appear to change the RWT finding in relation to making useful predictions.

For example, lets say that today's behaviour points to a close tomorrow that is higher than yesterday's close and also that today's close is lower than yesterday's close (ie an ideal scenario where if we had +70% accuracy, a fortune could easily be made). It turns out that this particular (sub) scenario is around 44% accurate. This begs the question of whether you could use the reverse proposition (which yields around 56%), but other practical issues arise such as infrequency and transaction costs.

Some possibilities for traders

Nevertheless, some tantalising possibilities appear to exist for chartists willing to conduct further research, especially using some add-ons available on the Wave 59 platform.

One example is the possibility to confirm changes in trend. Here is an example showing the many circled CITs identified using this finding followed by an example showing the far fewer CITs identified using well regarded alternatives on the Wave59 platform on the same market (which was the most recent Australian All Ordinaries cash index at the time and not cherry-picked).
GBICL.jpg (85.28 KiB) Viewed 195 times
GBICBL.jpg (86.09 KiB) Viewed 195 times

Another option is the possibility of combining multiple time-frames. The following three screen shots illustrate the Gann Bible Indicator dots predicting direction in the daily timeframe; a combination of daily and weekly and lastly how it can be used to predict the likely range for the next bar (the indicator is predictive since it is always plotted at the close of the current bar with no lag). To be clear, this indicator derived its name from W. D. Gann's observations and inspirations taken from the Bible; no examples have been seen in his charts.
GBI1L.jpg (101.51 KiB) Viewed 195 times
GBI2L.jpg (132 KiB) Viewed 195 times
GBI3L.jpg (94.62 KiB) Viewed 195 times

It is hoped that this forum can explore opportunities for traders to take advantage of this observation.

Gerald Jaworski

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