advance the price target to complete trends of alldegrees.
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Dynamic Trader - Chapter 4
Pinpoint The Exact Price Levels For Corrective Highs and LowsThe previous chapter taught you how to identity if a market is in a trend orcounter-trend phase. The Dynamic Price Analysis chapter will teach you toproject the price levels with the greatest probability of completing a trendor counter-trend.
How valuable to your trading would it he if you could project inadvance the specific price zone a correction to the main trend should reach?Dynamic Price Analysis allows you to do just that. You will often projectalmost to the tick the price of corrective highs and lows.
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Dynamic Price Analysis
Be Prepared In Advance For The High Probability Support andResistance ZonesWaves or swings of similar degree will relate to each other in price relativeto important ratios. The market analyst, investor and trader must considerprice ratio relationships of more than one degree. The smaller degree priceprojections should confirm the larger degree price projections.No single price methodology can be consistently relied upon toindicate with confidence, in advance, where support or resistance is likelyto be found. The most important potential support or resistance zones willbe found where price projections from more than one of the three primaryprice projection methods and from more than one degree of swing clusterwithin a relatively narrow price zone.Traders must be prepared in advance for the price zones from wheretrend change has the greatest probability of occurring. If traders are prepared in advance for the price zones of change, they may then concentratetheir efforts on tecnical signals that trigger trade entry and confirm trendchange.It is true, as Mr. Gann said, that "every market makes its top andbottom at some exact mathematical point in proportion to some previousmove". The question is, which proportion of which previous move? Mr.Gann failed to answer that question- probably because there is no single,right answer. If you have studied any of W. D. Gann's original work, youknow that he was a bit of a master of the overstatement. There is not oneparticular prior swing or one particular proportion (ratio) that will projectthe price of all future tops or bottoms. The concept of proportioning pastmoves (swings) and projecting forward is the key concept to projecting [heprice levels that have the greatest potential for trend change.I underlined potential above for three important reasons:1. The price support and resistance projections do not project that pricewill reach the projected levels. The price support and resistance projections are simply mathematical projections of relationships of pastswings. They are price zones that should offer support or resistance ifreached. The importance or degree of support or resistance will beindicated by the time and pattern position of the market as the pricezones are reached.2. There are usually two or three projected price zones from any one swingpoint. White we will see later on bow to determine in advance whichprojection is likely to be the most important, it will only be the marketitself that will validate one or another of the projections by the time and
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Dynamic Trader - Chapter 4
pattern position as the market approaches the price zone. If a projectedprice zone is exceeded, the odds favor a continuation of the trend to thenext price zone. In other words, exceeding one projected price zone isusually a trend-continuation signal.3, Occasionally, a market will make a top or bottom at a price that eitheris not within a price cluster which is a support or resistance zone or noteven at one of the more common price projections. While I can almostalways find the obscure price relationship at Tops and bottoms thatwere made outside of a projected price cluster, this after-the-factanalysis is only of academic interest. Traders roust accept the fact thata top or bottom will occasionally be made away from the typical priceprojections that are calculated in advance. This is one of the importantreasons why we always consider all dimensions of market activity anddo not rely solely on price analysis.Gann's quote at the beginning of the chapter may he better worded as:"Every market makes the majority of its tops or bottoms at or very near acluster of price projections from several previous swings. These priceprojections may be determined well in advance and, usually, thesignificance of each projection relative to the trend will be known inadvance."In this chapter, we will also discuss methods that will provide a strongindication of the minimum and maximum price projections to anticipate inany trend or counter-trend swing. We will also discuss me ramifications ofunderstanding the trend position when price exceeds certain levels. As youwill see, there is much more to price analysis than simply computingretracements.The most important narrow price zones for potential support orresistance will occur when various price methods and relationships allpoint to the same area as support or resistance. Never rely on one pricemethodology or one ratio. If a price zone is important, it will be indicatedby several relationships and result in a relatively narrow cluster of targetsat or near the same price level.
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Dynamic Price Analysis
Primary Price Projection TechniquesThere are three key price relationships that will quickly and easily providethe price projections. They are:1. Retracements (Ret)2. Alternate Price Projections (APP)3. Price Expansions (Exp)Each price technique is considered from the degree of trend that is to betraded and, ideally, one larger and one smaller degree. The following pagesinclude examples of how each price projection is calculated and how multiple projections will cluster within relatively narrow price zones.A very important factor to keep in mind as we review the followingexamples is; All of the price projections are calculated IN ADVANCE. Assoon as a new swing is confinned, new projections are made. We do notknow in advance which price zone will be the ultimate target of [he market,but we do know in advance which price zones have the greatest potentialfor trend change if price should reach one of those zones. The time andpattern position of the market will usually clearly reveal which price zonehas the greater probability of making a trend reversal.As a market advances its trend and makes new swing pivots, newprojections are made from each new pivot. You will soon learn howthe new pivots will confirm or invalidate prior price projections.RetracementsMost traders are familiar with price retracements. Retracements are thepercentage of the prior swing that a market moves counter to the range ofthe prior swing. As a market advances, There will usually be more than oneprior swing extreme from where to measure retracements. In other words,we will have more than one degree of retracement projections.There are both internal and external retracements.The following pages first illustrate retracements on idealized swingcharts in order to clearly understand the concept. These are followed bynumerous actual market examples.
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Dynamic Trader - Chapter 4
Internal Price Retracements
Internal retracements are less than 100%.The four moat important internal retracement ratios are;38.2%, 50%, 61.8% and 78.6%,Internal Retracements Of One Degree38%, 50%, 62% and 79% retracements of the AB rally
Internal Retracements Of Two Degrees38%, 50% and 62% of AC and BC rallys
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Dynamic Price Analysis
Internal Retracements
Retracements measure the percentage of the range of the prior swingthat the market reacts against or retraces. Internal retracements are alwaysless than 100%. A market that retraces less than 100% of the prior swing isalways a counter-trend swing or a correction to the prior swing. The mostimportant internal retracement percentages are 38.2%, 50%, 61.8% and78.6%.The position of the market relative to the pattern will indicate which ofthese ratios is particularly important at any given time. The sections onTrading Guidelines, Elliott Wave Guidelines and Putting It All Togetherdescribe in more detail the importance of each ratio at different marketpositions.
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Dynamic Trader - Chapter 4
On April 19, beans made a low one tick above the 61.8% retracement. Beans eventually continued to decline in an ABC correctionwith a final low at the 78.6% retracement. APP is an Alternate PriceProjection and will be described later in this chapter.
Retracement resistance in crude oil at the 38.2% and 61,8%retracements.
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Dynamic Price Analysis
Com made a counter-trend low at the 50% retracement. Therewill almost always be at least a minor reaction against the 50%retracement in all markets.
Retracements of two degrees: Gold made a top June 16,1995 atthe coincidence of a 50% retracement from the April 19 high and a78.6% retracement from the May 4 high. The nearer price projections are to each other, the more likely they are to result in supportor resistance if the market reaches the price zone,
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Dynamic Trader - Chapter 4
The Oct. 1987 Panic: In Oct. 1987, the S&P crashed down to make a lowjust below the 61.8% retracement of the Aug. 1932-Aug. 1987 bull market(lop chart). Note that the secondary lows were made right on the 50%retracement. The chart below shows the retracement levels from the July1984 low. The Oct. bottom was made just a few points below the 78.6%retracement and the initial reaction low right at the 61.8% retracementlevel. The retracements from two degrees provided two retracementsupport zones which held the market: 192.18-189-32 and 221.41-220.30.
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Dynamic Price Analysis
Retracement Levels Signal Strength and Weakness: The June 1 lowwas made just a few ticks below the 61.8% support retracement. In Juneand July, the mark tested the 78,6% resistance retracement three times butfailed to exceed this important retracement level-
How a market reacts against retracement percentages will often indicatethe position of the market. Currencies have a very high reliability of findingsupport and resistance at Fib retracements. This is probably because thecurrency traders of the world are very Elliott wave oriented. The mark camedown very hard from the May 26 high and then bounced very hard off ofthe 61-8% retracement. The wide range reversal day on June 1 at the 61.8%retracement provided at least an initial signal that the correction down maybe over.Most traders have been erroneously taught by Elliott wave academicsthat the 61,8% retracement is the critical zone to signal if a swing is acounter-trend or new trend direction- In other words, counter-trends orcorrections are not supposed to exceed a 61.8% retracement. If the 61.8%retracement is exceeded, it is supposed to be a signal that the market is in anew trend direction, not a counter-trend.While the 61.8% retracement is an important potential support orresistance price zone, it should not be considered as a trend signal asdescribed above. The 78.6% retracement is a far more importantretracement projection that is usually not exceeded if the prior trend is tocontinue. Wave 2s often terminate at the 78,6% retracement.
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Dynamic Trader - Chapter 4
Cotton made a low at the coincidence of the 50% retracement of thelarger degree and 78-6% retracement of the smaller degree.
The 61.8% retracement level is the support at each counter-trend low.Note that the June 14 low was made at the 61.8% retracement to thetick! Do not fail to he alert to the market position at the 61.8%retracement level in all markets.
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External Price RetracementsMany traders have a difficult time accepting that a retracement can be over100%. A retracement can be any amount. A few ratios over 100% are veryimportant in projecting support and resistance.External Retracements are greater than 100%.The most important external retracements are:127%, 162%, 200%, 262%, and 424%.
External Retracements of AB
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Dynamic Trader - Chapter 4
External RetracementsThe Aug. 22 low in the British pound was made just a few ticks above the162% external retracement of the 6/28L- 8/1H
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Dynamic Price Analysis
The soybean decline terminated at the 262% retracement of the initialcounter-trend swing. Five wave structures frequently terminate at 162%.262% or 424% external retracements of wave two. Wave two is also calledthe initial counter-tread swing.External retracements are little used by most traders but are a veryvaluable price projection method.
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Dynamic Trader - Chapter 4
The April 21 high was made at the 262% retracement of the priorcounter-trend.
A 200% retracement is also known as a "measured move."
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Dynamic Price Analysis
The mark formed a major top in April 1995 at the 262% externalretracement of the last major counter-trend prior to the top.
Unless wave five becomes an extended wave, it is usually madewithin the range of the 127% and 162% external retracement ofwave four. The final wave five top is often made right on one ofthese two retracements.
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Dynamic Trader - Chapter 4
The final top of a major bull market in copper was made just a fewticks above the 4.236 external retracement of the final decline prior tothe beginning of the bull market. External retracements of the finalswing prior to the beginning of a trend as shown above or externalretracements of the first swing following the beginning of a trend(wave 2 or B in Elliott wave terms) will usually project the terminationof the entire trend sequence.A trend rarely exceeds the 4.236 external retracements of thesetwo swings. This is important to consider. If a trend is nearing the 4.236external retracement, the odds are very high that the trend is nearcompletion.
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Dynamic Price Analysis
Alternate Price Projections (APP)Alternate price projections project the proportions of a past swing thatmoved in me same direction as the current market is moving. APP projections compare trend swings with trend swings and counter-trend swingswith counter-trend swings. Alternate price projections are labeled according to which previous alternate swing is being projected. The most recentalternate swing projection is labeled APP.1. The second most recent islabeled APP.2 and so on.Alternate price projections compare trend swings to trendswings and counter-trend swings to counter-trend swings.The most important ratios to use for APPs are:62%, 100%, 162%, 200%, 262% and 424%.
Alternate Price Projections of the previous alternate swing.AB projected from C (APP.1)
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Dynamic Trader - Chapter 4
Alternate Price Projections
The July 19, 1995, wave 5 top was made at the coincidence wherewave 5 equaled 100% of wave 1 and wave 5 equaled 61,8% of waves 1-3(7/5L-7/12H). These are the two most frequent price targets for a wave 5as described in the pattern chapter.Alternate price projections are very important and reliable targetsfor the termination of Elliott five-wave impulse patterns and ABCcorrections. Which ratios and swing comparisons are the most importantfor each target is described at the end of this chapter.
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Dynamic Price Analysis
The Jan, 5, 1994 high and beginning of a prolonged tradingrange in gold was made slightly above the coincidence of the61.8% alternate price projection and 78.6% retracement.
Coffee made a major low in Dec. 1994 that lasted for severalmonths at the coincidence of the 100% alternate price projectionand 162% retracement of the 8/l1L-9/23H.
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Dynamic Trader - Chapter 4
The March 2,1995 high (W.C) was made at the coincidence of a50% retracement and 100% APP where the price range of Wave Cequaled the price range of Wave A. The Dec. 29, Wave A high wasmade at the 38.2% retracement. The chart below shows other priceprojections at the March 2 high.The March 2 high was made at the 38.2% retracement of the largerdegree decline (7/13H-12/14L) and the 127% retracement of WaveB, The Wave C high was 137.25. Four price projections fell withinthe 184.75-188.75 zone. It is inevitable that a market will reactagainst such a strong cluster of price projections.
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Dynamic Price Analysis
The Jan. 4,1996 bond high was made at the 61.8% APP whereWave C equaled 61,8% of Wave A. The chart belowshows the smaller degree Alternate Price Projections at theJan. 4 high. Every minor rally was related to each other by 100%or 61.8% right up to the final top. The larger degree 61.8% APPshown above fell right within the 121.09-121.30 minor degreezone shown below. When several APPs of two or more degreescoincide, change is inevitable.
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Dynamic Trader - Chapter 4
The March 19, 1996 high in the sugar market is an outstanding example of the coincidence of APPs of three differentdegrees. The chart above shows the top was made at the pricezone where Wave 5 equaled 162% of Wave 1 and Wave 5equaled 100% of Waves 1-3. The chart below shows the pricezone at the lop where Wave 5 of 5 equals 100% of Wave 1 of 5and 62% of Waves 1-3. Wave 5 of 5 of 5 equals 100% of Wave 1of 5 of 5. The solid horizontal bar at the 12.20-12.50 price zonerepresents the zone of the coincidence of Alternate PriceProjections from all three degrees.
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Dynamic Price Analysis
The 10-year notes made an important low at a cluster of threeimportant price projections.108.31-108.23108.31 (Ret); W.5 = 1.618 W.4 (external retracement)108.27 (APP): W.5 = .618 W.1-3108.23 (Ret): .618 retracement (8/15L-9/14H)The Price Histogram Detail below shows the details of the priceprojections in the zone of the wide bar which is shaded gray shown inthe chart above.
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Dynamic Trader - Chapter 4
Price ClusterThere were three potential resistance zones projected from the June 14,wave 4 low. Two of these zones were confirmed by projections of [henext smaller degree by projections from the wave 4:5 low made in July.The pattern and time position of the marker as it approaches each pricezone will help to qualify which zone is most has the greatest probabilityof trend reversal.
Gold made the wave 3 of 5 top at the first projection of 397.9-398.6.The final wave 5 of 5 high at 409.0 was made precisely within thenext price cluster of 404.6-410.1. This was the ideal price zone for awave 5:5 high for this wave structure. It was unlikely that the final topwould have reached the higher zone near 424.0,The Putting It All Together chapter of the book instructs how toupdate the price projections as a market unfolds and how to discernwhich of the projected price zones are most likely to terminate the trend.
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Dynamic Price Analysis
The Price Histogram Detail below describes all of the individualprice projections included on the chart on the previous page. Noticehow the price projections are in three relatively tight groups as represented by the horizontal price target bars on the chart on the previouspage.
For years all of my price projections were done with a calculatorand a form to keep track of the price targets. While it was slow and abit cumbersome, the proper information was always at hand. Then Idesigned my own spreadsheets to do the price projections and theoutput looked similar to the table above. This was much faster, moreaccurate and allowed me to follow many more markets, It was onlyafter designing my own technical analysis software that the projectionsare now done almost automatically with the output shown right on thechart.
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Dynamic Trader - Chapter 4
The April 1995 high in the mark was made at the coincidence of two100% alternate price projections, each of different degree. The 100%APPs were the July 5, 1991 low-Sept. 4, 1992 high projected from theFeb. 11, 1994 low and the Feb. 11, 1994 low - Oct. 28, 1994 high projected from the Dec. 9, 1994 low.Note that the Oct. 28 high was made just a few ticks below the 61.8%APP of the July 5, 1991 low - Sept, 4, 1992 high projected from the Feb.11, 1994 low.Almost every trend of any degree terminates at or very near analternate price projection of at least one of the prior two alternate swings.When APPs coincide with internal and/or external retracements within arelatively narrow price zone, a change of trend is very probable.
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Dynamic Price Analysis
Every market does not make a corrective high or low at one of theretracement objectives every time. If they did, trading would be easy.However, most counter-trend highs or lows will be made at or very nearone of the important internal retracement percentages. If another priceprojection falls near a retracement percentage, a price zone results wherethere is a high probability of support or resistance.Silver fell sharply from the May 4, 1995 high and found initial supportat the 50% retracement. There is at least a minor reaction against the 50%retracememt in almost every counter-trend move simply because so manytraders are aware of this retracement objective, Silver continued lower inlate June and closed below the 61.8% retracement. The final low wasmade at the 61.8% Alternate Price Projection just below the 61.8%retracement. The Ret. and APP formed a support zone at 523.1-510,3.
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Dynamic Trader - Chapter 4
Price Expansions (Exp)Price Expansions literally expand the price range of a price swing bychosen ratio amounts. The most frequent use of price expansions areexpansions of the initial impulse wave off of a major trend change.Price Expansions expand the price range of a awing.The most important ratios to use for Price Expansion are:62%, 100&, 162%, 200%, 262%, 424%.
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Dynamic Price Analysis
Price ExpansionsOf the three methods of price projections, retracements and alternateprice projections are the most consistently reliable. I consider price expansions as a confirming factor to the other two. In other words, I wouldnot consider a price expansion target of any consequence if it did notcoincide with a retracement and/or alternate projection.
The April 21, 1995 high was made at the ,618 price expansion of theFeb. 11, 1994 low- Oct. 28, 1994 high.Price expansions are a confirming price projection method. Tops andbottoms are made right on a price expansion less often than on aretracement and alternate price projection. Price expansion projectionsarc confirming factors to the price retracements and alternate priceprojections.
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Dynamic Trader - Chapter 4
The Feb. 2, 1996 gold high was made at the coincidence ofthe 2.618 price expansions of Wave 1 and Wave 1 of 5,
The Aug. 21, 1995 silver top was also made at the coincidenceof price expansions of two degrees. The 100% expansion of the7/5L-7/19H price range and the 162% expansion of the 8/1L-8/9Hprice range each fell near the Aug. 21 high.
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Dynamic Price Analysis
Nikkei WeeklyThe Aug. 1992 low in the Nikkei Stock Index is a great example of thecoincidence of price projections in a very narrow range. The projectionsare grouped so light, that they overlap in the chart below.
The Aug. low was made in the price zone where:Exp: W.5 = l00% Exp W.lApp: W.5= 62% W.1-3Ret W.5 = l62% W.4Exp: W.5:5 = 100% Exp W.1:5App: W.5:5 = 38,2% W.l-3:5Ret: W.3-5:5 = 262% W.2:5Ret: W.5:5 = 162% W.4:5
The Aug. 1992 low was made at the coincidence of at least sevenprice projections including expansions, external retracements andalternate price projections of two degrees! Is it any wonder that amajor low was made at such a strong coincidence of support?
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Dynamic Trader - Chapter 4
S&P WeeklyThe Sept. 1995 high in the S&P was made at the 2,618 expansion of theinitial bull swing from the April 1994 low to the Sept. 1994 high. Whilethe reaction against the 2.618 expansion was relatively mild in price andtime, it was the greatest reaction since the Dec, 1994 low and lasted aboutsix weeks. The S&P soon continued to rally and made the next top at the4.236 expansion of the initial thrust (wave 1).Again, the greatest reaction in time and price to the bull trend sincethe Dec. low was made at the 4.236 expansion. This top lasted abouttwelve weeks. Trends rarely exceed a 4.236 expansion of the initialthrust. The continued bull trend to new highs for the S&P was anotherdemonstration of the unprecedented strength of this historic bull market.
What would be the next expansion ratio to consider? 6.854(4.236 x 1,618). A 6.854 expansion falls at 776.40. It seems outrageousthat the S&P will reach that high of a level without having made a majorcorrection, but it seemed outlandish to many people in early 1995 that theS&P would reach 662.00 with only minor corrections, but it did! The776.40 projection is not a forecast that the S&P will reach that level, buta price to anticipate a reaction if the level is reached.A comprehensive price analysis of any market will include priceexpansion projections.
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Dynamic Price Analysis
Price Projections By High/Low Extremes, Closing Extremes andPercentage ChangeMost traders are familiar with calculating price retracements andprojections using the high or low of the pivot bar. All of the priceexamples in this chapter up to this point used the extreme range from pivotto pivot. High-Low or Low-High price projections may also be calculatedusing closing data only. Closing data may more accurately represent theform, pattern and position of the market as it eliminates the very shortterm, intraday, volatile swings. However, it is usually not reasonable toexpect to tradeon analysis of just closing data as The daily swings may be large andrequire entry, stop placement and exit at a more prudent position thanwaiting for me close.Price percentage change more accurately represents the range of pricechange than the actual amount of price traveled. A price advance of $100from $200 to $300 is a 50% increase in price while a price advance of$100 from $500 to $600 is only a 20% increase in price. Each pricechange was the same amount yet a dramatically different percentagechange. The percentage change in price more accurately represents whatwe may consider the force of movement or the degree of psychologicalshift required of traders to move price.Traders should consider supplementing their price analysis bymaking all price projections by closing data and by price percentagechange as well as by the more traditional price range. This is particularlyworth-while for major degree swings. The extra work involved will oftenprovide critical information that will not be revealed by high/low extremeprice analysis.
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Dynamic Trader - Chapter 4
Price Projections By Percentage Change
Gold, Weekly: The chart above is gold weekly data bars. Dates shownare week-ending, Friday dates. Price projections calculated by percentagechange are labeled with a % and the price projection method (Ret, APP orExp). The pivot markers show the date, price and percentage change fromthe prior pivot.The Jan. 1994 high was made just above the 78-6% retracement (Ret)of the Aug. to Sept. decline. Note that the high was made dead on The100% percentage change retracement (Ret%). Gold declined 16,53%from The Aug. 6, $409.0 high to the Sept. 17, $341.4 low. Gold Thenrallied 16.52% up from the Sept. 17 low to the Jan. 7 high. A 16,52%rally from the lower number is a lesser amount of price than a 16.53%decline from the higher number. This is why the 100% retracement inpercentage change does not make a 300% retracement in price amount.The trading range lows in 1994-1995 were made at the coincidence ofthe 50% range retracement and 38.2% percentage change retracement.The Sept. 1993 low was made at the coincidence of the 78.6% rangeretracement and 61,8% percentage change retracement.As you can see, including percentage change price projections can be avery valuable addition to the price analysis techniques.
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Dynamic Price Analysis
Close-Only Data and Price Projections
This is a daily, close-only chart for gold. The C next to the date/pricemarkers denote the prices shown are closing prices. The C next to theprice projection level also denotes the price projection is closingprices. The 38..2% and 50% high/low extreme range retracements and50% and 61-8% percentage change retracements are shown. Gold shotright through the First pair of retracements, the 50% percentage changeand 38.2% retracements and stopped dead on the 61,8% retracement.Subsequently, the Feb. 1990 top was just a few ticks above the61.8% percentage change retracement. Traders should be aware of thepercentage change retracement targets on intermediate to major degreeswings.The chart on the next page shows a close-up of the Feb. top.
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Dynamic Trader - Chapter 4
This is a close-up of the same daily close-only chart on the previouspage. The 200% Alternate Price Projection of percentage change(APP%C) coincided with the 61.8% percentage change retracement atthe Feb. high.Traders who only calculate high/low retracements and projections didnot have any targets near where the high was made in Feb. Traders whoincluded percentage change retracements and projections were aware ofa narrow price zone that was the coincidence of two percentage changeprojections that was several dollars away from the traditional projections.It is always worth the extra effort to make price projections fromclose-only data and percentage change when analyzing major sw