likelihood of a major reversal increases.FISCHER'S GOLDEN ~cCTION COMPASS SYSTEM 365eh
—FIGURE 14-16 Calculation of time-goal days.
 
L618 xe HD)6
1.618 X (Hy—H)
1.618 x (Ha — Hy) Ts 1.618 x (He — Ha)
Ap
12Hy T;
   
pe T71618 x (Ly — Ly) Ly }
T; 1.618 X (Zs — La)Ts
1.618 X (L3— Zp)
1.618 X (Ly —Ly) 7
 
Specific entry signals occur On a 5-day price reversal. A long signal is given following atime-goal day when the closing price is higher than the high of the past 5 days. This is suf-ficient to identify a tend change and allows the stop-loss to be the recent low or a fixedpoint below the entry point.
Price Goals ~
Price objectives are determined using the same highs and lows. Elliott’s wave theory isrefined by Fischer, as shown in Figure 14-17. Once the low has been found, followed bywave 1, the price objectives for waves 3 and 5 can be calculated as a function of wave 1:
Wave 3 objective = .618 x (wave 1 — low) + lowWave 5 objective = 1.618 x (wave 1 — low) + low
The pullbacks to points 2 and 4 are not determined in this calculation, and the proba-bility of the five-wave formation occurring is not confirmed unless the wave 3 objective issatisfied. Price goals are used for profit-taking rather than new entry points. The GSC Sys-tem, however, does not require that markets move in five-wave patterns. Price objectivescan be calculated from long-term lows as 1.618 x initial move up. When price and timegoals occur at the same point, there is greater reliance on the signal.
In general, tetracements from sustained moves can be expected to approximate orexceed 38.2% (1 ~ .618) of the initial move. Once a high-level objective has been reachedand a reversal occurs, consistent profits may be taken using this goal.If prices fail to makeExamples of time and price objectives can be found in Tucker J. Emmett, “Fibonacci Cycles,” Technical Analy-sis of Stocks & Commodities (May 1983 and March/April 1984).+ 366 BEHAVIORAL TECHNIQUES
 
Neen neFIGURE [4-17 Price goals for standard five-wave moves.
1.618
Ttit
 
Low
 
new highs following the first rewracement, objectives for the next lower levels down can beset according to the inverted Elliott wave patterns, or 1.618 x initial downward move,
Filtering Highs and Lows
The GSC System can be made to identify with more significant highs and lows by increas-ing the selection filter. For example, a sensitive system would select highs and lows in goldthat are separated by a minimum swing of $10 per ounce. More significant points may beidentified by swings of $20 per ounce. It can be demonstrated that a small filter will gen-erate highs and lows that are produced by noise rather than significant behavioral actions.The system cannot be forced to produce more signals than the natural patterns allow.
The selection filter should be adjusted for market volatility. At higher price levels thenoise also increases and will obscure the more important high and low points. AlthoughFischer only briefly touches on this, traders who_apply this method should be prepared toadjust the selection filter from time to time. .
W.D. GANN—TIME AND SPACE
The works of WD. Gann cannot be explained with any thoroughness in a few words, butsome of his main ideas have been selected and presented in this section. Gann was a puretechnician using charts for all his analyses. His methods varied substantially from conven-tional charting techniques, but his philosophy was one of a professional trader; Conserveyour capital and wait for the right time. Gann traded primarily grains for many years, andin his writings he attempted to summarize his most important observations, some of themare reminiscent of other well-known market lore. : a_ Price moves are never exact. Gann was a believer in support and resistance lines, butexpected some violation of the objectives because of Jost motion, his way of accounting for
-the momentum that carries prices higher or lower than their likely goals. Nearly a crossbetween Elliott's waves and Angas's cycles, Gann classifies bull and bear moves into fourStages, each one compared with a trending move and a subsequent reversal culminating ina major top or bottom. He observed that bull markets last longer than bear markets. Heconcluded that reversal patterns must reduce in magnitude.as the move develaps and per-sists. A similar argument is expressed in the theory of contrary thinking. Much of Gann’swork is related in 1940 cents and requires an economic inflator clase at hand to adjustPrices to today’s levels.W.D. GANN-—TIME WD SPACE 367
 
Gann’s techniques combine mathematics and geometry with time and space; he findsduration as important as the size of the price change. One of his principles reflects the ideaof a longer consolidation period resulting in a longer price move after a breakout. OnePopular approach to price objectives in bar charting is exactly this idea.
Time and Price
Gann proposed certain natural divisions for price swings expressed as percents. Zero and100% are the most important of these. Based on behavioral awareness, he considered apotential resistance level at 100% of the original point of the move or 100% of the highestor lowest (the best guide) price of that market. In a reversal, 100% was a full retracementof the original move. The rationale for this theory is behavioral, as is his conclusion thatmost traders like even numbers; for this reason orders in grains are most often placed at 5and 10¢ levels. Even now, traders will find more activity as prices attempt to cross wholenumber barriers, such as each 100 for the S&P or each 1,000 for the DOW.
After the 100% level, decreased importance goes to increments of 50%, 25%, 124%,and so on. For a grain, this would mean that major resistance could be expected at theeven dollar levels with the next resistance at 50¢ intervals, then every 25¢, and so on; aftera bull move of $1, the major support would be $1 lower, then 50¢, 25¢ and 75¢, and so on.The use of successive halving of intervals was also extended to time. A year is a full cycle of360°, which makes one-half of a year equal to 26 weeks, one-quarter of a year 13 weeks,one-eighth of a year 45 days, and one-sixteenth of a year 22% days. In cases of conflict, timealways took precedence over price. The combination of a key price level (percentagemove) occurring at a periodic time interval is the basis for much of Gann’s work.
Geometric Angles
The most popular of Gann’s methods is his use of geometric angles for relating price andtime. By using square graph paper, it was not necessary to know the exact angle becausethe construction was based on the number of boxes up versus the number of boxes to theright. A 1 x 1 angle (45°) was drawn diagonally from the bottom of the lowest point of aprice move through the intersection 1 box up and 1 box to the right. This is the primarybullish support line. A bearish resistance line is drawn down from left to right from thehighest price using the 1 x 1 angle. The next most important angles in order of significanceare 2x1, 4x 1, and 8x 1; for lower support areas there is also 1 x 2, 1x 4, and 1x 8. Placeswhere the support and resistance lines cross are of special significance, indicating a majorcongestion area.
Figure 14-18 is taken from Gann’s private papers and shows the use of geometricangles in an actual trading situation. Lines were first drawn where-Gann expected a bot-tom, then redrawn-The initial upward move followed the primary 45° line; the secondimportant support line, 1 x 2, met the primary downward line at the point of wide con-gestion at the center of the chart. The highest point on this congestion phase became thePivot point for-the next 45° downward angle defining the next breakout. Traders havefound the primary 1 x 1, or 45° line, an important tool for staying with the major trend. Itis used to filter out small reversals in both standard charting techniques and point-and-figure.
Gann combined this method with a more remarkable technique, the squaring of priceand time. It was fortunate to find a chart that complemented Figure 14-18, based on thelowest recorded cash price of soybeans, 44¢ per bushel. Figure 14-19 shows how Gannconsiructed this square, beginning with the lowest price at the center and moving onesquare to the right, circling counterclockwise and continuing the process. The basic geo-metric lines (horizontal, vertical, and diagonal) indicate the major support and resistanceprice levels; the most important one being 44, the junction of all lines.FIGURE 14-18 Gann’s soybean worksheet.
posh sf fh oF 4rea pe=
 
 
LA BLpee eeeGK EL Mee Aut
 
 
 
 W.D. GANN—TIME AND SPACE 369
 
 
FIGURE [4-19 May soybean square.
 
 
ig st nf OC369| 300]299 296 297/296l29% 294\293\299| 291 2 269 265370/301 |249 239.238 iene 239i233|232 231 1239429
 
1971 302) 24! ea) /87 166 185 (84 "23 1ap) iar 180,479 v6!189 46 143) 142 bt} * 140139 | 138,137: /36 (35190145 |106, 107 106 '105110¢| 103 10z\101 joo191 \14@| 109) B0- 73:1 78 76 75:78 99192 pa7li0 ai [aq 591 581 57 $6] 73198
193 1480 82) 6! [>a y 72| 97413pahagin2 [45+
195150113 [64 aa | 50 ; 128\/69196757 [714 | 85| 64 oa 127 papeyo7|s2 us pd 67 | 09 The | 28 20 [167125 98 |/53 We 17 HB 19| 120) fas veal 123 Yea
199) 154 155 156 157158 159160 Ml '/62_ 163!
 
 
 
 
 
 
 
200/201 202:203 204'205 \206\207 208!
 
 
 
 
 
 
 
 
Relating the square to the price chart showing geometric lines, the first support levelis seen to be exactly at 240 (upper left diagonal), the major resistance at 276 (right hori-zontal), the next minor support at 268 (lower right diagonal), congestion area support at254 and 262 (1 box off), and back down to support at 240. Notice that the distancebetween the lines on the square becomes wider as prices increase, conforming to thenotion of greater volatility at higher prices. It is also expected that soybeans at $10 willhave some Jost motion near these key support and resistance levels.
The Hexagon Chart
Gann generalized his squaring method to include both geometric angles and the maincyclic divisions of 360°. By combining these different behavioral concepts, the strongestlevels of support and resistance are found where all three coincide. The generalized con-struction for this purpose is the Master Calculator, based on aligning the chart at a point”representing a multiple of the lowest historic price for that market; crisscrossing angles370 BEHAVIORAL TECHNIQUES
 
will then designate sugport and resistance for the specific market. Other time charts ofimportance are the Square of Twelve (one corner of the Master Calculator), the HexagonChart, and the Master Chart of 360°. The Hexagon Chart can be used as an example of thecombined effect.
As shown in Figure 14-20, the inner ring begins with six divisions, giving Gann thebasis for the chart name. Each circle gains six additional numbers as it proceeds outward,which relates to the overall continuity of the construction. In using the hexagon, thedegrees represent time and the numbers in the circle are price; a major support or resis-tance point exists when both time and price occur simultaneously.
For example, consider the 360° of the hexagon relating to the calendar year, or per-haps the crop year for grains. In his own work on grain, Gann equated 0° to March 20, nearto the first day of spring when the sun crosses the equator going north. Then, the 45° lineis on May 6, 90° on June 21 (the first day of summer), 180° on September 23 (fall), and270° on December 21 (winter). These primary divisions also represent the most significantplaces for price support and resistance. The other lines represent secondary levels.
When looking at price and time together on the Hexagon Chart, the distance betweenthe major degree lines becomes greater as prices increase showing the importance of
 
FIGURE 14-20 The Hexagon Chart.
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TARRY pL om ip rope5 pe el age
 
 
 
 
 
 
    
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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a ste aa oe ftT he aa ed oe of pa oe op ee yehaere Fo rh a oo me Padlra te te FOtoy f ob a gras be tler | ‘i ae pepe owe ale4 otf aide we lowe) dad aby ap ae athe me bo Teywae pee
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 FINANCIAL ASTRULOGY 371
 
volatility. Using the price of November 77 soybeans, the chart shows that between 90° and180°, or June 21 to September 23, 1977, the price of soybeans should have support at 567and then move its major support level to 507 and its major resistance to 588 with nexthigher and lower support and resistance at 432 and 675, respectively. As it turned out, this‘was a very accurate prediction.
On many of Gann’s charts there is notation showing planetary movement, not relatedto the cycles of seasonality, but what is believed to be the Jupiter-Saturn cycle, discussed inthe next section. These techniques make Gann’s work more difficult to reproduce thanmost methods; his tools are less conventional than others. If Gann were asked for a wordof advice, there is no doubt that he would caution to patience, stating: When price meetstime, a change is imminent.**
FINANCIAL ASTROLOGY
Astrology seeks a common bond in human behavior, similar to the work in biological rhythmsand cycles. The impact of astrology on civilization has been great; observations of the peri-odicity of the moon is traced back 32,000 years. Star charts were known to have been in Egyptabout 4200 B.c., and the earliest written ephemerides were in the seventh century .c.> Thepyramids at Giza are said to have sloping corridors leading from the faces to the interior thatwere used as sighting tubes for Egyptian astrologers for making accurate forecasts. The accep-tance of astrology throughout history is widespread, including virtually all civilizations.
Even sophisticated analysts have been found to confuse astrology with the daily horo-scope found in a local newspaper. Astrofogy, the interpretation of the effects of planets andstars on human affairs, is an art followed by a large portion of the world population andshould not simply be discarded as mystical or occult. Interpretation of these effects can becomplex and involves special skills. Most forecasts begin with a birth chart, whichdescribes the position of the stars at the time of inception, then look at the current posi-tions to identify the transitions. Over time, planets have taken on an association with spe-cific raw goods, and constellations are associated with certain types of business; theserelationships can now be verified using computer programs that check the intricate posi-tion of the planets with the financial statistics of companies to find a correlation. However,that task will be left for the more ambitious.
We must all agree that the positions of the planets and sun—those bodies with thelargest gravitational pull on the Earth and each other—have clear physical effects. in thestudy of physics, this relationship is given as
Gravitational constant x Mass
Force of attraction = 7"Distance between centers
where the gravitational constant is 6.67 x 10~*, the mass is found in Table 14-1, and the dis-tance between the centers can also be calculated from Table 14-1.
Of these physical effects, the seasons and the tides are undeniable; and there is muchmore when you study astronomy, the science of motion of the stars and planets. In this sec-tion we will concentrate ouf attention on the physicatphenomenon of planetary motionwhich can be identified and tested with the same confidence, and perhaps more, as othertrading systems. Among these phenomena, eclipses and the lunar cycles are the most obvi-ous, but there is one other combination that is important, the Jupiter-Saturn cycle.
3% Computer software is available for calculating and plotting much of Gann’s works. See “Ganntrader I," Techni-cal Analysis of Stocks & Commodities (January/February 1984), or contact Gannsoft Publishing Co., 311 BentonSt., Leavenworth, WA 98826, or Lambert-Gann, RO, Box O, Pomeroy, WA 99347.
» Derek Parker and Julia Paricor, The Compleat Astrologer (McGraw-Hill, New York, 1971, p. 12).372 BEHAVIORAL TECHNIQUES
 
The Jupiter-Saturn Cycle
Jupiter and Saturn combine to represent the overwhelmingly largest mass, other than theSun, in our solar system (see Table 14-5). The two planets amount to about 95% of the totalmass of all the planets and are about .7% of the mass of the Sun. Because they are in adja-cent orbits, they have a very large gravitational pull on other planets when they are nearone another, and very different effects when they move apart. They are so large that theycause the Sun to shift periodically based on their positions around the true center of massof the solar system, called the barycenter. When Jupiter and Saturn are on opposite sidesof the Sun, the center of mass is near the center of the Sun, but when the two large plan-ets are together, the Sun is pulled away from this center. This positioning also has signifi-cant effects on the Earth’s climate, which in curn affects agricultural production, supplyand demand, and finally the economy.*’ The Greeks called the Jupiter-Saturn cycle “TheGreat Maker of Time,” and it is said that every significant cycle in stocks, commodities, andinterest rates is either a multiple or a harmonic or the Jupiter-Saturn cycle. The most well-known, the 59-year Kondratieff, is three times the Jupiter-Saturn cycle (3 x 19.859 =59.577). Gann, who used a combination of time and price, based time expectations on sea-sonality and cycles. His work referred to a “Master Time Factor” that was never defined, butexperts believe that the Jupiter-Saturn cycle satisfies his technique.
'
Charting the Saturn Line .Having decided that the movement of the largest planets affects the way markets move, youcan create a planetary envelope based on Saturn's path with respect to the Dow JonesIndustrials and find frequent concurrence. This requires converting the position of theplanets into price.** When completed, this envelope is treated as support and resistancelines in a manner similar to the standard charting interpretation, in which penetration of aresistance line will become support; however, in appearance, the Saturn lines are curvedto represent its cycle (see Figure 14-21).
» For a complete discussion of this topic, see Henry Weingarten, Investing by the Stars (McGraw-Hill, 1996). Asection written by Richard Mogey, “Long Cycles and the Master Time Factor,” is the basis for the next section.
38 Jeanne Long, “Planetary Support and Resistance on the DJIA,” A Traders Astrological Almanac 1994 (Profes-sional Astrology Service, 757 S.E. 17th St., Ft. Lauderdale, FL 33316). .
 
TABLE 14-5 Size and Position of the Planets and Earth’s Moon
 
Equatorial Distance Duration—_ Diameter Mass* from Sun of Orbit(km) tke) (mil ken) (Earth years)Sun 1,392,000 _ 1.99 x 10% 0 9Mercury 4,880 - 334x108 57.9 0.24Venus 12,102 4.87x 10%” 108.0 _ 0.62Earth 12,756 5.98 x 10% L 149.6 _ 1.00Mars 6,794 7.35xj02 ~ 227.9 1.86Jupiter 142,800 8.39 x 107 778.3 - 11.86Saturn 426,000 5,00 x 10” 1,427 29.5Uranus 52,000 3.77 x 10% 2,870 84.Neptune 47,500 3.29 x 10 4497 165.Pluto 2,500 5.98 x 102 5,893 | 248,Earth's moon 3476 7.34 x 108 384,400 km 0.075
nr* Note that mass = volume x density and, except for the Earth and the Earth’s moon, the density of the planets can only be estimated,FINANCIAL ASTROLOGY 373sw
reFIGURE 14-21 Saturn lines drawn on the Dow Industrial.
 
 
Chart A Commas eenseecs ite 30S VACKER, CHICAGO. ILLINOIS 60606
DOW 30 INDUSTRIALS INDEX. CASH
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Note how price touches Satura line at 1, 2, 3,and 4. At 1, 3, and 4 price moved quicklyaway from the Saturn fine. At 1, 2, 3, and 4there were never any cioses over the line;this means That the fine is holding and priceswill move away from it,
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
‘
t aTHIRE pa TUT i ss qWe 13 2 $1017 4 2 8 18 2S 13 22:29 6
DEC Jan 1992 FEB MAR APR may JUN ut Aus
 
 
 
 
 
 
 
Source: Jeanne Long, A Traders Astrological Almanac (1994). Reprinted with permission from PAS, Inc. E-Mail:pas@bga.com Web Site: www.galacticinvestor.com.
Converting Planet Position to Price
Long transforms planetary position to price using two separate wheels, combined to forma Universal Clock, in a manner similar to WD. Gann. Each wheel refers to a specific mar-ket. To create the Universal Clock for the DJIA, you begin above the right horizontal (at 3o’clock) with the number 1 and move counterclockwise, placing 6 numbers per quarterand 24 for an entire cycle, You then move to the next outer circle and continue with thenumber 25 just outside the original number 1; therefore, each concentric circle containsthe next 24 values, ending at 360 (a full cycle). The DJIA Clock is shown in Figure 14-22,In the outer wheel of the clock, the DJIA is shown in increments of 10 points begin-“ning at 1930 and continuing in circles of 24 values. Long does not explain the choice of thebeginning price, but Gann uses a significant low, and astrologers tend to use the price atakey starting time, such as the beginning of a new Dow calculation, birth of an exchange, ortransforming event.
To locate the planet on the time wheel, begin with the planet’s position on a specificdate. For example, on October 1, 1993, Saturn was at 24° (with respect to Aquarius) 14’,Aquarius falls between 300° and 330°;therefore, the position of Saturn is 300° + 24° + 14’= approximately 324°. By locating 324 on the inner part of the wheel, you can refer to theprices on the outer part of the wheel and find the two prices (each in adjacent circles) that374 BEHAVIORAL TECHNIQUES
 
 
FIGURE 14-22. The DJIA Clock.
 
   
SATURNPRICES
 
The price wheel of the DJIA
 
Source: Jeanne Long, A Traders Astrological Almanac (1994). Printed with permission from PAS, Inc. E-Mail:pas@bga.com Web Site: www.galacticinvestor.com. 7
\span the current DJIA price. These values are the current support and resistance lines, Newvalues are found monthly.
Major Physical EventsOf the major physical phenomena used in financial astrology, the most important are:
Solar eclipse—when the moon passes between the Earth and the Sun
Lunar eclipse—when the Earth passes between the moon and the SunConjunction—when_any two planets are on the same side of the Sun (and form astraight line with the Sun) ° ue
Opposition—-when two planets are on opposite sides of the Sun (and form a straightline with the Sun)
The physical significance of an eclipse is said to be that it disrupts the flow cf energybetween two bodies by the interference of a third mass. In actuality, the gravitational forcesof the two bodies are maximizetl when they are both on one side of the Earth, as in 4 solareclipse, and minimized when they are on opposite sides, as in a lunar eclipse, Tables 14-6,14-7, and 14-8 give the dates of the primary physical events for Jupiter and Saturn, lunarand solar eclipses, and new and full moon eclipses.FINANCIAL ASTROLOGY 375
 
In astrology, the angles between planets are viewed from the position of the Earth; thisis called a geocentric system, When a planet lies on the line between the Earth and Sun, itis in a geocentric conjunction; when it is aligned behind the Earth, it is in geocentric oppo-sition. When a planet is at 90° to the Earth-Sun line, it is said to be square.” The angle thatthe planets form with the Earth-Sun line are called aspects. For the purposes of trading,squares are considered bearish while conjunctions and oppositions are bullish; however,there are other interpretations. Conjunction and opposition may not always conform to‘the strict definition of forming a straight line with the Sun, but may refer instead to closeproximity. Both solar and lunar eclipses are conjunctions.
Trading on Aspects
Although the clearest physical phenomena combine the sun, moon, and largest planetswhen they are in conjunction and opposition, there are many other combinations of plan-etary positions that are considered important. It may also be necessary to follow a planetfrom the 90° to 270° position so that you track its effect on prices through the mostextreme 180° path. The calculations for lunar and solar eclipses appear at the end of thischapter, but automatically calculating the aspect of combinations of planets would bebeyond the ability of even the most computer-literate traders; commercial software is avail-able for this level of detail and can calculate the number of occurrences that an aspect cor-responds to a price move or price peak of a minimum size. The simplest method is toselect days that represent swing highs or lows and record the major aspects. The larger the
>” Hans Hannula, “Trading Planetary Eclipses,” Technical Analysis of Stocks & Commodities (April 1992).
 
TABLE 