This Coffee chart is a great example how the median line (center line) acts like a magnet toÂ attract price. How the market reacts to this line can be a very good indicator of future price action. A market that reaches the line quickly and with a wide range day will typically reverse at the line. On the other hand, a market that gradually moves toward the line in an orderly manner can penetrate the line slightly will usually trade on both sides of the line,Â forming a series of small swing patterns, before breaking inÂ direction of the origional trend andÂ move towardsÂ next parallel line. Lastly, if the market surges through the line and closes with a major part of the trading range past the median, it will usually pullback to test the median line--offering one more opportunity to enter the market--before trading towards the new parallel line target objective.Â Â Looking at theÂ Coffee chart, you can see how the the market posted a wide range day on March 18, touched the line and dropped back to the lower support line before making another run at the median line. The market is currently trading along the line making higher highs.
The last thing of importance is when the market fails to reach the median line. This price action signifies a price failure can set up a major price move in the opposite direction. All of this things offer helpful insight into market behavior and Â future market direction.
After confriming the bullish TC (trend continuation) pattern on March 2nd, the Dow Jones futures stalled at the prior pivot level and even backed up to test support at the lower parallel line. However, the bullish cycle held and propelled the Dow Jones futures past the previous high with good seperation. This keeps the bullish cycle intact with the next target objective at 10,687. To learn more above how to apply the action/reaction method to you trading check out â€œUnlocking Wealth, Secret to Market Timingâ€ or check out the youtube video at http://www.youtube.com/Tradersnetworkinc
Monday â€“ Silver, T-Bonds, Japanese yen
Tuesday â€“ Dollar index, Eurocurrency
Wednesday â€“ British pound, Sugar
Thursday â€“ Wheat, Bean oil
Friday â€“ Crude oil, RBOB gasoline, Canadian dollar
The March Japanese yen has just completed a 5-wave continuation pattern, inside the longer-term downward trend. This type of pattern in a mid-trend pattern andÂ suggestsÂ downward trendÂ should continueÂ over the long-term, but right now I want to talk about the 5-wave pattern just completed.
The upward swing began on December 31, after a failed swing pattern formed a new A-B pattern. The Yen rallied off this low and formed a (C) to (D) reaction swing between 1/15 and 1/20, justÂ above the 20- day SMA. This swing pattern was the balancing point of the upward swing (where the action segment ends and the reaction segment begins) and could have been used to pinpoint the time and price of the subsequent price move.Â This was done with reverse count from 1/15 to the beginning of the cycle (marked as A). The countÂ equaled 11 days. That number was used to make the forward projection of time and price byÂ projecingÂ forward 11 daysÂ from 1/20Â (marked as D).Â February 24th was the projected reversal date and the end of the cycle with a initial target objective at the sloping reaction line.
As the February 24th reversal date approached it look dim for theÂ Â time/price projection as the market drifted lower intoÂ February 24th. On the reversal swing day, the market surged to a new high and peaked on the projected date. The short-term corrective swing wasÂ complete and the market turned lower, to resume the prevailing trend. TheÂ long-term bearish cycleÂ should continue into end of the cycleÂ projected forÂ mid March.Â Iâ€™ll have more on the longer-term downward trend, with time and price projections later.
Swing Trading With Market Timing Intelligence Using the "Action/Reaction" Theory.
By John Crane
Man masters nature not by force, but by understanding.â€ This quote may be about nature, but it also holds true when it comes to trading. Before anyone can master the markets, they need to understand market structure and market behavior. With all the technology and computer power today, traders have come to rely on subjective or lagging indicators to make most or all their trading decisions and have not spent the time to learn and understand the value of past price action and its influence on future market movements. I believe a basic understanding of how market structure and market behavior affect the market will enhance any trading style or methodology.
Before I go further let me define what I mean by market structure.Â I define market structure as a sequence of patterns that make up a tradable predictive pattern sequence.Â Most traders will use single price pattern, such as flags or pennants, as their only pattern indicator, but I believe a specific pattern sequence can provide better information as a predictive indicator.
Right behind market structure in importance is market behavior. Understanding how the market should react after a specific market pattern sequence will alert you quickly to a legitimate strong signal or to the possibility that the signal may fail. Combining knowledge of both market structure and market behavior can help identify significant trading opportunities early and prevent trading disasters before they occur.
One of the most power full trading methodologies using the market structure and market behavior is Swing Trading with Market Timing Intelligence using the â€œAction/Reactionâ€ theory. This methodology uses only the past â€œactionâ€ of the market to make predictive time and price projections with a high degree of accuracy. Instead of going into a long drawn-out explanation of the repetitive natural cycle behavior in the market, I will just use the following chart illustrations and let them speak for themselves.
The first thing that really jumps out about this chart is the lack of data. I am only showing half the chart right side missing. I would also like to point out that I have not identified what market or time frame is represented on the chart. This illustrates that the method can be applied to any market and any time frame. Whether you are a day trader, swing trader, whether you trade commodity futures, equities or Forex, the â€œAction/Reactionâ€ method can be added to your current trading methodology. Thatâ€™s right, it can be used as a stand-alone tool or added your own trading approach. It is a truly flexible trading indicator. From the price action and â€œmarket structureâ€ shown, I can make a projection of the next market direction, price objective and duration of the impending price move.
It begins at the â€œreaction swingâ€. The reaction swing is the balancing point of the cycle. It is the point at which the action (the price action that has already occurred) segment of the cycle ends and the reaction (the future segment of the cycle) is about to occur. By understanding the information provided by the action segment, I can make a predictive projection of the future price action. Here is how it works:
I have marked a pattern sequence I call a Trend Reversal or TR pattern. This pattern sequence is made up of five pivots in a specific order and typically appears at a major high and or low. Since the last trend was up, I can surmise the next price direction is down. Therefore, I have the â€œdirection.â€ The next step is a time/price measurement from the beginning of the reaction swing marked as (C) back to the beginning of the pattern sequence I marked as (A). Starting at (C) I count the price bars back to the beginning of the TR pattern marked as (A). The count equals 22 bars. I take this number and project forward 22 bars from the end of the reaction swing, marked as (D), to identify where there could be a future reaction in the market that could result in a possible change.
Now that I have the direction and duration of the upcoming price move, I want to know the probable price target objective. To find the price projection, I turn to the Andrewâ€™s Pitchfork and anchor it at the high of the TR pattern, marked as (B). The two parallel lines are drawn from the high and low of the reaction swing marked as (C) to (D). I am most interested in the center line known as the â€œmedian line.â€ I use this as a momentum indicator to determine strength or weakness of the market. Using the information I already derived from the time/price measurement, I count forward the 22 bars and mark the median line and the lower parallel line. At this mark, I draw a line parallel to the line drawn from (C) to (D) by the Andrewâ€™s Pitchfork. This sloping line is called the â€œreaction lineâ€ and will be the price target objective.Â I have now had my future projections for both the time and price of the impending price move. It is time to see what unfolds over the next 22 price bars.
After a short-term pause between price bars #6 and #8, the market resumed the downward trend and crossed over to the weak side of the median line on price bar #15.Â This indicates more weakness and therefore, the reaction line is lowered to where the time projections intersects the lower parallel line to provide a new price target objective.
The final result of my time and price projections is shown on the following chart of the 5-minute e-mini S&P chart.Â The reaction segment of the cycle traded lower over the next 22 5-minute price bars posted the lowest losing price of the market swing on the 22nd price bar, but not until the market had reached the reaction line target objective. Both time and price objective had been projected 1 hour and 40 minutes earlier. This effectively ended the cycle and the market promptly reversed. The cycle had ended and a new cycle was about to begin.
This is a prime example of the importance of understanding market structure and market behavior. Since buyers and sellers are the true drivers of the market and human fear and greed will never change, the emotional cycles will always exist in a measurable and definitive way. With the â€œAction/Reactionâ€ theory and Market Timing Intelligence you can use these patterns sequences and market behavior to enhance your current trading approach or as a stand alone indicator. This methodology is the foundation of the daily trade recommendations made in the Traders Market Views Swing Trade report and also for the highly acclaimed RT Swing Trade software.
At Traders Network we offer a 30-day free trial of the Traders Market Views Swing Trade report and the RT Swing Trader software. We will show you how to make your own market projections or just allow the software to do it for you. After learning more about the â€œAction/Reactionâ€ theory, I guarantee that you will never look at the markets the same way again.
For more information or to request a 30-day free trial of the Traders Market Views newsletter or the RT Swing Trader program, call 1-800-521-0705 or visit our website at www.tradersnetwork.com.
The recent two-day rally came to an end after trading above the prior dayâ€™s high andÂ reaching the descending median line resistance. Soon after the Wheat posted the high, Â the projected reversal swing date kicked in and the market reversed lower. Wheat is currently trading over 17 cents off the the dayâ€™s high. The market is poised to reach the projected target objective of $4.58. I may have a new recommendation in TMV Swing Trade Report.
Monday - Cattle, Silver, British pound, Australian dollar, Coffee
Tuesday - Hogs, Wheat, Heating oil, T-Note, T-Bonds, Japanese yen, Cocoa
Wednesday - Bean oil, British pound, Sugar
Thursday - S&P
Friday - Eurocurrency
After trading lower for two weeks, the Euro reached the reaction line target objective, one day after the projected reversal swing date. The time and price projections were may two weeks earlier using the Action/Reaction Market Timing Intelligence method.
From the TMV Swing Trade Report (12/21/09) The Treasury yield curve, a barometer of the health of the U.S. economy, widened to a record high, as investors bet an accelerating recovery will fuel inflation and hurt demand for unprecedented sales of government debt. Chart wise, T-Bonds confirmed a bearish swing pattern, with a close below the descending median line. This portends a price swing towards the lower parallel line as the market approaches the December 29th. Â The T-Bonds sell was triggered at 116-30 with the stop loss at 117-25.
The February Hogs have been in a strong upward trend since early August, but that may be coming to an end. The market appears to be in the final stages ofÂ a complete cycle and overdue for a corrective move. Hogs posted a short-term low on the 12/11 reversal date before trading up to the sloping reaction line target objective. The market is in the final stages of forming a possible TR swing pattern. (A TR swing pattern typically forms at major turning points in the market.) I will give the market another day to see if a confirming pattern forms. Keep in touch with the TMV Swing Trade report for further updates.