By: John Crane, swing trading guru
Market timing Swings or Action/Reaction lines are the foundation to making price projections. They are simple to identify and very powerful when combined with the Time projections from both the TR (Trend Reversal) patterns and Swing Trading Strategy TC (Trend Continuation) patterns.
Here are the rules for drawing the Action/Reaction lines from a Trend Reversal pattern (TR) in a downward trending futures market timing. The rules are reversed in an upward trending futures market timing. The first step is locating and drawing the center line. See Figure # 4.1.
Figure # 4.1 – Find the Center line.
1-Find the exact center of the (C) to (D) Reaction swing. This can be done by subtracting the low price from the high price and dividing by two. Add the sum to the low or subtract the sum from the high. Either way, you will get the exact center.
2-Now, draw a line from the high at (B) through the exact center of the Reaction swing (C) to (D) and continue the line forward to the end of the chart. This line divides the cycle in the exact center and separates the Action segment from the Reaction segment of the futures market timing and is called the center line. See Figure # 4.2.
Figure # 4.2 – Draw the Action line
3-Draw a line from the low of the price bar with the lowest closing price at (C) to the high of the price bar with the highest closing price at (D). This line is called the Action line.
Figure # 4.3 – Draw the Reaction line
4-The next step is to do a reverse/forward count the same way it is done with the TR pattern and the Swing Trading Strategy TC pattern. The future swing trade date, determined by the reverse/forward count, is marked on the center line.
5-At the spot marked on the center line, draw a line parallel to the action line. This is known as the Reaction line and becomes the price objective. See Figure # 4.3.
(I use the Andrews Pitchfork function on my charting software to do this for me. The software will calculate the exact center of the Reaction swing and draw the Action line and center line for you. Most technical charting software packages include this function.)
To illustrate this concept I am going to use several of the same futures markets I used in the previous chapters. This way you can see how Time and Price work together.
**THE RISK OF LOSS IN TRADING CAN BE SUBSTANTIAL. YOU SHOULD, THEREFORE, CAREFULLY CONSIDER WHETHER SUCH TRADING IS SUITABLE FOR YOU IN LIGHT OF YOUR FINANCIAL CONDITION. HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER OR OVER-COMPENSATED FOR THE IMPACT IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT.NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES.Swing Trading, Market Timing, Swing Trading Strategies and Reversal Commentary ©2005-2009 reversaltracker.com All Rights Reserved.