Just like most traders, I started trading stocks, futures and commodities through news, government reports, crop reports, occasional advice and feelings. Needless to say, they were not very effective.
But then, during the late 1980s, I became more aware of the price chart and a few chart indicators.
The chart indicators excited me, because at the time I thought I had come across a way to know in advance what the market would do next. The stochastic oscillator was really intriguing and almost seemed to predict when the market would move up or down.
But again, as most have found, these indicators do not actually predict. How can I, when simply based on averages, or volume, or a series of other historical back-tracking data, share with two forward projection algorithms that have nothing to do with the future of the five dice in a shaker cup!
Dont get me wrong. Graph indicators are quite useful and I continue to use them today (now 3 decades later). However, market forecasting is NOT what these indicators do best. However, they give us a lot of useful information that has its place even among us who mostly rely on market forecasting methods.
That’s right. I said “market forecasting methods”.
By the early 1990s, I had come to know about the application of Fibonacci ratios to the effect of market prices. At the time, the idea seemed a bit strange to me, until I decided to try it at my favorite pork belly market. For the next 6 weeks, I would practically catch every bottom or top within just a few ticks, turning a small amount of money into a larger small amount of money (I used borrowed funds). Eureka!
But that soon became my downfall. Because of my initial long period of capturing every new market movement, often within just a few beats from the very bottom or top, I began to think I couldn’t go wrong. Wrong! I did a Live Cattle futures trade that I was so sure I had to turn around, but I didn’t. I stuck to the losing trade because it was impossible to make a mistake. It wasn’t until I was wiped out that I had to admit that I was human after all. My golden goose became my golden ticket to the Bust-villas.
Then a lesson was learned that set me on a course of greater enlightenment. Market forecasting was actually possible. However, market foresight required the involvement of discipline and confirmation, and that you can never be 100% accurate 100% of the time.
It has also become quite obvious to me that the path to greater market forecasting would require digging deeper into the reasons why Fibonacci can sometimes be effective, and at other times not so much. This led me to realize that it all revolves around ‘natural laws’, what is part of Fibonacci.
My quest in the realm of natural laws led me to the teachings of WD Gann. With Gann, I came up with values in calculating time and the square of prices (Gann’s wheel also known as the square of nine), angles, ratios, market geometry, and more.
Armed with Fibonacci and Ghana and all the variations that come with a deep understanding of these, my research has thrown me out of the stars. Yes, the influence of the Sun and the Moon and several neighboring planets on our planet Earth. It made sense!
Now I don’t mean astrology. It’s just not my cup of tea. I am a man of science, not mysticism or divination. What I mean is astronomy, and the gravitational and seasonal effects that come with planetary movements and interactive influences.
Let me simplify this.
As the Moon orbits the Earth, it affects water bodies as well as the Earth’s electromagnetic field. As a result, we have tidal maps, and it has been proven that people tend to behave differently (as a group) during the full moon. The term “madman” comes from the Latin “Luna”, which means “moon”.
While the Earth rotates once every 24 hours (which gives us days), it revolves around the Sun approximately every 365 days (a year). Because the Earth is in an elliptical orbit around the Sun, it will move closer or farther, resulting in what we see as the ‘seasons’.
Now think about how these ‘seasons’ affect our markets and you will begin to see the relationship.
Once I came to see the connection between Fibonacci, Ghana, the geometric patterns of prices, the effects of the Moon and the Sun, it all came together in what is known as CYCLES!
A cycle of 24 hours (day), a cycle of 90 days (seasons), a cycle of 365 days (years), a cycle of months, and all kinds of other cycles that happen at the same time, but in different degrees with different effects on different markets!
Market price action is influenced by human behavior (we are buyers / sellers), influenced by supply and demand, influenced by seasons, which is a cycle, and human behavior can be influenced by the month, which is also a cycle, and so on.
With all this understanding of what affects markets, and the realization that much can be revealed through price charts and several different approaches, market forecasting has become even more effective than the simple Fibonacci model. That model only looked closely at the markets, so it was sometimes efficient and sometimes lacking. True market forecasting requires knowledge of several different techniques that deal with different aspects of price behavior.
As the avid chart reader moves on to learn about these effects on price action, declaring “market forecasting really works” becomes a forgotten conclusion and part of the daily chart reading ritual.