Like most traders, I began trading stocks, futures, and commodities through news, government reports, crop reports, the occasional tip, and an intuition. Needless to say, these were not very effective.
But then in the late 1980s, I became more aware of price charts and some charting indicators.
The indicators on the chart got me excited as I thought at the time that I had stumbled on a way to know in advance what the market was going to 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 discovered, these indicators don’t really predict. How can they do it, when they are simply based on averages, or volume, or a host of other historical back monitoring data divided by two forward projection algorithms that have no more connection to the future than five dice in a shaker cup? ?
Now don’t get me wrong. Chart indicators are quite useful and I am still using them today (now 3 decades later). However, the market forecast is NOT what these indicators do best. However, they provide us with a lot of useful information that has its place even among those of us who rely primarily on market forecasting methods.
That’s how it is. I said “market forecast methods”.
In the early 1990s, I discovered the knowledge of the application of Fibonacci ratios to market price action. The idea seemed a bit strange to me at the time, until I decided to give it a try at my favorite Pork Bellies market. For the next 6 weeks, it would pretty much capture all the funds or highs with just a few ticks, turning a small amount of money into a small, larger amount of money (you were using borrowed funds). Eureka!
But it soon became my undoing. Due to my initial long stretch of catching every new market move, often within just a couple of ticks from the bottom or top, I began to think that I could do nothing wrong. Wrong! I made a change in live cattle futures that I was so sure I had to change, but I didn’t. I held onto the losing trade because there was no way I could be wrong. It wasn’t until I was annihilated that I had to admit that I am human after all. My goose that laid the golden eggs had become my golden ticket to bust-ville.
Then I learned a lesson that led me to greater enlightenment. In fact, it was possible to make market forecasts. However, the market forecast required discipline and confirmation, and that you can never be 100% accurate 100% of the time.
It was also quite apparent to me that the path to greater market forecasting would require digging into the reasons why Fibonacci can be effective at times and not so much at other times. This led me to realize that everything revolves around “natural laws”, what Fibonacci is a part of.
My search in the realm of natural laws led me to the teachings of WD Gann. With Gann, I came to find value in calculating the squares of time and price (Gann’s wheel also known as the square of nine), angles, relationships, market geometry, and much more.
Armed with Fibonacci and Gann and all the variations that come with a deep understanding of these, my research took me beyond the stars. Yes, the effect of the Sun and the Moon, and some of the neighboring planets of our planet Earth. It just made sense!
Now I am not talking about astrology. That just isn’t my cup of tea. I am a man of science, not mysticism or divination. What I’m talking about is astronomy and the gravitational and seasonal effects that come with planetary motion and interactive influences.
Let me simplify this.
As the moon revolves around the Earth, it has an effect on bodies of water and the Earth’s electromagnetic field. We have tidal graphs as a result of this, and it has been shown that humans tend to act differently (as a group) during full moons. The term ‘lunatic’ comes from the Latin ‘Luna’, which is ‘moon’.
While the Earth rotates once every 24 hours (which gives us days), it rotates around the Sun once every 365 days or so (a year). Since the Earth is in an elliptical orbit around the Sun, it will zoom in or out, resulting in what we see as “seasons.”
Now think about how these ‘seasons’ affect our markets and you will begin to see the relationship.
Once I got to see the connection between Fibonacci, Gann, geometric price patterns, the effects of the Moon and the Sun, it all came together in what is known as CYCLES!
The 24-hour cycle (day), the 90-day cycle (season), the 365-day cycle (year), the lunar cycle, and all sorts of other cycles that occur at the same time but to varying degrees with different effects on different markets!
Market price action is affected by human behavior (we are the buyers / sellers), which is affected by supply and demand, which is affected by the seasons, which is a cycle, and human behavior it can be affected by the moon, which is also a cycle, and so on.
With all this knowledge about what affects the markets and realizing that much of this can be exposed using a price chart and a few different approaches, the market forecast became even more effective than the simple Fibonacci model. That model only looked at the markets in a limited way, so it was effective at times and lacking at others. True market prediction requires understanding several different techniques that address different aspects of price behavior.
It is when the avid chart reader goes to learn about these influences on price action that the proclamation that “the market forecast really works” becomes a forgotten conclusion and part of the daily chart reading ritual.