In this article we will talk about not quite usual principle of finding a trend reversal in the market namely, about numeric codes or numerical relationships which are present in the reversal waves. In fact, there is nothing unusual in these principles, these are the ratios that appear during a trend reversal and which can help us determine the targets of the movement.
This article is designed as a study of one such digital code. It is up to everyone to bring the research to its logical conclusion, if they see fit.
Trend reversal in the market according to Gann theory
Let's start at the beginning with trend reversal. In Gann's trading strategy, the movement that is formed during a reversal is called a reversal wave or a reversal price vibration.
Let us consider an example of such a wave:
The figure shows a theoretical reversal wave. Consider numeric codewhich it shows us and which we will use.
First, let's define the time - let's calculate the length of each sub-wave in a reversal vibration:
1) We measure the distance from the lowest price to the highest price within the pivot. In the example this value is 53 bars;
2) Measure the distance from the highest price to the second lowest price. In the example this distance is 24 bars;
3) Measure the distance from the first minimum price to the second minimum price. In this case this value is 77 bars.
Then, by simple calculations we get numeric code trend:
1. Divide the value from step 1 by the value from step 2
53 / 24 =2,208333333333333
2. Divide the value from step 2 by the value from step 1
24/53 = 0,4528301886792453
We will stop here within the article, but in general, for a clearer picture and to reveal a more complete picture, it is recommended to calculate all the dependencies.
The numbers 2.20833333333333333 and 0.4528301886792453 are some kind of number codes. Consider the second number: 0.4528301886792453. The calculation was limited by the capabilities of the calculator, but you can already see that the sequence appeared - 0,45283018867924528. Such sequences occur only during the formation of a reversal.
Thus, if we see a theoretical reversal vibration of the price on the chart, it is worth checking the veracity of the reversal using the above simple calculations. If it appears consistently, the probability of a reversal increases.
Applying a digital trend reversal code
Above we have indicated one way to apply the obtained numerical code, but each researcher can independently search for interesting numerical patterns and options for their application. It is only worth saying that after identifying the sequence, you can get price levels, and when calculating the code by price, the time of price reversals.
Here is an example with obtaining levels: from the above example we use the number 53 and 77. Divide 53/77=0,6883116883116883. Identify sequences and build levels. The levels are built from the lowest price, since we used the adjoining cathetuses:
Other variants of the use of patterns are also possible, the way walketh the walker!