FORECASTING REFERENCES

PRICE REFERENCES
Change of mkt direction usually happens relative to a ref point. Yet these ref points are just expected
price turning point levels they don’t cause the mkt to turn. The auction process concept provides a
reasonable explanation why mkts turn and the MP highlights mkt behavior each step of the auction
process and indeed around these expected ref points.

Basically I forecast ref points with the s.o.n and monitor mkt behavior with the Market Profile whilst
paying attention to its own ref points. A cluster of s.o.n and MP ref points indicates an area of strong
mkt interest to pay attention to.

FORECASTING PRICE REFERENCES USING CELL NUMBERS

Forecasting future ref points using the s.o.n is as simple as converting prices to cell numbers and cell
numbers back to prices.

To convert the cell numbers on the s.o.n diagonal and cardinal crosses into support and resistance price
levels the prices of significant highs or lows are first converted to cell numbers.

Prices of highs and lows are multiplied by 10, 100 or 1000 to convert to cell numbers. The cell numbers
within the range of the high and low that are on the diagonal and cardinal crosses are converted back to
prices and marked on the chart as potential ref points, pivots or areas of interest.

To convert back to price cell numbers are divided by 10, 100 or 1000.

Markets have their own personality and tend to favor pivot points from 1 or 2 s.o.n cross angles. When
a market favors a cross, that angle can be used to forecast support and resistance. The recent past will
often be the best predictor of the near future.

TIP: 10 for numbers 2 and above, 100 for 1 and 1000 for numbers less than one.

SUMMARY

 Select a significant H/L price and convert to cell numbers

 P x 100 = cell number
 Withing the range of the significant H/L find the cell numbers that are on a cardinal or diagonal
cross angles convert them to prices.
 Cell number divided by 100 = price.
 Mark these prices on the char.
 FORECASTING PRICE REFERENCE USING OVERLAYS AND CELL NUMBERS

This method measures the market’s price swings in degrees using the overlay and the s.o.n cell
numbers. Price swings are measured from high - high, low - low, high - low and low - high. Using the
overlay, look for increments of movement which a market favors. This is the increment of movement
which occurs frequently in a market. The recent past will often be the best predictor of the near future.
The standard increments in degrees found on the overlay are 45°, 60°, 90°, 180° and 360°.

Example: Figure 40 below shows that from A - C there are approximately 45° price movement on the
s.o.n. Point B to point D, there are approximately 45° price movement. From point C to point E
approximately 45° price movement. This shows the mkt favors a distance of +-45° of price movement
from high to high and from low to low.

Figure 41 below shows the price forecast for the next top after point D. The forecast price is -45° from
the top price at point D on the Square of Nine.
Figure 42 below shows the s.o.n for the forecast in Figure 41above. The overlay’s 0° angle is aligned on
the top price from point D which is 74.50. This starting price is circled. The price of 70, which is -45° from
the starting price, is also circled. This is identified by the 45° angle which crosses over it. The circled cell
number on the overlay’s 45° angle is 70 but the actual value at -45° is 69.95. The forecast top in Figure
41 is set at the price 69.95.

Figure 43 below shows that after the bottom at point E, the price moves up to the forecasted top price
level and makes a top at point F. This means the price continues to favor a +-45° difference between
tops.
Example 2: The price scale for the Yen is frequently presented as a decimal followed by four digits such
as .8620. This type of price is far too low to work with the s.o.n so the scale on this chart is multiplied by
1000. In this case the price .8620 becomes 862.0. The higher prices allow the s.o.n to be used for
forecasting the Japanese Yen.

The first step is to measure the market’s previous price swings and look for an amount of movement on
the Square of Nine which the market seems to favor. Figure 46 shows the basic measurements for the
price swings in the Japanese Yen.

The sequence of movements is -90°, +120°, -120°, +90°, and -60°. This shows the market favors price
movements in increments of 90° and 120°. The above chart shows the forecast price levels for the next
top after point F. The price levels are +90° and +120° up from the bottom at point F.

Figure 47 is the Square of Nine for the Japanese Yen forecast in Figure 46. The overlay’s 0° angle is
aligned on the bottom price from point F which is 826.9. There are also circles around the forecast price
855.9 which is +90° and the forecast price 864.50 which is +120°.
Below is the Japanese Yen chart with the upward price swing after the bottom pivot F. The price moves
up and forms a top at point G against the +120° price forecast.
SUMMARY

 Select a pivot price on which to align the overlay’s 0° angle on. Convert the price to cell number.
 The angles on the overlay cross over cell numbers which are convert back to prices. These prices
are used to forecast support and resistance prices.

TIPS: If the starting price is very low, multiply the price by 10, 100 or 1000 to create a higher price to use with the
Square of Nine. If the starting price is very high, divide it by 10 or 100 to reduce the starting price.

By constantly measuring a market’s price swings and finding the amount of movement which the market favors, it
is possible to forecast top and bottom price levels on an ongoing basis .

When forecasting a high move clockwise on the s.o.n and overlay. When forecasting a low move counter clockwise.

TIME REFERENCES
FORECASTING DATES USING CELL NUMBERS

This method uses the cell numbers from the s.o.n diagonal and cardinal crosses to locate when future
turning points might occur.

This forecast should be done on monthly, weekly and daily timeframes.

The first step is to select a top or bottom to use as the starting date and convert the price to cell
number. This number should be on one of the 8 angles of the s.o.n crosses.

The second step is to count forward from the starting bar, a number of bars equal to the cell numbers
on that angle and mark each count one at a time. On Figure 49, this is done for the diagonal cross 225°
angle; cell numbers 9, 25, 49 and 81 bars past the starting bar are marked.
The third step is to study the first two or three marks from each count to determine if one of the counts
correlates with market pivots. If a correlation is found, the count is used for forecasting. On Figure 49,
the first two values from the s.o.n 225° angle count correlate with market pivots. The value 9 correlates
with a top and the value 25 correlates with a bottom. Cell numbers 49 and 81 are counted and marked
in the forecast area of the chart.

There are two pieces of information which are obtained and forecast with this technique. The first piece
of information is the future date, which is a pivot date forecast. The second piece of information is
whether the pivot will be a top or bottom. To determine if a forecast pivot date will be a top or bottom
requires the pivots which come before the forecast date to stay in a top-bottom, top-bottom sequence.

The chart below shows the outcome of the forecast and top-bottom sequence continued.

USING TWO COUNTS TO FORECAST DATES: When using a daily chart, each cell on the s.o.n is counted in
calendar days and trading days. After selecting a starting point, the angles from the Square of Nine are
selected based on their ability to correlate with market pivots - not all the values from both counts
correlate with pivots. Those that don’t are ditched.

After finding the s.o.n angle which correlates with two or three pivots in a row, the next step is to
forecast the next probable pivot dates.

FORECASTING USING OVERLAYS AND TWO HISTORICAL PIVOTS DATES

There are two historical dates required for this forecasting method. The objective is to forecast truing
point dates and not prices so each cell on the s.o.n advances either one calendar or one trading day.
There is no need to convert prices to cell number with this method.

For this method we use a Date Square (D.S) and not a s.o.n.

 The first step is to select a top or bottom date. This s tarting pivot date must be the earlier of the
two. It is used as the starting date when creating a D.S to count calendar/trading days. The
count is started from the center of the D.S (square 1) and spirals out clockwise.
 The 0° angle on the overlay is then aligned on the cell which holds the second start date.
 The dates which fall on the overlay’s angles are then watched for future pivot dates. If the
market seems to favor the dates on one or more of the overlay angles, use the dates identified
by those angles to forecast market pivots.

Figure 62 shows a progression based on trading days. The first starting date is April 24, 2001(this date
will be in square 1). The overlay’s 0° angle is aligned on the second starting date July 17, 2001, which is
in cell 60.
EXAMPLE 2 DAILY TF: Figure 63 shows the second D.S for this example. The first starting date is still April
24, 2001; the progression is 1 calendar day. The overlay’s 0° angle is again aligned on the pivot date July
17, 2001, which now is in cell 84. Notice that there are a lot of circles on the 120° angle and the 45°
angle. These are all pivot dates.

For both the trading day and calendar day progressions, market favors the overlay’s 45° and 120° angles.
These pivot dates are shown in Figure 64 and Figure 65.

Figure 64 provides a lot of information. The overlay’s 0° angle is aligned on July 17, 2001. This is
represented by a vertical line below the pivot top on July 17, 2001. Starting from the July 17, 2001 top,
there is a horizontal line which runs across the May Soybean chart. From this horizontal line there are
upward hash marks showing the calendar day count from the overlay’s 45° and 120° angle. The
downward hash marks represent the trading day count, again from the overlay’s 45° and 120° angle.
Each hash mark is accompanied by at least one number which is the cell number where the date of the
hash mark is found on the s.o.n. The hash marks which correspond with a market pivot is also labeled
either 45° or 120° to indicate which overlay angle contains the date.
Below the price bar chart is a simple line diagram showing the pivots that correlate with dates on the
overlay’s 45° or 120° angle. All significant pivot tops fall on the overlay’s 120° angle for the calendar day
count. Also notice that all bottom pivots fall on one of the 45° angles.

Figure 65 is a continuation of the May Soybean chart in Figure 64. The horizontal line which shows the
hash marks for the Square of Nine calendar day count and trading day count is moved to the bottom of
the chart. The line diagram below the chart is also continued. The tops identified on this chart again
form on dates from the overlay’s 120° angles. The bottoms identified on this chart once more form on a
date from the overlay’s 45° angle.
Markets often favor an overlay angle for tops and favor a different overlay angle for bottoms. This is not
always the case but it does happen with enough frequency to justify watching.

On Figure 65, there is a top pivot identified in September 2002. This top occurred when the dates on the
overlay’s 120° angle of the calendar day count and trading day count harmonize. This market favors the
120° angle for tops and this top is made when the dates from both counts come together on the 120°
angle.

FIBS PROJECTION TECNIQUES

RATIO TIME COUNTS:

 Find the time distance btw 2 points either H/L or L/H.

 Multiply by golden section ratio .618, 1.0 and 1.618.
 Project the number of days/bars of each sum forward from 2nd point to forecast trend change
date.

Formula: TD x .618 = PD

TD x 1.0 = PD

TD x 1.618 = PD

The reliability of this method is in the fact that it represents the natural completion of several fibs price
cycles in different TFs converging at particular points in time. When price and time converge different
TFs will react and thus, major moves in the mkt are born.

HIMA REDDY

Exceeding Moves in Time: Know the trend. Know the signals for buying and selling. When they fall into
place and you have a definite indication that is the time to trade.

Gann Buying Point #4: BUY when the first rally from the extreme bottom exceeds in time the greatest
counter reaction in the preceding Bear Campaign.

The signal to look for is when the rally off the low (after a three-or four-section bear campaign) takes
more time to develop than T, hence the annotation >T.
IMAGE..........IMAGE

* Gann Selling Point #4: SELL after the first decline from a significant high exceeds the greatest counter
reaction in the preceding Bull Campaign.

IMAGE..........IMAGE

The rally from $247.30 (November 21, 2008 low) to $629.51 (January

4, 2010 high) consists of many corrections, small and large. Looking at the size of each correction in
terms of time, the greatest reaction occurred when the market fell from $447.34 (June 5, 2009 high) to
$395.98 (July 7, 2009 low), spanning 32 days. The first decline from $629.51 reached $520.00 (February
25, 2010) before any substantial correction took hold. The duration of this first decline, at 52 days,
clearly exceeded the greatest reaction in the preceding bull campaign.

Final Counter Reaction

The next pair of Buying and Selling Points focuses on the final counter reaction in the preceding trend
move.

* Gann Buying Point #5: BUY when the period of time exceeds the last rally before extreme lows were
reached. If the last rally was 3 or 4 weeks, when the advance from the bottom is more than 3 or 4
weeks, consider the trend has turned up and commodities are a safer buy on a secondary reaction.

In Figure 4.5, T represents the duration of the final rally in the bear campaign shown. The signal to look
for is when the rally off the low (after a three-or four section bear campaign) takes more time to develop
than the latest rally, hence the annotation >T.

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EXAMPLE..........IMAGE

Figure 4.6 displays the S&P 500 Cash Index. The market declined from 1219.80 (April 26, 2010 high) to
1010.91 (July 1, 2010 low). The first leg of the rally from the 1010.91 low lasted 13 days (calendar), akin
to the previous rally from 1042.17 (June 8, 2010 low) to 1131.23 (June 21, 2010 high), which lasted 14
days. However, the market continued rising off 1010.91 for a total of 41 calendar days, posting a high at
1129.24 (August 9, 2010 high). The 41-day period exceeded the last rally from 1042.17 to 1131.23 (14
days). A reversal from 1129.24 was seen to the downside, and a secondary reaction came in at 1039.70
(August 27, 2010 low), testing 1040.49, the 75% retracement of the 1010.91/1129.24 move up.

In Figure 4.5, T represents the duration of the final rally in the bear campaign

* Gann Selling Point #6: Sell when the period of time of the first decline exceeds the last reaction before
final top of the Bull Campaign. Example: If wheat or any commodity has advanced for several months or
for one year or more, and the greatest reaction has been 4 weeks, which is an average reaction in a Bull
Market, then after top is reached and the first decline runs more than 4 weeks, it is an indication of a
change in the minor trend or the main trend. The commodity will be a safer short sale on any rally
because you will be trading with the trend after it has been definitely defined.

In Figure 4.7, T represents the duration of the final correction lower within the bull campaign shown.
The signal to look for is when the move lower from the high (after a three-or four-section bull campaign)
takes more time to develop than the final correction T, hence the annotation >T.

IMAGE..........IMAGE

EXAMPLE..........IMAGE

Figure 4.8 shows a weekly chart of Cisco Systems. The market rallied from $13.61 (March 9, 2009 low) to
$27.74 (April 30, 2010 high). At first, the decline from the $27.74 high lasted 4 weeks, akin to the
previous reaction from $25.10 (January 15, 2010 high) to $22.35 (January 28, 2010 low), which lasted 3
weeks.
However, the market continued lower from $27.74 for a total of 10 weeks, posting a low at $20.93 (July
1, 2010). The period of time (10 weeks) had exceeded the “last reaction” before extreme highs were
reached (3 weeks). A reversal from $27.74 was seen to the upside, and a secondary rally came in at
$24.87 (August 9, 2010 high).

Exceeding Moves in Price

* Gann Buying Point #3 SAFEST BUYING POINT: Buy on a secondary reaction after price has crossed
previous tops and the advance exceeds the greatest rally on the way down from the top.

The signal to look for is when the rally off the low (after a three-or four-section bear campaign) exceeds
in size the greatest rally P. The safest time to enter long is when the market has pulled back afterward,
creating a higher low (secondary reaction).

* Gann Selling Point #3 SAFEST SELLING POINT: Sell on a secondary rally after price has broken the
previous bottoms of several weeks or has broken the bottom of the last reaction, turning trend down.
This secondary rally nearly always comes after the first sharp decline in the first section of the Bear
Campaign. The signal to look for is when the pullback from the high (after a three-or four-section bull
campaign) exceeds in size the greatest correction P. The safest time to enter short is when the market
has started to recover, creating a higher low (secondary reaction).