By Alexander Straker
As legendary trader psychologist Mark Douglas would say, “If you can’t see the symmetry, don’t take the trade”.
In this article we will be continuing the study of pendulum motion as it applies to technical analysis, and in particular the concept of limits of rotation. All traders desire convenient ways to seek out low risk set-ups and learning to identify limits of motion via symmetry is one of the more powerful and reliable ways to help locate good reward for risk set-ups.
The fractal development of price action on a chart occurs in alternating sequences of impulse or thrust (fairly straight-line price move) followed by retracement or rotation (price correction that follows an arc), then this sequence repeats again, thrust & rotation, etc.
The geometric thrust and rotation shape of price movement is neatly revealed by the harmonic pendulum motion chart template. The example below is a FTSE Index Monthly chart. Note the impulse swings are quite straight from point to point. The retracement swings tend to follow the geometric arcs.
This is why we commonly see the final wave in a retracement accelerate (violent C Wave) as it is the geometric arc that is containing price action and dictating the rate of acceleration until time is inevitably up and price MUST move through the arc, at which point it begins a new thrust phase.
This sequence of thrust and rotation is in fact an illusion caused by our 2-dimensional viewpoint of the spiralling nature of price movement, a 3-dimensioinal occurrence.
This movement would appear similar to the rifling action of a gun barrel if we could see it in 3D (if you imagine a ‘Z’ axis moving into the page, it can in fact be visualized in 3D by the human brain). The spiral grooves of a gun barrel that cause the rifling action are designed to induce a bullet to spin as it travels along the barrel, greatly improving the velocity and range of the shot.
Because of our 2-dimensional view of the action, the price movement appears ‘straighter’ at times and more ‘curved’ at other times depending on the position of price in relation to our 2-dimensional vantage point or perspective.
This creates geometrically measurable sequences of thrust vectors whose rate of rise over run in magnitude and direction represent velocity. In order to arrive at the answer to scaling the chart correctly, our question should be… what exactly does the velocity of price represent?
In other words, price is what we see on the chart, but is there a parallel phenomenon in nature that we can relate price to, and that travels at a specific velocity in relation to time?
This question is answered in Book 2 of the Universal Golden Keys Series: Golden Speed: Harmony of the Square. The answer leads us to a major breakthrough in understanding scaling and the true relationship of price versus time.
Once a universal ’connection’ between price and time has been established, each impulse of ‘thrust’ price movement can be scaled correctly to reveal accurate geometric symmetry of the price action spiral as it forms. This price-time ‘connection’ or market key unlocks the geometric perfection inherent in the 2-dimensional representation of the spiralling price action, by bringing the price action on our chart into natural alignment with a particular form of wave motion (explained further in my books).
This price-time relationship is derived from a number of simple facts of science, strongly suggesting a direct correlation between a particular phenomenon of nature and price action. In my view, the phenomenon of nature we are dealing with is largely the source of causation of market movement.
As this causation is a type of wave form, so is the resulting price action, though multiple wave forms can overlap and usually these are harmonically related waves by frequency. Again, the harmonic relationships tend to be whole number ratios. The key ratios are given to us by the ancient language of music and are expressed in simple whole numbers such as 1:2, 2:3, 3:4, etc.
The symmetry of wave form is ever present in the market. It is essentially the accurate measurement from peak to node to trough or vice versa that allows us as traders to profit from this symmetry. However, if we are seeing the 3-dimensional spiral from a ‘skewed’ vantage point (in other words we are applying a random and poor price-time scale for geometric use), then we are unable to locate this symmetry as it remains hidden by the poor vantage point. Scaling solves this issue by giving us a symmetrical vantage point from which to view the action.
The following example is one way of beginning to visualize price as travelling in a 3-D plane.
As Gann told us, there is more than one solution to finding a useful scale. There is, in my view, one universal starting point, and that is the characteristics and dimensions of a circle.
In Gann’s case, to plot the spiralling (3-dimensional circular or planetary motion) successfully on the chart, he had a particular way of using the scale to ‘square’ the chart. I contend this was the most practical solution of Gann’s day due to the fact hand charting was done on squared graph paper and there were no computers to do ongoing complex numerical calculations. So, as a consequence, a universal ratio-based system was ideal for mapping it out.
Gann knew the market vibrated in related frequencies and the ratios between the frequencies of highs and lows in the market corresponded to the common ratios of perfect harmony in music. The most important of these frequency ratios are the Tonic, Mediant, and Dominant, also known as the first, third and fifth.
Gann angles apply simple whole number ratios of a square to the 2-dimensional view, and providing this has been scaled to our key, the angle ratios will define symmetrical limits of rotation occurring on either side of a 1x1 ratio or master angle.
Even on smaller time frames the limits of rotation are universally accurate the majority of the time (please see the DAX example below). Symmetry occurs where, for example, a vector ends on a 4x1 angle and the subsequent retracement squares out at the 1x4 angle (symmetrically opposite to the 4x1 angle) .
The repeated symmetrical limits of rotation are very clearly defined by the scaled angles. This is a consistent and worthwhile edge to be aware of in the market. There are other ways to plot ‘custom’ symmetrical angles using degrees of a circle, and these can have some advantages over ratio based ones.
A full explanation of these methods can be found in Book 1 of the Universal Golden Keys series: Pendulum Motion: The Harmony of the Circle.
The harmonic structure of almost all Western music is based around the three frequencies Tonic, Dominant and Mediant, with the Sub-Dominant also being very prominent. A typical formula for harmonic structure pleasing to the ear is to begin with the Tonic or Chord I (Tonic meaning at rest, refreshed and healed), then progress harmonically through various chords until reaching a culmination at the Dominant or Chord V (Dominant meaning having strength & influence over the Tonic).
Chord V strongly leads back to the Tonic meaning the ear wants to hear the Tonic again at this point in the harmony. This is to resolve the final musical phrase with a pleasing sound arriving back at rest again.
Extremely common and pleasing to the ear is a Chord IV-V-I progression, and this neatly closes off the song harmonically for our ear, resolving at Chord I, the Tonic. The interesting thing about this is that it perfectly represents the “as above – so below” principle at work in music (or action – reaction – neutral, or IV-V-I, or Sub-dominant – Dominant - Tonic).
In terms of proportion, the Sub-dominant is of equal distance from the Tonic on the opposite side to the Dominant (As above – so below). Depending on how you position the notes, the Sub-dominant is 2 whole-steps and a half-step above the Tonic, and the Dominant is exactly the same below, OR; the Sub-dominant is 3 whole steps and a half step below the Tonic and the Dominant is exactly the same above the Tonic.
Symmetrical musical motion! To gain a sense of this musically is to arrive at an appreciation of the natural symmetry of the sound at work, and how it pleasingly ‘closes off’ the harmonic phrase bringing the music to a natural end point (limit of motion) both when it peaks at the Dominant (Chord V), and again when it rests at the Tonic (Chord I).
Each time the harmony changes, the music is essentially expressing a new harmonic ratio relevant to the key. Consider now the parallels between this musical sequence just described, and the basic Elliott Wave set.
Music
- Typical harmonic structure works its way from the Tonic to Dominant (Chord I to Chord V)
- Chord V (Dominant) has the most strength/influence and is a natural ‘limit’ of the harmony, wanting to resolve back to Chord I Tonic.
- A natural peak in the harmonic structure occurs at the Dominant (Chord V).
- A common ending harmonic sequence is: Chord IV (Sub-Dominant), Chord V (Dominant) then Chord I (Tonic).
- In ratio and actual mathematical proportion, Sob-dominant and Dominant are equidistant from the Tonic, representing ‘as above – so below’ or ‘action – reaction - neutral’
Elliot Wave
- Impulse works its way from Wave I to Wave 5.
- Wave 5 is a natural limit of the impulse fractal sequences, and this could be thought of as the Dominant fractal.
- A natural peak in price action occurs in price action at Wave 5.
- A scaled chart will reveal in most cases following an impulse 5 Wave set (Action), we observe a symmetrical retracement (Reaction), then Price will most often return to the 1x1 master angle (Neutral).
The Action – Reaction – Neutral sequence is the same as a wave form expressing a Trough – Peak – Node sequence, and once again the distance of the peak and trough around the node must be symmetrical, a simple natural characteristic of wave form. This is also the reason Median Lines are effective geometric tools as the Median Line effectively captures the Node of the wave form being examined by the median line set.
Here are a few further examples of the limits of Pendulum Motion. Notice in this next GBPUSD example how price overshoots the 2x1, and then the symmetrical 1x2 angles by the same amount.
Finally, an example using angles created from circular degrees. This requires a different type of scale as taught in the books. As always, the point of the exercise is that we observe the natural symmetry of market’s fractal development. Practice and application of genuine scaled geometric techniques is an ideal and convenient way to consistently locate the limits of motion of price action, and well worthy of our study!
Any technique that improves our reward for risk ratios and therefore profitability should be given the highest priority, and scaled angles demonstrating the limits of motion is most certainly one such technique.
Finally, as an example of the level of effectiveness in trading that these Pendulum Motion techniques can produce, I will share the results of 1 week of trading accomplished recently while training my trading staff.
I acknowledge that I was in the zone and do not hit these kinds of numbers regularly, as I usually trade longer term stocks which pay dividends for my clients. This intraday trading, I do to test the potentials of these trading tools, and it took extra work and less sleep (due to living down-under) to accomplish. However, these results beat those of the great W. D. Gann in his famous 1909 Ticker Interview by over 10-times in ¼ of the trading period! 12,000% in 1 week! Here is my trading account Summary for that period:
To learn how to trade like this and for more information on my Universal Golden Keys Series: Pendulum Motion: The Harmony of the Circle and Golden Speed: The Geometry of the Square, see my author page at the Institute of Cosmological Economics here:
https://www.cosmoeconomics.com/EZ/ice/ice/alexander-straker.php
