MARKET MATHS
Market participants always believe the stock markets
to be quite random and are always perplexed about its movements. For a trader, any idea that helps to find
swing top/bottom is always welcome.
In a book by W D Gann, titled “How to make profits in
Commodities” he has mentioned the following (on page 34):
“If we wish to avert failure in speculation, we must
deal with causes. Everything in existence is based on exact proportion and
perfect relation. There is no chance in nature, because mathematical principles
of the highest order are at the foundation of all things. Faraday said: `There
is nothing in the Universe but mathematical points of force`.
Every Commodity makes a TOP or BOTTOM on some exact
mathematical point in proportion of some previous high or low level.”
This article is
an attempt to illustrate, what the legendary trader W D Gann has stated above.
NIFTY FUTURE
 |
| NIFTY FUTURE MONTHLY CHART AS ON 16.12.2014 |
In the above chart, I have marked the major swing high & low levels on a monthly chart that are relevant for the purpose of this exercise.
The arithmetic works as follows:
Nov ’10 High -
6349 (B)
Less: Oct
’08 Low - 2228
(A)
-----------
4121
Add : Dec ’11 Low 4538
(C)
-----------
8659
As against the arithmetical target of 8659, Nifty Future
made a high of 8668 (D). The overrun of
just 9 points can well be explained as – what W D Gann referred to as Lost Motion – the effect of momentum
that carries prices slightly past its target in a volatile market.
While this idea by itself does not indicate that it is
a final top, but considering that we
have used Monthly chart – the significance of this top should not be
undermined.
As regards the BSE Sensex, the recent top is not as
accurate as in the case of Nifty Future. However, I have given below the levels
for comparison purpose.
Nov ’10 High - 21108
Less: Oct
’08 Low - 7697
-----------
13411
Add : Dec
’11 Low 15135
-----------
28546
As against the
recent high of 28822.
In my experience of using this idea, I have found that it works quite well on
stocks/commodities chart of different
time frames.
Keep Learning!
CA Ketan Asher.
17.12.2014.
