MARKET MATHS

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.