This is an exercise to sharpen your perception to better spot significant geometrical relationships in your price chart. Two key pieces of what I’m showing you are: proportion and significant, but often overlooked, angle lines (diametrical lines). Having this kind of perception, as I have learned, will not only better your ability to read price chart, but also enables you to produce valuable insights for long term investing.
Chart 1. What is wrong with this trendline?
Nothing. It is a textbook uptrendline which is drawn from connecting higher lows. HOWEVER, it is of little significance to the WHOLE chart.
Chart 2. Pay attention to how the first three lines are drawn. Your task is to continue those swings.
Chart 3. Proportionate swings
If you have no difficulty of producing the swings in chart 3, then you have a good sense of proportion and lots of chart works will be quite easy for you. Notice also that the recent price swing is not yet marked because it is still too short and too small.
Some readers would likely have difficulties in the area marked by two adjacent arrows in chart 3.
If you try to make smaller swings, then the flow is broken because you have included swings that look out of place. This smaller swing is shown in chart 4. Compare chart 3 and chart 4. You should be able to sense the ‘discontinuity’ in chart 4.
Chart 4. Discontinuity
Having this sense of proportionate swings is especially vital to those who practice Elliott Wave. Too many wave counts are drawn which have poor proportions.
Let’s move on to the next exercise. In the next chart, focus on the sense of the trend and the ‘little details’ that could disrupt the trend significantly.
Chart 5. I hope all the readers have no difficulty in recognizing that there are only 2 trends in this chart: downtrend, and sideways.
Chart 5.
The big deal is if you could notice the ‘small details’ marked by the arrow and the circle.
Did you notice those sharp moves? Sharp moves and gaps (especially) are important ‘little details’ that you should never miss. In the next exercise we will see how the market uses gap as an important pivot for future projections.
In chart 5, you just need to be aware that sharp move that breaks important price low is often bearish. Make it as a rule. Occasionally, it does not lead to a further breakdown just like the arrow shows you. But to be a bull is a poor bet. EXCL is now making the same sharp move again (circled).
I think that’s enough for trend and proportion. Let’s juggle your mind a bit more by entering into diagonal axis.
Chart 6. This horizontal line shows an important level for EXCL as it has been repeatedly tested as both support and resistance. You should always be aware of important horizontal lines like this. This is a textbook example.
Chart 6.
A price projection could be used using that pivot, as is usually done with traditional ‘triple tops’ projection by mirroring the box from the price top. Next, subdivide the box with fibonacci ratios. You can see how the market respects these ratios. The recent price rebound is not random. It is following this mathematical grid. This confirms that the horizontal line in 3700 is indeed important.
Chart 7. Making projection by mirroring and subdividing
Fibonacci is a work on the vertical axis. We could take the geometrical works further by considering the diagonal axis. Working in the diagonal axis often needs outside of the box thinking. It is quite similar with the exercise of connecting the dots by going over the border. This means we need to break away from conventional trendline mindset.
Chart 8. Consider the following ‘trendline’. This is not the usual way of drawing trendline. But it should be clear to you that it is POSSIBLY has some significance.
Chart 8. Possible important angle
IF it is significant, you should extend the lines. It will be important in the future. An important diagonal line (angle) will also show significance if it is anchored from important pivots.
Just moving the same line upward, chart 9 shows how the same angle is used to define market top.
Chart 9.
Moving it downward to chart 10, we anchor it to the gap (arrow). Gap is important. I always look for ways to exploit it. Looking to the right, we also see how that angle is respected several times prior to the recent pivot high.
And yes, if the time comes for EXCL to rise, who knows when, this extended line is very likely to be an important resistance.
Chart 10.
Now...where is EXCL now? Let’s move the angle downward again to the next important pivot. Chart 11 shows what happens when pivot low in 2016 is chosen. Can you see how the market respects this line as well?
Chart 11.
EXCL is now facing this resistance. There is a spike in my indicators. They signal bearish. If this is FX, this is the place where I bet short.
The last chart, chart 12, shows a fibonacci confluence technique. In finding resistance, a key pivot low is used as a starting point, then we select significant pivot highs to end the subdivision line. To make the point again, the significant pivot does not always mean market highs (lows). The start of a strong move and gaps are significant pivots. EXCL is at this confluence zone.
Chart 12. Fibonacci confluence zone
In 12 charts, you have been learning a lot of geometrical works. Key to working with chart geometrically is having a good sense of proportion and paying attention to the small details. This is one branch of TA that adds significance to a long-term analysis.
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