Monday, 18 April 2011

'Reverse fork on gap' method

Gaps are significant in many ways and are much more valuable than simple pivots and also tell me something about the state of the market which i suppose could be called to be in a heightened state of activity or 'slightly hysterical' ( a good oxymoron?!) and often they indicate a future reversal,but not always by any means. Sadly they occur less frequently in the spot FX market for obvious reasons & the many future markets are a better hunting ground for them. Originally i despised gaps as they messed up my charts and often made it difficult to find the correct frequency of the market. Here is a recent bean chart.
I have used the low of the gap as P0 to draw a reverse fork (reverse P0 or RP0). This i found had very good correlation with past price so then i used the CL of the reverse fork (at any point) for the unfixed p0 of the forward fork and the same two other pivots rp1/rp2. There is however a good pivot very close to the P0 of the fwd blue fork but although this skews the whole fork only a small amount it represents the nearest P0 anchor for a conventional forward fork ...So why draw the fork from the CL of the reverse fork and not from that pivot? It illustrates superbly the relationship between the two forks (reverse and using the reverse CL as a sliding P0) and the value of this gap method which is confirmed by the orthodox pivot and its fork which mirrors the conventional fork off the nearest pivot (often there is no orthodox pivot to use). It could also be argued that the failure of the pivot to touch the CL caused the sharp fall away in price action.




































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