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6

PRICE

There are techniques you can use to find times and prices at whioh the market, stocks or commodities may top or bottom. These techniques will be exact to the day and within a very small price differenoe from projections. But you cannot assume them to perform accurately at all times, and protective stops are your insurance policy against being wrong. Remember these are probabilities, not certainties.

The following is a brief discussion of those techniques for finding price levels of support and resistance. Later in the text these will be applied to specific circumstances and clear up the questions you will have as to when to apply which technique.

One such technique to find a possible top is to draw atrend line from previous swingughs and then fo watch for the stocK to form a disthibutlurt pattern at that level" niubluLioii number 2.2, is an example of this on one stock. Then channel lines or equal distant lines from trend lines. Illustration number 2.1, is an example of this technique.

Illustration 2

trendline from the first two highs in Monsanto on this djdly chait projects die price level of die third high.



One of the methods which Gann used in his work was to look for what he called an oyerbalance of price £nd time. SimplYjaut watoh for a cqrreotiorPwhich is greater in both .price rJnqe and-e leTiglTTr qt duraxion in timgtnan previous crfltions in thg drive uir:-This is aiso vail.din0Wfn"t rends. Tfieidea of overbalance also leads to the idea of balance, and you should look for evidence to go with the trend- to buy when price has balanced the previous move down in an up trend. In fact, the highest probability for support in the indexes and stocks is that the corrections in an up trend will all be very close to equal. If you study this eimple concept, you will be well rewarded.

Another method for finding price objectives is what is called sw-ng obiectiyes. This method is a simplification of the squareof the "range, which is discussed in depth later in this book. A smMQ objective is nothing more than 100 percent of a range of movement added to the high of that range during an up trend, or subtracted from a low during a down trend, which gives possible low prices. A 50 percent swing objective is obviously one half of the range of movement added to the high or subtracted from the low. Three different examples of swing objectives are shown in Illustrations 2.3 through 2.5.

The squares of numbers, and fifty percent of the difference between those squares of numbers, are significant support and resistance levels, but cannot be traded by themselves. The accuracy of these price levels can be quite amazing. For instance the square of 32 (32 X 32) is 1024, and 33 X 33 is 1089. And 50 percent between those numbers is 1056. If you make a table of the squares of numbers, and the 50 percent levels such as this, you can use it to check the highe and lows of the Dow Jonee Industrials, as well as, many stocks and commodities. You will see he value of being aware of these numbers. Using the DJIA you will see the 625 low in 1970, the 576 low in 1974, the

1024 high, 729 low, 1089 for high, then 1296 for 1984 high.

Thft-Square of jiine price projections for stocks and indexes are very impressive T have not done as extensive research in commodities as in stocks and indexes. But, what I have done leads me to believe it may be just as valuable a tool in those markets, also. The Square of Nine will be discussed later in this book.

The squares of highs, lows and ranges offer important analysis for price. These will be discussed later in the text, as will the Sims of SZjQOandA

TUieiLthefe~ar6 those obvious levels on a chart which continue to work over and over again. One of these is the first time against the last low before the final high, for example,look at the SAP 500 weekly chart and the July 1988 correction.

You oan look for resistance on horizontal angles. These are movements up or down of 11 1/4, 22 1/2, 30, 33 3/4, 36, 39, 45, etcetera, these resistance levels are usually tied to an equal or proportionate time movement as 60 points in 90 days.



of 82, indicates resistance at that point

Illustration 2.3

The nusge of price movement down in O.M. on die monthly diart fiom 56 to 34, when added to die high of diat move gives a swing nmge

:7«.

1$:

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1111111

Ilhi8tiatioa2.4

The range of prioe movement down in die DOW fiom 1023 to 770, wheni added to die 1023 high indicates resistance at 1276.

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