Exploring Charting Techniques 5

HOME   Back to Ninjatrader Formulas Overview

Price Projections

In part 5 “Exploring Charting Techniques” I look at techniques such as measured moves, Fibonacci projections & retracements, and daily pivots to estimate future price levels.

What is a measured move?

A measured move is a price projection based on a previous price swing. The idea behind it is that any new price swing is of approximately the same size as the previous swing. For the definition of the swings, I will use my SVEHLZZCandlepattern zigzag indicator that was introduced in my article in the July 2013 issue of Stocks & Commodities. In addition, I will use my 1-2-3 wave count as introduced in my article in the June 2013 issue of Stocks & Commodities as a reference to calculate measured moves.

In Figure 1, you see that after a down move, a wave 1 up was followed by a first pullback wave 2 with a higher bottom. This typically indicates the start of a change in trend, in this case, a change from a down- to an uptrend. The first logical target for wave 3.1 — as it is for any wave 3 — is at least the height of the previous correction wave 2. This is because you expect a higher top than the previous top.

In general, after a new wave 1 starts, you can expect the first wave 3.1 to have at least the same height as wave 1. I have identified this on the chart in Figure 1 with yellow rectangles. Following wave 3.1 is a new corrective wave 2. After this correction a new wave 3.2 started. You can now expect a further move up with a height that is equal to (give or take 10%) the height of the previous wave 3.1. If however, the previous wave 3 is the first of the wave 3s (as it is in this case with wave 3.1), and the first 1-2-3 wave is relatively small, you can try to use the complete height of that 1-2-3 wave to determine the next move. I have identified this as blue rectangles in the chart in Figure 1.

As you can see, wave 3.2 is reached, and it is followed by a wave 2 correction and a new swing up. You next take the height of the previous wave 3.2 and use that as your projection for wave 3.3 (green). Similarly, you find the projections for waves 3.3 (brown) and 3.4 (red). Figure 2 is a continuation of the chart in Figure 1. After the top of wave 3.4 there is a valid wave 2 correction. After the correction, you would expect a new wave 3.5 up. However, price turns down again after about a 50% correction of the previous wave 2. Price reached the same level as the previous wave 2 correction, so you still have a valid wave 2 correction for wave 3.4.

 

Special offer: "Capturing Profit with technical Analysis"

A full description can be found in the Stocks & Commodities November 2014 publication.

Here is the code for the NinjaTrader 7 indicator SVEPivotsUTCRt.zip

Special offer: "BBS Band Indicators" DVD

HOME   Back to NinjaTrader Formulas Overview