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Technical Analysis Price Projections Part 4
Action and Reaction Lines
Action-reaction Method 1
The action-reaction method 1 uses three lines: the reference line, the action line, and the reaction line.
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Figure 9.15: Action-reaction method 1.
Look at figure 9.15 for an application using the action-reaction method 1. The reference line can be a median line, a trend line, a center line, or a multi-reversal line.
For every action, there is a reaction.
The action is the left side of the chart, or the past; the right side of the chart is the reaction into the future. Action lines are drawn under the same angle as the reference line, through a past pivot point.
The reaction is the future on the right side of the chart.
Reaction lines are drawn under the same angle as the reference line and at the same distance as the corresponding action lines.
Action-reaction Method 2
The action-reaction method 2 uses the same three lines as the action-reaction method 1: the reference line, the action line, and the reaction line.
Figure 9.16: Action-reaction method 2.
Look at figure 9.16 for an application of the action-reaction method 2. The reference line can be a median line, a trend line, a center line, or a multi-reversal line.
Only one action line, a parallel line with the reference line, is drawn through a pivot point in the past.
Reaction lines are drawn parallel to the reference line and at equal distances from each other using the distance between the action line and the reference line as the basic measure.
I mainly use the action-reaction methods to find crossings with other price projection techniques to get an indication on the time axis when a target could be reached.
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Risk Disclosure: Futures and forex trading contains substantial risk and is not for every investor. An investor could potentially lose all or more than the initial investment. Risk capital is money that can be lost without jeopardizing ones’ financial security or life style. Only risk capital should be used for trading and only those with sufficient risk capital should consider trading. Past performance is not necessarily indicative of future results.
Hypothetical Performance Disclosure: Hypothetical performance results have many inherent limitations, some of which are described below. no representation is being made that any account will or is likely to achieve profits or losses similar to those shown; in fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particular trading program. One of the limitations of hypothetical performance results is that they are generally prepared with the benefit of hindsight. In addition, hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk of actual trading. for example, the ability to withstand losses or to adhere to a particular trading program in spite of trading losses are material points which can also adversely affect actual trading results. There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results and all which can adversely affect trading results.
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