Browse Stacks: Analytics: Elliott Wave: Joe Ross' Chart Scan
Joe Ross' Chart Scan
Mathematics or emotion?
by Joe RossAuthor, Trader, Trading MentorTrading Educators, Inc.
There are numerous ways to measure price action. These measurements are used by technicians who want to believe that prices move mathematically rather than based on human emotions. They therefore try to contain prices within mathematical rules.
Of course, price movements are neither mathematical, nor are they logical.
Nevertheless, when enough traders who are in the market are trading according to whatever mathematical theory they follow, their actions cause prices to become somewhat self-fulfilling.
There are different schools of thought about how to measure price action. There are those who believe in Gann theory, those who believe in Fibonacci theory, those who believe in Elliott Wave theory, and those who believe in the Golden Ratio. There are probably other theories as well. Notice that all of these are theories, none of them are facts!
The different ways they measure cause them to act when certain price levels are reached. Their measurements tend to fall quite close to each other, and those areas where these theorists buy or sell are called areas of confluence.
Is “H” a 50% retracement of “A-B?” Is it a 50% retracement of “A-D?” or is “G-H” an expansion of “E-G?”
Is “D” an expansion of “B-C?” Is “D-E” a .382 retracement of “A-B” or a 1/3rd retracement of “A-D?”
What about “G?” is it a 50% retracement of “D-E?” or is “D-E” a .382 retracement of “A-D?”
Are we looking at a series of Elliott Waves? Is “A-B” a wave “1?” or is “A-D” wave “1?” Is the series “D-E”, “E-G”, “G-H”, an “ABC” retracement of “A-D,” which is really a correction of wave “1” i.e. “A-D.”
What are “I,” “J,” and “K?” Is “K” a .618 expansion of “D-H?” or is it a “2/3rd” expansion of “D-H?”
Do you still have your sanity? I could have described it all in a completely different manner. If there is an area of confluence it would seem to be “H.” Gann, Elliott, Fibonacci, and Golden Rule theorists would probably have considered “H” to be a 50% retracement of something or is it simply a major turning point?
Of course, “H” may be nothing at all in a different time frame. For example: If the chart above is a 60-minute chart, would “H” turn out to be anything at all on a weekly chart?