In order to measure the 45 deg, what is the X axis and what is the Y axis coordinate ratios? eg the X axis is time but what length of time? Y axis is Price but what value of price? This is part of the Gann stuff which I could never figure out. We are mixing apples with oranges which is a no-no in algebra. Please explain.
45° line is a Gann Line. Also known as 1x1 and 4/8. Note, 4/8 is .5 or 50%. Actually the whole picture you've laid out can be summed up as a variant of Gann's 50% retracement rule, which was originally based on major tops and bottoms. Trade On!
As RN says, it's the midpoint, or midline. If you're familiar with auction market theory, you know about trading ranges and value areas and midpoints/means and mean reversion. The trend channel is simply a diagonal trading range with the same "midpoint". The channel is created by traders trading away from the mean. At some point, the activity reverts to the mean. It can then reverse and go back where it came from, or it can breach the mean and move to the opposite extreme. Or trades can cluster around the mean, as they did in 2012. This reversion to the mean from the extremes is what leads many people to believe that trendlines and channels provide support and resistance, but what appear to be support and resistance are more a matter of standard deviation. As to the trendlines themselves, the first is drawn below the first two swing lows. As RN explained earlier, this line is then copied and plotted across the swing highs beginning with the first swing high between those two swing lows. All of this is then projected forward in a straight line. The lines are not changed if price breaches the line since much of the purpose of drawing the lines in the first place is to be alerted either to "oversold" and "overbought" conditions (i.e., price ventures outside the lines) or to a potential change in trend and even a trend reversal. It is also worth noting that this channel could not be drawn until late 2011. The first channel would be drawn at a severe angle under the first two swing lows in 2009. Such an angle could not be sustained and the channel would be broken by the end of the year. As higher highs are made, the channel begins to rotate downward until it reaches a sustainable angle, in this case by 2011. This particular trend has been sustained for more than four years. As to what is a "sustainable angle", that depends on what traders are comfortable with and how crazy they become. If the angle is reasonably gradual, a great deal of trading will go on at any given point or level. This trading will provide substantial support in an uptrend (and resistance in a downtrend). Parabolic moves, on the other hand, often collapse as rapidly as they rise because there are so few trades at any given level during the ascent; there's nobody there to support the price. Exceptions to the "sustainable angle" can be quite lengthy, as with the Naz in 1999, or, really, 1994 all the way to 1999. But that had largely to do with traders losing their minds, which a great many paid for soon thereafter when the market collapsed.
I canât in terms of Gann⦠because what I know about Gann wouldn't fill a pin head My comments are based on what I've seen RN
Can we have an example of the Dow leading the S&P? They look like they move more or less together to me.
Obviously the Dow consistently leading the S&P would be arbed out. Pay no attention to the local village idiot Jack Hershey.
Very interesting post! Also very refreshing to see a long-term interpretation of price action! Thank you for sharing.