Reflection Theory

Discussion in 'Technical Analysis' started by Li Ka Shing, May 5, 2006.

  1. Hello,

    Several years ago my mentor shared with me a method what he called 'reflection'.

    Basically he would take a piece of paper, transparent paper, and then place the paper onto the computer screen. The screen is showing a chart.

    He would then draw the bars, on the paper, following the screen.

    He would draw 20 bars. From left to right.

    Then he flip the paper horizontally, and flip again vertically.

    Then he would connect the left end of the paper-drawn bars to the latest computer-screen bar where he left off.

    Amazingly, the screen bars would follow the paper track pretty nicely.

    He said this reflection technique can be used to forecast the future price movement/ direction.

    That happened a few years ago, at that time I didnt get to think deeper about it. I also remember another trader telling me that it didn't work so well for him.

    Recently when I was looking for more info on predictive cycles theories, I remembered what he said.

    I did some experiments. I put up S&P daily chart, 3 months. Weekly chart, 3 years. Monthly chart, 1 decade.

    I notice the reflection theory really work to a certain extent.

    Try doing this: put up the daily s & p chart, 3 months or 6 months. Or the weekly 3 years. Draw 20 bars on paper, following your screen. Flip horizontal, flip vertical, then connect your drawn bars to the screen again.

    Now comes the more interesting part.

    I remember my mentor also said, that it didnt work so well on turning points, when the market reverse.

    This is true, if you flip continously you are bound to meet some reversals where there would be 'bubble space' where your paper track goes one way and the actual screen goes the other way.

    But interestingly, the bubble would be symmetrical. And they will meet again. The bubble will be closed. For small bubbles. They may not be exactly symmetrical, but notice the pulses.

    Or you can also forcefully close the bubble by cutting off/ pausing from the screen bar where the bubble begins to open, and flip your paper again horizontally and again vertically, then reconnect your paper sequence to the screen bar where you paused just now. Reconnect from the start of your paper sequence. Then the screen would follow again your paper track. Notice where in the 20-bar paper sequence would this turning happen. Mark the turning bar on your paper, in your 20-bar paper sequence.

    Keep running them, you will notice any major turning points/ bubble starting to open, if any, would tend to happen on the same marked bars (of paper bar sequence).

    Keep flipping whenever you meet reversals of noticable bubbles. The mid-flip/ incomplete flip due to bubbles would tend to happen on your marked turning bar, if any.

    I tried for different periods of time, same principle, it worked. daily, weekly, monthly chart.

    I tried with the intraday charts, it worked also, but harder to apply.

    Then I tried with another underlying, I tried AAPL, daily chart. Again it worked, the projected sequence and the possible turning points.

    See the SPX daily chart, 3 months. If you run the reflection theory, do you see something? The latest 11 bars fits very nicely of a reflection sequence in progress.

    What do you think? Comments? Any suggestions/ ideas?
  2. Banjo