UNDERSTANDING MOMENTUM

                                   Can You Define This Wave?

One of the biggest challenges we face as traders is defining exactly what price information means something and what is truly random and meaningless. All we have at our disposal is a 2 dimensional candlestick chart that is somehow supposed to map behavior in a multi-dimensional environment, and give us answers that can make us consistent money. What could possibly go wrong?

So, how does the “Long Term –vegas Big Bang Algorithm” map momentum and give us an edge?

First of all, the weekly open demarcation will allow us to stay on the side of the market most likely to succeed in making us money. The proof of this [specifically in gold, but other markets as well with slightly different ratios] is that the distance from the high value to the open versus the distance from the low value to the open, as a ratio is greater than 4 / 1.

Once we have this information, we shift our attention to trying to be in the market when momentum moves take us in this favored direction; i.e. the yellow and plum lines and the crossover.

How I define this momentum is key, and isn’t what you think it is. What is important here is NOT the force of price per se, but the angle [or ratio] at which extreme price [measured from  the LOW] maintains or increases over a specified Fibonacci time frame.

I’m going to use some examples from GBPJPY from this past week; there are some textbook examples of the power of the algorithm. You will get these same types of formations in all markets you may trade.

The entire week was in the “green”, so traders in GBPJPY were looking to get long on the plum line over yellow line crossover. What I want to concentrate on is not the wave upward, but the cross under that would get you to either hedge up or liquidate.

Here is an example of the cross going under [highlighted in blue] from the 5M candlestick:

How many 5M candlesticks from top to the bottom does this minor correction take up? Answer: 11

Directly above is the same time period in GBPJPY using the 1M candlestick chart; highlighted in blue is the time [in minutes] of the entire correction. How many minutes is it?

Answer: 54

A few hours later, on the same day [11/15] GBPJPY had another correction. Directly above is the condensed 1M candlestick chart from top to bottom. The first white arrow is the top, the first yellow arrow is the 55^th minute, the second yellow arrow is the 89^th minute, and the last white arrow is the 144^th minute.

In both examples, prices quickly rebounded after these corrections.

Here is the start of the Fibonacci sequence: 1,1,2,3,5,8,13,21,34,55,89,144,233,377,610,987, etc.

Of course, after the number 3, every number has as its ratio to the one before the number 0.618. This is the “golden ratio” that so many things in our universe have at its core; seashore lines, cloud formations, mountain tops, seashells, and the list goes on.

So, where exactly did the market start its up moves again? In the first example it was the 55^th minute, and in the second example it really got going with an explosion in the 145^th minute.

So many times, in almost every market, corrections [in time] can be mapped to the Fibonacci number sequence above. I urge you to do some research on your own and confirm this.

Now, from correction to correction we don’t know where the end will come; it could be the 8^th minute, the 34^th minute, or even the 144^th minute [like the example above], but what we do know is that the ratio of the last 3 lows to the ratio of the last 9 lows [exponentially] will allow us to be very close to this turn NO MATTER THE FIB NUMBER.

One of the very best Gann publications you can have in your library is “The Definitive Guide To Forecasting Using W.D. Gann’s Square of Nine” by Patrick Mikula. The entire 209 page publication I have in PDF. If you would like a copy, drop me an email at vegasalgo@yahoo.com

Have a great day everyone.

-vegas

P.S.

To enlarge the charts on your screen, simply double click your mouse over the chart and it will enlarge to screen size for better viewing.

P.S.S.
Today is a very special day.
To Bert, May the Lord always bless and keep you close. You will always be the master and I the student. Your loyal friend forever. -vegas