This article is taken from the notes of my trading log for a closed and open trade in the platinum

Transcription

1 Time, price and pattern by Robert Miner This article is taken from the notes of my trading log for a closed and open trade in the platinum market. My trading plan is three-dimensional. I look for coincidences of time, price and pattern in market activity to indicate trades that promise maximum profit potential with minimum exposure and risk. Only when the market completes a reliable pattern, near a time period indicating a change in trend and at an important price level, do I enter or exit a trade. All three dimensions must coincide. The time ratio analysis of the recent major cycles in the gold market indicated that the period near September 16-27, 1988 would likely result in an important change in trend. Timing, as well as price activity, is often related to the important Fibonacci ratio of 61.8%. Most traders are well aware that price often retraces 61.8% of the prior swing. This important Fibonacci ratio is also very important in my timing analysis for the precious metals markets. A change in trend often results near a61.8% time ratio of a prior cycle extended from the completion of that cycle. Let me illustrate and explain why I was looking for an important change in trend near September The "death zone" My timing analysis for platinum (Figure 1) is primarily keyed off the gold market cycles. The December 14, 1987 high to the June 2, 1988 high in gold equaled 171 calendar days. The Fibonacci ratio of 61.8% times 171 equals 106 and 106 calendar days from the June 2 high fell on September 16. Much of my timing analysis is Gann-related. Gann taught that a 30-unit time period or 1/12 of the circle of 360 degrees is a period to look for change in trend. September 26 was exactly 30 weeks from the February 29 low. September 24 was 30 calendar days from the August 25 high. Studying the history of precious metals price activity has taught me to always look for a change in trend 30 weeks and 30 days from an important swing high or low. 1

2 FIGURE 1: Courtesy of l988 Commodity Trend Service

3 September 27 was 49 calendar days or 7 weeks from the August 9 Wave 3 low, prior to the momentum move down from August 25. Gann calls the 49th period of time the "death zone" and a period to look for a change in trend. I also always look for indications of change in trend 49 calendar days from minor and major swing highs and lows. Whenever my timing analysis results in such a cluster of probable change-in-trend dates, I am very alert to the price and pattern activity of the market as those dates approach. I became very alert for my price-and-pattern analysis to indicate a change in trend beginning the week of September 12. My Elliott Wave price pattern and ratio analysis indicated that beginning the week of September 12, platinum was in the fifth or final wave from the June high. A significant and very reliable pattern was in its final stages. I often play a bit fast and loose with Elliott Wave "rules." I find what is most important is the general form, pattern and price ratio of an unfolding price. The count shown in Figure 1, admittedly, is not a textbook Elliott Wave fit, but was good enough to indicate the pattern down was likely being completed. There was an important cluster of price levels that indicated the $472-$486 price zone was likely to result in the termination of the decline. Price swings almost always result in an obvious relationship to prior swings. The challenge is to determine which relationships will be important at any one time. The June 22 high at $642 to the June 29 low at $553 equaled $89. The June 20 high at $608 to the August 9 low at $518 equaled $90. Both have significance 89 is an important Fibonacci number and 90 is an important Gann time-and-price number. A price decline of $89-$90 from the August 25 high at $562 would fall at $473-$472. The decline from the July 7 high at $594 to the August 9 low at $518 equaled $76. A $76 decline from the August 25 high would fall at $486. Price fell dramatically on September 19, leaving a gap. This price activity had all the characteristics of an exhaustion gap which is very typical of platinum in its final stages of decline or advance. September 23 resulted in a wide range outside day with a close near the low of the day. This type of intraday market activity usually would indicate that much lower prices were likely. However, price was completing a very reliable Elliott Wave pattern and moving into a very important support zone exactly within a time zone where there was a high probability of a significant change in trend time. Time, price and pattern were coinciding, indicating an important change in trend was at hand. Turning point On September 26, the trading day following the outside down day of September 23, the market experienced a reversal day. Price made a new intraday low with a close near the top of the day's trading range, considerably above the prior day's close. This was decidedly not the type of price activity that normally follows an outside down day. The intraday low of the reversal day fell at $481.50, just a few dollars below an important support level (point J). The price activity of the Wave 5 pattern from the June high was complete. The reversal day fell precisely within the September turning point period. My time, price and pattern analysis all indicated an important change of trend was at hand. This was confirmed by the short-term reversal price activity. I went long at $489 on the close of the reversal day on the strength of the coincidence of time, price and pattern. When the timing analysis is confirmed by the price and pattern analysis, I have the confidence to enter the market at minimum risk and exposure. I placed my stop at $479.50, just $2 below the low of the day of entry (point K). My exposure was $9.50 2

4 per ounce or $475 per 50-ounce platinum contract. Two days later, the market moved up strongly, confirming my judgment to take a long position and allowing me to raise the stop to $488, $2 below the low of the strong rally day of September 28. My minimum expectations of the rally were for the market to unfold in an ABC corrective pattern to a 38% or 50% retracement of the fifth wave swing from the August 25 high (Figure 2). The August 25 high at 562 to the September 26 low at $ equaled $ A 38% retracement would fall at $512 and a 50% retracement would fall at $522. If the September 26 low was indeed a major trend change as I expected, this rally cycle should extend to at least 38% or 50% of the longer-term swing from the June high to the September low. A 38% retracement of this cycle would fall at $542 (Figure 1, point L) and a 50% retracement at $562 (point M). Price moved up sharply through the initial objectives of $512 and $522 without a correction of more than one day. Preservation of capital is one of the two fundamental rules of my trading plan. Each day I advanced my stop to protect profits as the market advanced. I raised my protective stop daily to the lower of a 62% retracement of the price swing from the September 26 low or the Gann 1 2 angle from that low. At $544, just $2 above the 38% retracement of the June-September bear cycle, price made a top. This important price resistance level coincided exactly with the 1 1 Gann angle from the June high at the time of the top. The coincidence of an important Gann angle and a Fibonacci retracement level stopped the market dead in its tracks. Price moved down sharply on October 21, confirming the completion of the A wave or the first rally swing high. Only when the market completes a reliable pattern, near a time period indicating a change in trend and at an important price level do I enter or exit a trade. All three dimensions must coincide. Price had remained above the Gann 1 2 angle up to this point in time. The 1 2 and 1 1 angles were drawn from the September 26 low as indications of support. Price rallying above the 1 2 angle indicates a very strong market. Because the market moved up so strongly above the Gann 1 2 angle, price should not correct more than 50% of the first swing. A correction of more than 50% from such a strong initial rally would indicate a false rally. Price moving below a 50% retracement indicates to me my price-and-pattern analysis is wrong, and I would want to take my profits and stand aside. I moved my stop up to $510 or $2 below a 50% retracement of the A wave to lock in a $21-per-ounce or $1,050 profit for my long contract at this point. Next, I analyzed how the market is likely to unfold. I expected the market to unfold, at a minimum, in an ABC pattern from the September low (Figure 3). The C wave or second swing in the direction of the rally trend should exceed the A wave high. My time, price and pattern analysis suggested a major change in trend in September. This was confirmed by price exceeding all the minimum expectations for a correction on the initial swing from the September 26 low. I expected at least one more rally swing to exceed the $544 high. Price corrected to just $1 above the Gann 1 2 angle and reversed back up. The 1 2 angle was tested again, followed by a very wide range day with a new high close. This confirmed that the C wave was 3

5 FIGURE 2 FIGURE 3

6 under way to new highs. Now I'm excited as all my time, price and pattern analysis is falling into place with confirmation after confirmation. I now calculate the price objectives for the C wave. One measurement is C wave = 61.8%(A wave) + B wave low which, in this case, equals 61.8%( ) = $562. The $562 level coincides with the August 25 swing high. This coincidence of resistance levels could be important. If the C wave equals 100% of A wave, the objective is $586. The $586 level is close to $581, a 62% retracement of the June-September bear cycle (point P). Price rallied strongly without hesitation through the initial price objective at $562 and rallied above the Gann 1 4 up angle. The final swings of major moves that are rising at a velocity above the 1 4 angle often terminate once the 1 4 support angle is violated. If price rallied into the next price objective zone at $581-$586, I would be very alert for indications of a top and reversal. It's happening again. The completion of an Elliott 5 Wave pattern, precisely within an important price zone of resistance On November 3, price rallied to new highs above $586, but closed below the prior day's close, resulting in a reversal day. More importantly, the $586 resistance price fell at the 2 1 Gann angle from the June high on this very day. Recall that the A wave high fell at the coincidence of the Gann 1 1 angle from the June high and a 38% retracement of the June-September bear cycle. Now a reversal day unfolds at the coincidence of the Gann 1 1 angle and the 62% retracement of the June-September cycle. The ABC pattern has unfolded as expected and price has entered a very significant coincidence of important longer-term price resistance while failing to close above the 2 1 angle. The short-term reversal day pattern indicates a top. New highs On the night of November 3, the reversal day, I reviewed my time, price and pattern analysis for indications of another swing to higher prices. The market was very strong and might be unfolding in an Elliott five-wave impulse pattern. If so, new highs are to come if today's high was, indeed, the termination of this swing. There is too much evidence that the platinum market is at or very near the termination of the correction from the June-September bear cycle. My Gann, Elliott and Fibonacci analysis worked in textbook fashion, and I sat with a very substantial profit. I decide the weight of the evidence indicated an important top and that I would get out near the open the next day. I closed out my long position the next day, November 4, at $571 near the open. This left me with an $82 ($4,100 per contract) profit and confirmation that my Gann, Elliott and Fibonacci time, price and pattern analysis unfolded in a textbook manner for a substantial profit at minimum exposure and risk. Once price closed below the 1 4 support angle followed by a close below the 1 2 support angle, I felt vindicated by my decision to take profits and get out near the high. However, the market was determined, as always, to deflate my enlarged ego a notch or two by immediately rallying back up above the 1 2 angle and rapidly exceeding the prior highs. The move to new highs confirmed that the platinum market 4

7 was going to unfold into an Elliott five-wave impulse pattern. I calculated the time-and-price objectives that would indicate the completion of the Wave 5 pattern and a point to go short. The next significant time objective fell on December 6. The June 2 high to September 26 low equaled 116 calendar days. 62% 116 = 72. September 26 plus 72 calendar days falls on December 7. I was looking for indications of a change in trend within one week of December 7. The price objective for the termination of the fifth wave fell in the $611-$625 zone. Various Fibonacci relationships projected this range for the fifth wave. The first objective would be $611 if Wave 5 equals 50% of Wave 1. Next, would be $617 if Wave 5 equals Wave 1. If Wave 5 equals 62% of the beginning of Wave 1 to the end of Wave 3, the objective would be $624. The final Fibonacci measurement is Wave 5 equals Wave 3 and that objective would be $625. One other consideration is the gap area ($612) that occurred during the June island top. This important price zone at $611-$625 was not far above the Gann 4 1 angle from the June high during the week of December 5 another coincidence of price ratio objectives with an important Gann angle (point R). I was looking very carefully for short-term reversal patterns to go short the week of December 5 if price was in this resistance zone. Would the market hand me another gift with a reversal day at this important price level in this important time period? Fifth wave pattern December 5 resulted in a reversal day with an intraday high at $620, precisely within the indicated price resistance zone. So, it's happening again the completion of an Elliott Wave 5 pattern, precisely within an important price zone of resistance and just two trading days prior to the time period where a change in trend is likely. The time, price and pattern analysis was once again confirmed by a short-term reversal pattern. That was all the indication I needed to go short near the close on December 5 with minimum exposure. I was short at $614 with a stop at $622, $2 above the high of day. I expected a substantial correction of the September 26-to-December 5 rally. The market confirmed my analysis three days later with a strong close below the Gann 1 4 angle from the previous low. That is the position I am at as of the writing of this article. Time will tell what further profits will result from my time, price and pattern analysis. Robert Miner is the editor and publisher of The Precious Metals Timing Report, P.O. Box 35696, Tucson, AZ Figures Copyright (c) Technical Analysis Inc. 5