Trading With the Time Factor - Volume 2.1 (FINAL - Production)

VOLUME TWO – EDITION ONE

T H E T I M E FA C T O R THE BEST O F THE TRADIN G TECHNIQUES BY W.D. GANN – EXPLAINED, SIMPLY.

BY FRANK BARILLARO

F O R M I L LI E A N D M A T T E O You are my two greatest achievements.

–  N O N I N V E C C H I A R E M A I –

PREFACE

In volume one of this course, I shared with you why I believe it is possible to do what many will tell you is impossible. To do this, you will need to first understand the Time Factor. The Time Factor is a phenomenon which exists in all financial markets. Once understood, it is a powerful tool that can allow you to calculate predictable and repeating market cycles so that you can better time your investment decisions. I am not only convinced that a Master Time Factor exists in all financial markets, I am certain that it is present because I have seen it. I have also been able to predict it occurring time and time again. Understanding how the Time Factor works has allowed me to calculate and share with colleagues, in writing, future dates that have accurately forecast major market turning points to the exact day, years in advance. In volume two of this course, I will explain how you too can calculate these predictable market cycles and give your trading and investment decisions an unparalleled edge. I discovered the Time Factor after years of studying the markets, and in particular, the works of William Delbert Gann. W.D. Gann is reputed to have taken over $50 million from the stock markets during his career in the first half of the 20th century – that is worth over a quarter of a billion dollars in today’s money. During one month of trading alone in O ctober 1909, in the presence of a finance journalist he made 28 6 trades with an astonishing profit ratio of over 92%. It resulted in a return of over 1000% of his original capital.

Gann developed the theory that there is a discernible relationship in all financial markets between price and time. He believed that the geometric representation of price through time revealed important cyclical patterns in markets that had predictive values. Many have explained in different variations the premise for why Gann’s theories work. T he most simple that has resonated with me however, is that as human nature will never change history is destined to repeat. As markets are essentially made up of human sentiment and emotion, future generations are destined to repeat the behaviour (or cycles) of previous generations. This causes all financial markets to work in cycles which will repeat over and over. By looking at a historical chart of market action, one should then be able to i dentify the past cycles which have occurred and which will inevitably repeat in the future. What I am about to share with you is a series of easy to follow lessons and illustrations that will teach you how to identify major bull and bear market cycles, years before they happen. You will be shown how to identify the long term trends, and more impor tantly, how to stay invested with them. Every significant turning point in financial markets over the course of history can be traced back to the Time Factor. And the techniques which you are about to learn in this course have proven the test of time. They worked over one hundred years ago and I am confident they will continue working for the next one hundred years. By the end of the course you will have learnt the geometric Time Factor that is present in all financial markets – and you too will be able to achieve what others will tell you is the impossible.

Before you begin, please read this really important stuff first...

Thank-you and congratulations for purchasing Volume Two of trading with the Time Factor. As I mentioned in volume one, I have absolutely no doubt that this trading course will change the way you look at financial markets. Thank-you also for continuing on this journey with me. If you feel that Volume One has opened up your understanding of the financial markets in a way you did not think was possible, then Volume Two is going to absolutely blow your mind. Once you have finished this section of the course, I can assure you that you will never look at the financial markets in the same way again. You are about to learn the techniques that can allow you to identify the exact date of major market tops and bottoms – years in advance. This will completely change the way you look at your investment analysis. Imagine knowing when the stock market or the price of gold is going to make its next major bottom. What could that do for your investment portfolio? If you think it is impossible, then I encourage you to keep reading. You will soon change your mind.

Before we begin, there are some important housekeeping matters which we need to cover off first. There is some fine print below that you should take the time to read and understand before you proceed. But just in case your time is short, let me summarise the key points for you below.

This course is not personal advice I am not a licensed financial adviser, nor do I know your individual circumstances. If you are looking for personal advice, please consult someone who is appropriately licensed to do so.

This course is not general advice This course is about educational material on how to analyse the markets only. It aims to teach you how to make your own investment decisions. That’s right, so that you can make your own decisions. This course teaches you the theory on how to fish. Unfortunately, I cannot catch the fish for you. But I can at least show you where to look. Trust me, by the end of it I am sure you will be able to do it.

The contents of this course are confidential Please respect that I have spent hours upon hours in researching, drafting, writing and publishing this trading course. Not to mention the thousands of dollars spent. If you spent countless hours researching what the winning lotto numbers for next week’s jackpot were going to be and you told me, how would you feel if I shared those with the rest of the world on the internet? Now I’m not saying that reading this course is going to be like winning the lotto, but I hope you take my point. After all, if you are reading this, you have signed a confidentiality agreement with me anyway. You wouldn’t go against your word now, would you?

Accuracy of contents:

One view isn’t necessarily the right view:

Future Returns:

The contents in this course have been prepared in good faith and may be based on information obtained from sources believed to reliable but no independent verification has been made, nor is its accuracy or completeness guaranteed. Each of the charts contained in this book have been hand designed by the brilliant graphic design work of my good friend Joe Caminiti. Whilst we have attempted to re-create every line, angle, axis and label as accurately as possible we are only human and humans can make mistakes.

If there are any views or opinions expressed in this course, these may be the views of the author or other parties. Whilst everyone is entitled to a view or an opinion, it doesn’t necessarily mean those views or opinions are right... Just ask my wife.

This is not a course telling you to implement a particular investment strategy or to invest into a particular market. That is a decision for you to make. Please bear that in mind when you are investing. The value of any investment and the income derived from it can go down as well as up. Never invest more than you can afford to lose and keep in mind the ultimate risk is that you can lose whatever you’ve invested. Please seek independent financial advice regarding your particular situation. Investments in foreign companies or foreign markets involve risk and may not be suitable for all investors. Specifically, changes in the rates of exchange between currencies may cause a divergence between your nominal gain and your currency-converted gain, making it possible to lose money once your total return is adjusted for currenc y.

These however should not detract from the message we are sharing with you. To the extent permitted by law, ThirtyTen Investments Pty Ltd does not give any warranty of reliability, accuracy or completeness of the information contained in this document and does not accept any responsibility in any way (including negligence) for errors in, or omissions from, the information in this document. The author or ThirtyTen Investments Pty Ltd is under no obligation to update or correct the information in this course.

So now that is out of the way, let’s begin…

SECTION FOUR

“TIME is the most important  factor of all. Not until time is up does any big move up or down start.” – W.D. Gann Chapter 7 of his Master Stock Market Course

How to forecast future market tops and bottoms using the Time Factor Many traders and investors will probably know the feeling of what it is like to sell out of a stock too soon or buying into it too late. It can certainly be a frustrating experience selling a stock and seeing it continue to rise another fifteen or twenty percent. This section of the book is all about demonstrating to you the geometric relationship that exists between past movements of price and how these can be used to forecast future movements of price. Once you have mastered the ability to identify how past movements in price affect future movements, you will then be able to translate these into calculating future price support and resistance levels on any market – not only can this be useful in forecasting future tops and bottoms, more importantly, it will significantly improve your entry and exit points into your chosen stock or commodity.

Chapter Nine - Repeating time

In the preceding chapters, we learnt how previous price movements in financial markets can allow you to project future movements in price. We walked through some examples where earlier ranges in price were repeated in exact proportion to future movements in price. One of the astonishing discoveries that Gann made was that time movements in markets will regularly repeat. This was fundamental to Gann’s ability to predict the future dates of market tops and bottoms. In order to calculate a time cycle, we simply determine the number of hours, days, weeks or months which have elapsed between any two reference points. Ultimately, this gives us four sequences with which we can calculate a time frame: 1. Low and a High 2. High and a Low 3. Low and a Low 4. High and a High Every market will move to repeating time frames, whether they are major (weekly or monthly) or minor (hourly or daily) time periods.

Minor time frames In the chapter earlier, we demonstrated how the S&P500 market made minor movements in price of 108 points that coincided with a major movement of 807 points to help produce a significant change in trend. These same patterns will occur with respect to minor time counts that will often culminate with a major time frame coming to an end. In my view, a minor time frame is one which consists of a move that is less than a full calendar year (or 365 days) in duration. As a general rule, I look for minor time frames to produce minor turning points in the market. These often represent good buying or selling opportunities within the long term trend.

Always look for repeating time frames within a market. The greater the time frame, the more important it is for a significant change in trend. I will never rely solely on a minor time frame to make a forecast about the start or end of a major bull or bear market campaign. I do however, like to see minor time frames culminating at or near a major time frame. This is generally a good sign that the major time frame will produce a meaningful change in trend.

How minor time frames repeat – S&P500 (Oct 2011 to 2013) In demonstrating how this type of market symmetry works in the current markets, the following chart is a daily calendar chart of the S&P500 index using the very recent price action off the October 2011 low to the end of June 2013. You will notice I have highlighted five sec tions of the market. The first section represents a time count from top to bottom in a period of 32 calendar days. This was repeated again almost exactly in the fifth shaded section, where the market again moved from a top to a bottom, this time in 33 calendar days. The third box I have highlighted shows a significant market move from top to bottom, in 63 calendar days. The box immediately following it highlights that the move down from the next significant top to bottom was also an exact 63 calendar days. In between this action in the second shaded section, I have highlighted a move from a bottom to a top which occurred in a period of 126 days. Hopefully, the relevance of this time frame has stood out to you. The time period of 126 days is exactly twice that of the 63 day period – the first 63 day run down therefore represented exactly a 50% retracement in time. Incidentally, 50% of 63 days give us 31.5 days, which is almost exactly in geometric proportion to the 32 and 33 day time counts that were also working at that time in the market.

1800 –

1700 –

Once you have seen a time frame complete, it is therefore very important to not only watch for a repeat in that time period into the future, but a 50% retracement in time immediately following that move.

33 DAYS

1600 –

63 DAYS

1500 –

126 DAYS

63 DAYS

1400 –

32 DAYS 1300 –

1200 –

131pts

1100 –

264pts

264 x 50% = 132pts

131pts

127pts

repeating ranges of price

OCT 2011 LOW

Jun-11

Sep-11

S&P 500 Daily Chart

Dec-11

Mar-12

Jun-12

Sep-12

Dec-12

Mar-13

Jun-13

Illustration 9.01

The next chart I wish to show you follows the same period of time used in our previous example, but instead of measuring our time frames from a bottom to the next immediate top, or a top to the next immediate bottom, we are measuring time frames within a series of minor turning points in the market.

 –

 –

 –

165 days

I have again highlighted five sections to show the variations in the time count. The first two time frames highlight that the market made significant turning points following a 165 day count and a 187 day count. I used the 28 October 2011 high as our starting date, which was a significant high that immediately followed the major October 2011 bottom. Once we have seen a time count appear at the start of a cycle, the rule is to look from them to reoccur throughout the remainder of the cycle in the market.

 –

166 days

 –

187 days  –

187 days 165 days

 –

 – OCT 2011 LOW Jun-11

Important note:

As you can see, the market made a further two time counts of 165 days, and a major time movement from low to top of 187 days.

Sep-11

Dec-11

Mar-12

S&P 500 Daily Chart – Repeating Time

Jun-12

Sep-12

Dec-12

Mar-13

Jun-13

Illustration 9.02

How major time frames work in the market Just as repeating minor time frames can indicate there is about to be a minor change in trend, major time frames will repeat over and over in the markets. These will give you the signal that there is about to be a major change in trend. To continue our use of recent price history, I am going to refer to the last completed bull market cycle that began on 10 October 2002 and which ended on 11 October 2007. Right before the October 2002 low came in, the market ran down for 205 calendar days from a very major high in March earlier that year. From the 10 October 2002 low, the market then proceeded to move higher, creating its first major section by reaching a high on 5 March 2004, a move which occurred over a period of 512 calendar days. At this point, I think it is worth mentioning that 50% of 512 gives us 206 calendar days, so the market moved exactly twice the length up than the preceding move down. In any event, as the 512 day time count represents the first major move in the new bull market cycle, it becomes important to watch for the remainder of the campaign.

As a general rule, when I am running my analysis on time counts, I consider a time count has repeated if it is within a one percent of a previous time frame.

Now that the market has given us some significant numbers to work with, we now figure that we need to keep an eye out on the time frames of 512 +/- one percent (or 5 days) and 50% of this time frame (or 206 calendar days) to repeat in the future. You will see that off the 5 March 2004 top, the S&P500 ran a further 516 calendar days to make another very significant high on 3 August 2005. In between this run, there was also a significant bottom to top time frame of exactly 206 calendar days between the 13 August 2004 low to the 7 March 2005 top. The date of that 7 March top is also important. Earlier, we calculated that a significant high was made almost a year earlier on 5 March 2004. And remember, the major bear market low which occurred four years later in 2009 happened on 6 March. Following the sequence in this run, the next significant turning point was a low on 13 October 2005. By now you will know that we began this bull market on 10 October 2002, and with the foresight of history, we know it is about to end on 11 October 2007 – so the market keeps giving us these significant turning points on or around the same date. In any event, from 13 October 2005 we run another significant time frame of 207 calendar days to the 8 May 2006 top. Still using the low of 13 October, we figure we would add on another 516 days (which is a repeat of the last major range of 516 days) and we get 13 March 2007 as a date to watch.

As the chart shows, a very significant low occurred on 14 March 2007, so our time counts continue to repeat within the same bull market cycle. It is also worth mentioning that during that first run of 512 days from the 10 October 2002 low to the 5 March 2004 top, the market produced two repeating time frames within that period of 211 and 212 days. These occurred between the 2 December 2002 high and the low on 1 July 2003 (211 days), and again between the 8 August 2003 low and the 5 March 2004 high (212 days). Prior to the October 2007 final top, the market ran higher off the 14 March 2007 bottom. The time period between these two dates was exactly 211 days.

1800 –

512 days 11 OCT 2007 TOP

1600 –

1400 – 8 MAY ‘06

516 days 7 MAR ‘05

1200 –

205 days

14 MAR ‘07

211 days

3 AUG ‘05

5 MAR ‘04 13 OCT ‘05

208 days 211 days 13 AUG ‘04

1000 –

517 days 206 days

212 days

800 – 10 OCT 2002 LOW

512 days

MAR 2009 LOW

600 – 2002

2003

2004

S&P 500 – (20 02 to 2009) Repeating Time

2005

2006

2007

2008

2009

Illustration 9.03

The market action which we just walked through between the 10 October 2002 low and the 11 October 2007 top occurred over a period of 1827 calendar days (or 261 weeks). Incidentally, this cycle was a repeat of the major bull market that began on 8 August 1982 and ran to the extreme high that was reached on 25 August 1987 – the date which marked the final high before the great 1987 stock market crash. The actual length of the 1982 to 1987 bull market was 1842 calendar days (or 263 weeks) – which is within our tolerance for a repeating time frame – and there were a number of clues that the market was giving you to let you know that the 1842 day time frame was going to come in early. The expiring time frame of 211 days that we mentioned earlier was one of them. In later chapters, I will show you how an appreciation of anniversary dates and our other Trading Tools could be used to narrow the date of the 11 October 2007 top. Finally, and before ending it there, I think it is interesting to note that once the top came in on October 2007 (marking the start of the Great Recession and the global financial crisis), the duration of the bear market which followed to the March 2009 low lasted for a period of 512 days. In other words, the bear market ended on a time frame which the bull market immediately preceding it started – to the exact day!

The key time frames ending the 20 year gold bear market When I first embarked on my study of the markets and how the Time Factor plays such a large role, I never imagined that it would one day lead me to being able to forecast future market turning points with such accuracy. Seeing the markets move with such exactness over and over again can make you at times expect that all major market movements need to start and end with the same Swiss clock like precision. My early studies of Gann involved going back and finding historical data on commodity prices as far as I could find them. I even went to the lengths of going through all of the historical data Gann left behind in his book How to Make Profits in Commodities and recreating these into price charts on huge sheets of paper to see how past cycles had worked. Back then, I wasn’t looking for the exact precision in time cycles repeating as I tend to find myself doing these days, which actually proved to be a good thing. As I have mentioned before, trying to get everything to work to the exact day and exact price can mean that you may miss out on the biggest moves, particularly when you are working with long term time frames. In early 2000, my study of the markets was quickly drawn to the precious metals gold market. My father and I had a broker at the time who was a perma-bull on commodity stocks, despite them having been beaten down for so many years.

Both dad and I had been looking at some fundamental research on the gold market, which suggested to us that the price of gold should be higher than the price it was trading at. My father therefore sent me on a mission to analyse the time frames in the gold market to see if I could discover if any of this Gann stuff was also telling us that the timing was now right to buy. In his books and courses, Gann frequently refers to keeping a count of weekly and monthly time frames. So when I began my analysis of historical gold prices, it was the monthly and weekly time counts that I was most interested in. The first significant time frame which I counted used the then all-time record high price of gold reached on 21 January 1980 as the starting point. From there, a twenty year-long bear market in gold prices commenced with prices falling over 70% from the top. I had seen from the historical charts that a significant low in gold was made in February 1985, which by my monthly time count was 61 months or 266 weeks. The actual low was 25 February which made for a calendar day count of 1862 days. From the 1985 low, the market ran up a considerable amount, making a high on 14 December 1987. The next phase of the bear market then began, before gold prices made a double bottom on 13 January and 10 March in 1993. My monthly time count off the December 1987 top showed that this was a move down of 61 months and 63 months in time (depending on which bottom you looked at).

The actual calendar day counts between the December 1987 top and the respective double bottoms were 1857 and 1913 days. Once the market bounced off that low, gold prices moved higher to reach a top on 2 February 1996. It was from this point where my real-time calculations were now being based. I had figured that another 61 months off that top would bring us to March 2001, so that was the time period I was looking out for. As history shows, gold prices continued their move south reaching a final bear market low in August 1999 at $253.00 an ounce. With my March 2001 date in mind, I was expecting that this level would eventually be broken, so I did not recognise the August low as a buying point (and with hindsight, this actually worked out in my favour). After a brief spike in September and October 1999, gold prices eventually ground their way back down again, and double bottoms were finally achieved on 16 February 2001 and 2 April 2001 at around $255.00. Using my monthly time count, we had moved another 60 and 62 months down respectively, with the average time between those two dates being 61 months. By this time, I had realised that the bear market had now completed three main sections down that were equal in time. The work I had done on both the major time frames and the sections of the market was telling me that a major low was due and that we should be looking for the buy. The following chart summarises this price action much more simply.

USD / oz 1900 –

1700 –

1500 –

SECTION 1

SECTION 2

SECTION 3

266 Weeks

265 Weeks

265 Weeks

1300 –

1100 –

JAN 1980 900 –

700 –

DEC 1987 FEB 1996

500 –

300 –

JAN & MAR 1993 FEB 1985

1974

1977

1980

1983

Gold – (1974 to 2011) – Master TIme Cycles

FEB & ARP 2001

double bottom

1986

1989

1992

1995

1998

2001

double bottom

2004

2007

2010

Illustration 9.04

Section One

Section Two

Months down

Weeks down

Calender days down

61

266

1862

265 (Jan low)

1857

266 (average)

1863 (average)

61 (Jan low) 63 (Mar low) 61 (average)

Section Three

60 (Feb low) 62 (Apr low)

Know the length of each bull market from every major low and watch out to see these major time frames repeating in the future.

Now, I recognise that it was August 1999 when the extreme low in gold prices was reached. However, it was a good 18 month wait until the February and April 2001 lows were formed, and these proved to be the best places to buy. Another important factor in the analysis, was that I wasn’t looking for absolute precision in the markets – by that I mean that I wasn’t looking for 1862 day counts to exactly repeat themselves (although they came very close), nor was I put off by the fact that double bottoms had been made which required us to average out our time calcs.

In the end, once Dad and I saw the 2001 lows hold, we soon figured that the time to buy was right. We purchased our first pieces of investment gold bullion at just over US $300 an ounce, which the family still owns to this day, and Dad positioned himself with a heavily overweighted portfolio of gold stocks. Dad soon became the ultimate gold bug, and our stock broker eventually gave him the nick name ‘Goldfinger’ – in hindsight, it wasn’t as nearly as a creative a nickname as “Bob.”

The time cycles calling the 2011 gold top Before ending this chapter on repeating time frames, I want to bring you back to something I said earlier about watching for the market to make a 50% retracement in time, as well as price.

In the example on gold above, we measured that the bear market that began on 21 January 1980 ran all the way down to provide the buying opportunity of a life time in February and April 2001. Using a weekly time count, the actual time frame between the January 1980 high and the February 2001 low is 1100 weeks, which gives us a very major cycle of time. If we multiply that by 50%, we come up with a time frame of 550 weeks into the future to look out for a major change in trend. Adding 550 weeks to the 21 February 2001 low gives us a targ et date of 2 September 2011 to look out for. The current, all-time high in gold prices at the time of writing stands at $1920.80 an ounce, reached on 6 September 2011. So by using a time frame of more than 7700 days, we were able to project a date that that was within 4 calendar days of the all-time record price in gold!

USD /oz

Major Bear Market Cycle = 1110 weeks

Bull Market Cycle = 550 weeks

2000 –

1800 –

Forecast date - 2 Sep 2011

In mid-March 2022, the next cycle of 550 weeks will complete, and this will coincide with a repeat of the 1100 week major cycle that preceded it.

1600 –

Actual high - 6 Sep 2011

I am looking forward to being around when it arrives – it will certainly be an interesting period to watch.

1400 –

1200 –

1000 –

800 –

600 –

400 –

200 –

1974

1978

Gold – 1974 to 2014

1982

1986

1990

1994

1998

2002

2006

2010

2014

Illustration 9.05

Chapter Eleven – Anniversary dates

As a married man, I am certainly aware of the importance of and the need to remember significant anniversary dates. Having my first child born on the very same day as my own birthday, has simply served to reiterate the point. Incidentally, our second child was born just one day before my wife’s birthday – as he was born on a Thursday my wife and I often joke that had it not been a golfing day for our delivering doctor on the Friday, there would have been two equal sets of birthdays common in our family. Now I have been married long enough to realise that it would be wrong of me to say that anniversary dates in the market are the most important dates to watch… (and yes, I do realise that I just in fact said it!!). So behind wedding anniversaries and birthdays of course, the date in which a market celebrates a significant top or bottom should also be etched into your memory bank.

The way Gann described anniversary dates

Significant anniversary dates to watch in the S&P500

We have already touched on the significance of repeating dates in the markets in an earlier chapter of this book, so no doubt you already have an appreciation of how particular dates reoccur over and over to produce significant market tops and bottoms.

Now, I might be biased, but I think October is a great month. Not only does it represent the time of my birthday, it represents some of the greatest tops and bottoms and movements in the market of all time. Below are just a few examples:

Gann spoke about anniversary dates in chapters VIII and IX in his books 45 Years in Wall Street and How to Make Profits in Commodities, respectively. These are actually some of the easiest chapters in a ll of Gann’s works to follow. It is a very worthwhile exercise to not only read these chapters, but to complete the analysis Gann began in chapter VIII of 45 Years in Wall Street by updating the tables of when extreme highs and lows were made in the Dow Jones up to the present day. Even though Gann left off at 1949, you will soon appreciate the relevance of this lesson today. The simple rule with anniversaries is this:

Markets will often reach extreme high or low (or make other significant tops and bottoms) on or about the same day of the month in different years.

– The Panic of October 1907 – The October 1917 crash. – The October 1987 great stock market crash – The October 1997 Asian currency crisis – The October 2007 pre-GFC high And these are just to name a few. What I also find absolutely mind boggling about the month of October is the number of times it has produced either a yearly top or bottom, or major high or low, in the US equity markets.

OCT 10 1989 TOP OCT 1987 CRASH

300 –

OCT 11 1990 LOW

OCT 11 1983 TOP

150 –

OCT 1978 CRASH

600 – 1977

1978

1979

1980

S&P 500 (log scale) – Anniversary Dates

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

Illustration 11.01

2000 –

1800 –

OCT 11 2007 1600 –

1400 –

1200 –

OCT 8 1997 OCT 4 2011

1000 –

OCT 8 1999

800 –

OCT 10 2002 600 –

400 –

1993

1994

1995

1996

1997

S&P 500 – Anniversary Dates (cont.)

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

Illustration 11.02

The previous charts highlight some of the more significant turning points which have occurred in the markets in October – particularly in early October, and more particularly around the 8th to the 11th of the month. In the examples we have walked through earlier, you will have noticed many other examples of where an October date produced a significant market top or bottom, which haven’t been included in the charts. I think it also helps to pay a visit back to Friday, 11 October 1929 and look at the price movement of the Dow Jones immediately following that date!

Some commentators have in fact attributed 8 August 2007 as the date where the active phase of the recent global financial crisis can be attributed to – this was the date when a major international bank terminated withdrawals from three hedge funds manifesting into a complete liquidity crisis and sparking the now famous collapse of Lehman Brothers and market turmoil which soon followed. Finally, and at the risk of labouring the point, the 8th of August is also considered to be a significant time in another major period involving US equity markets.

Over the years, I have learnt that different markets will work to different anniversary dates. In some instances, an anniversary date may not necessarily mark the date of a top or a bottom, but a significant day that influences market behaviour or which creates volatility. The Dow Jones in particular seems to like the month of August as a time to celebrate its anniversaries – for example the 1921 low on August 24 and the stock market high in 1987 on August 25. In 1997, the Dow Jones index made its yearly high on August 8, and then exactly ten years later in 2007, a very sharp decline commenced off a significant top which occurred on August 8.

On 8 August, 1929, the Federal Reserve announced that it had increased its discount rate from 5 percent to 6 percent. This caused a swift and immediate market reaction which saw stock prices dramatically fall. Whilst stock prices eventually traded higher to reach a final high on 3 September 1929 (after some market intervention), it is 8 August 1929 which is commonly referred to as the date which first broke the 1920’s bull market, precipitating the greatest stock market fall in history.

A key anniversary date to watch in the silver market I would like to end this chapter on anniversaries by using a very recent example in the precious metals silver market. The following chart simply highlights three significant turning points in silver, all of which occurred exactly on June 28 in 2011, 2012 and 2013.

USD / OZ

I hope this demonstrates to you the importance of anniversaries. In the next chapter, I will continue to show you the importance of anniversary dates and how I have incorporated a simple adaptation of this predictive tool to forecast turning points on a monthly time frame. I call this technique, “trading to Time.”

$50.00

$45.00

$40.00

$35.00

JUNE 28 2011

$30.00

$25.00

JUNE 28 2012

$20.00

JUNE 28

$15.00

2013

$10.00 Jan-10

Jun-10

Silver – Anniversary Dates

Nov-10

Apr-11

Sep-11

Feb-12

Jul-12

Dec-12

May-13

Oct-13

Illustration 11.03

Chapter Twelve – trading to Time

If the previous chapters haven’t already changed the way you look at the markets, then this chapter will. I honestly believe that what you are about to learn in this chapter can be used as a standalone tool for trading the dates of your forecast market tops and bottoms. Before going any further, it is at this stage that I wish to make an important point, as I underscored the word ‘trading’ for a specific reason. The Trading Tools I am teaching you in this course will equip you with what is needed to forecast a future turning point in the market a year or more in advance – but it is important to remember that you won’t actually be able to buy or sell off that forecast until the day actually arrives. When you eventually do get closer to the event, it is at that point in time where it seems sensible to use your Trading Tool box to try and pin point the exact date of the market turn. In an earlier chapter, we walked through how to calculate when a major bull or bear market cycle is likely to begin and end using long term time frames. In almost all circumstances, those time frames you will be dealing with will be over 500 or even 1000 days. When working with such large time frames, you need to allow yourself a small degree of variance in your analysis – I will typically allow for a one percent variation when I am using a major time count. My ‘trading to Time’ technique however, allows you to narrow that forecast to within one or two trading days.

This is why I believe the “trading to Time” tool is so important. The bull market high in the S&P500 on 11 October 2007 is a good case in point. In an earlier chapter, I outlined that Bob and I were expecting the 2002 bull market to be a repeat of 1982. Had we stuck exactly to the 1982 bull market time frame of 1842 days, it would have kept us waiting until 26 October 2007 before we began looking for a trade signal confirming that the top was in. In the end, it was our yearly anniversaries which told us that 10 October was a date to watch (being the yearly anniversary of the 2002 low) – and this date proved to be only one day out from the actual top. As you will soon see, the trading to Time tool uses monthly anniversaries to achieve the same purpose. In 2007, it was the monthly anniversaries that were telling us the 15th day of the month was a crucial time each month to watch. In October 2007, it was the 15th of October (which came in only two trading days after the yearly top) which just happened to give the best trading signal to sell, confirming that the top was in.

trading to Time trading to Time is directly related to our previous chapter about anniversary dates. The key difference however is that instead of looking at the same date appearing each year, we use a major reference point that has produced a recent significant high or low in the market, and watch for that same date to produce future market tops and bottoms on a monthly basis. To illustrate the point, the following chart represents the same price action in Silver that was presented in the last chapter. Earlier, we highlighted June 28 as the yearly anniversary date to watch in the silver market. The date “28th” therefore becomes significant. Applying this on a monthly anniversary basis, we would therefore watch out for significant turning points to occur in the silver market on or around the 28th of each month.

trading to Time dates to watch in the silver market The following chart shows the incredible frequency with which significant tops and bottoms have occurred in the silver market on either the 28th or the 29th day of the month – a pattern which has continued for three consecutive trading years since the start of 2011.

USD / OZ

APR 28 2011

50.00 -

48.00 -

46.00 -

44.00 -

42.00 -

FEB 29

40.00 -

2012 OCT 28

38.00 -

2011

NOV 29

36.00 -

2012

34.00 -

32.00 -

JUN 28 2011

30.00 -

28.00 -

AUG 28 2013

26.00 -

24.00 -

DEC 29

JAN 28

SEP 26

2011

2011

2011

JUN 28 2012

22.00 -

20.00 -

JUN 28 2013 2011

Silver – Trading to Time (Monthly Dates)

2012

DEC 31 2013

2013

Illustration 12.01

By observing the markets closely, and the day of the month where major and minor tops and bottoms are formed, you will soon discover that the market will ‘tell’ you which date (or time) in the month you should be watching for future tops or bottoms to occur.

The ‘trading to Time’ technique will improve the accuracy of your long term forecasts and help you to pin-point the exact date of a forecast future market top or bottom.

Knowing when a trading to Time date will work and when it won’t In our experience analysing and trading the markets, Bob and I have observed that markets will work to their own particular behaviour or rhythm, and will tend to favour one particular day in the month over others over a twelve to twentyfour month period. For example, the silver market was clearly favouring the 28th of the month in the three year period between 2011 and 2013, and the market was producing more significant turning points on this day of the month than any other – this is what I refer to as an ‘active trading to Time date’. This does not mean that all markets will therefore be turning on the same day of the month. A currency or stock index during that same period for example, may be favouring the 15th of the month as its ‘active trading to Time date’ to make its significant turns.

Now it would be great if the same market continued to make significant tops and bottoms on the same active trading to Time date each month for the next one hundred years. Of course, it isn’t that easy. What you will notice by reviewing the daily charts and observing the dates of key turning points in your chosen market, is that a particular active monthly date which has been working for a certain period will begin to ‘phase out’ – producing less significant turning points or none at all. Typically, when one active date begins to phase out, it will be replaced by a new active date in the month which will begin to produce significant tops and bottoms. For example, although the silver market has been working to the 28th of the month for the last three years, I will be watching for the next major top or bottom that forms on a different day of the month to start calling future tops and bottoms. Let’s just say the 6th of the month gives us a very significant low – it is at that point that I will begin watching both the 6th of the month and the 28th of the month and waiting to see if the market begins fading out the 28th in favour of the 6th.

After a major top or bottom has been made, watch the same day of the month which that top or bottom was made – this will produce an ‘active trading to Time date’ that can be used to call future market tops and bottoms Once a new active monthly date is in, continue to watch both the new date and the old – the market will soon tell you which one it is beginning to favour to produce major or minor changes in trend.

trading to Time – S&P500 2011 to 2012 The following chart illustrates a series of significant turning points occurring in the S&P500 market on repeating monthly anniversary dates. A number of key dates are highlighted which produced significant turns on the 16th or the 18th of each month. You will see that following these sequence of turns, a major high was made on 2 May 2012. At this point, 2 May now becomes our new reference point, and we begin looking for significant turning points to occur on the second day of the month (or very early on in the month) going forward. Notice how over the next calendar year major turns were subsequently made on 4 October 2011, 2 April 2012, 4 June 2012 and finally 5 October 2012 (which was a day out from the annual anniversary the year before). Further, by studying a daily chart of the S&P500 during this time, you will also see that other tradeable turning points were made on 1 May, 3 July, 2 August and 2 November 2012 – all of them being on or around the active trading to Time date. At the end of this book, I will walk you through a series of emails which I had written which identified in advance that each of these dates were key times to watch.

1550 –

1500 –

14 SEP 2012 1450 –

5 OCT 2012

2 APR 2012

1400 –

2 MAY 2011 18 FEB 2011

1350 –

15 NOV 2012 1300 –

18 APR 2011

16 MAR 2011

1250 –

16 JUN 2011 4 JUN 2012

1200 –

18 NOV 2010

1150 –

1100 –

4 OCT 2011

1050 –

2010

S&P 500 Stock Index – 1 Day Bar Chart – USD

2011

2012

Illustration 12.02

Chapter Thirteen – Counting time

Learning how to count time not only in calendar days, but in mathematical degrees will further improve your ability to pin point and forecast future turning points in the markets. In particular, this Trading Tool will help you enormously to identify which one of your trading to Time dates will have a higher probability of producing a significant change in trend than other monthly dates. Every good book or course written about Gann has covered this topic in one way or another– and with very good reason. I believe it was this discovery by Gann which completely revolutionised the approach to technical analysis and the way some analysts look at trading the markets. The biggest thing to overcome however about counting time in degrees, is accepting the way in which Gann discovered how to calculate it. Whilst there is nothing overly complex about it, it will require you to keep an open mind. Hopefully, this chapter goes some way in letting the market demonstrate to you the power of this tool and how keeping an open mind can significantly benefit your trading.

How to calculate and divide a yearly cycle of time Gann covers this topic in some way or form in nearly all of his books and trading courses. Unfortunately, the clarity of his message is at best, difficult to understand, so you really need to know what to look for when he discusses it.

He covers the topic well in chapter 7 of his Master Stock Market Course, but goes into a great level of detail in chapter III of his book How to Make Profits in Commodities on pages 56 to 59. In his discussion on how to forecast daily moves, Gann outlines the importance to watch for a change in trend 30 days from the last top or bottom, and then again for changes 60, 90, 120 and 180 days for significant tops or bottoms. Those day counts that Gann refers to however are simplifications of how to actually calculate the time frames you need to watch. In How to Make Profits in Commodities, Gann describes the time period of 90 to 98 days as an important time. The problem with trying to trade or forecast using a day count as wide as this, is that it spans a time frame of eight calendar days – and quite a bit can happen in the market over eight days! The eight day time span Gann referred to, was an oversimplification, as he had actually devised a method to calculate the exact date or time period to look for. for. The secret behind understanding how Gann did this is covered when he discusses the concept of ‘How to Divide the Yearly Time Period’ in his books and courses. To illustrate, in his book How to Make Profits in Commodities, Gann outlines that you should:

Divide the year by 4 to get the 3 months’ period or 90 days, which is 1/4 of a year or 13 weeks

What Gann is actually doing here is dividing the calendar year into 4 equal parts. To accurately determine the correct day count however, you need to view the calendar year as one complete cycle (or circle). The laws of mathematics have taught us that each circle is made up with a rotation of 360 degrees. So according to Gann’s Gann’s logic, once we have travelled 360 degrees in the circle, we have completed a full cycle. I hope by now that in reading this book you have been able to keep a pretty open mind about things and the way geometrical relationships influence the markets. What I am about to show you is how to calculate mathematically the divisions of time that influence the daily time counts you will see reoccurring again and again in the markets. By viewing the calendar year as one cycle of time, a period of 365 calendar days needs to elapse before we have completed one full circle (or 360 degrees) of time. If we divided the year into four, four, as Gann tells us to do, we would end up with 91.25 calendar days in each quarterly division of the yearly cycle. The issue here however however is that the earth does not travel exactly 91.25 calendar days in each 90 degree cycle of time. The reason for this phenomenon is because it takes varying degrees of time (in calendar days) for the earth to make a 90 degree rotation around the sun. And that’s not crazy talk – it is scientific fact.

Each 90 degree rotation represents one full season of the earth – spring, summer, autumn, winter – with the true beginning and ending of these seasons determined by the earth’s position relative to the sun (the equinox). In the southern hemisphere, our summer actually begins on or around 21 December each year culminating approximately three months later on or around 21 March.

During that period, the earth will have travelled exactly 90 degrees around the sun in 90 days. As the season (or cycle) of summer ends, the season of autumn beings, and so we travel another 90 degrees which ends on 22 June. Whilst the earth has rotated another 90 degrees during that period, it has taken us a total of 93 calendar days to get there.

Total degrees travelled

The two equal 90 degree movements in time, have not been represented by two equal movements in days. The earth’s ‘natural divisions of time’ as it moves through its seasons is summarised in the table below. below. Each division is an equal 90 degrees in time, but will vary in length according to the calendar.

Days between each season

Total days travelled

0°

21 March (start)

90°

22 June

9 3 days

9 3 d ay s

180°

23 September

9 3 days

18 6 days

270°

21 December

8 9 d ays

275 days

360°

21 March (end)

9 0 d ays

3 6 5 d a ys

The natural divisions of time explain why you will sometimes see time counts in the market expiring exactly on a 90 day period and others on a period of 92 to 94 days.

The highest probability daily time counts Now that we have a firm grasp on how time counts can be measured in degrees, I would like to share with you what I consider to be the most important divisions of a yearly cycle to look for when determining future daily changes in trend. In my experience, the time counts which occur the most consistently in all financial markets to product market tops or bottoms are:

• 90 degrees (or multiples multiples of 90 degrees) by dividing the cycle into quarters; and • 120 degrees (or multiples of 120 degrees) by dividing the cycle into thirds

Gann often spoke about the importance of these divisions and that they should be applied to all cycles of time, whether we are working of a daily, weekly, yearly or even hourly time count.

 • By divid ing cycl es into qu arters an d thirds, we are creating both a square and triangle within the circle (or cycle) of time.  • The poi nt of each square and triangle wi ll represent key milestones which need to be watched in any time frame or cycle.

If you are using the calendar year as your cycle, each of these divisions of time represented by the Square and the Triangle, will give you the highest probability day counts to watch for future changes in trend. In my experience, I have noticed the following daily time and/or daily degree counts work the most consistently and have the highest probabilities of producing a future change in trend. In order of importance:

0º / 3 6 0º

90º or

0 º/ 36 0º

1/4

120º or 1/3

270º or

180º or

3/4

1/2 240º or

1st

90 days or 90 degrees

2nd

180 days or 180 degrees

3rd

120 days or 120 degrees

4th

42 to 49 days (not degrees) – but look mainly for 45 day counts

5th

240 and 270 days or 240 and 270 degrees (equal importance)

2/3

Divisi ons of a cycle

Illustrati on 13.01

In my opinion, these are the most important daily time counts to watch – in all markets

How to calculate calendar time into degrees Nowadays, there are a number of charting programs which do all the hard work for you and will accurately convert a daily calendar time count into a daily degree count. If you do not have such charting software however, a simple internet search of an Ephemeris will give you the information you need to convert calendar time into degrees. An Ephemeris provides us with the position of the earth relative to the sun and measures it in degrees for each calendar day of the year. Fortunately for us, the rocket scientists at NASA have figured out the complex series of mathematical calculations that go behind this information. All we have to do is look up the data. It is important to recognise that the division of one full cycle of time each year is divided into 12 equal sections of 30 degrees. For those of you who read your daily horoscope, it is the twelve signs of the zodiac which are used even by the NASA rocket scientists to calculate the position of the earth’s movement relative to the sun. The twelve signs and their corresponding position when measured in degrees is as follows.

Position in degrees

Latin name

Approx. calendar date when each period starts every year

1

0° to 30°

Aries

21 March

2

30° to 60°

Taurus

20 April

3

60° to 90 °

Gemini

21 May

4

90° to 120°

Cancer

22 June

5

120° to 150°

Leo

23 July

6

150° to 180°

Virgo

23 August

7

180° to 210°

Libra

23 September

8

210° to 240°

Scorpio

24 October

9

240° to 270°

Sagittarius

23 November

10

270° to 300°

Capricorn

21 December

11

300° to 330°

Aquarius

21 January

12

330° to 360°

Pisces

19 February

No.

Symbol

In order to find the position of a market top or bottom in degrees, you will need to identify where it is in the division of the calendar year.

By using an Ephemeris we can look up the corresponding calendar dates for the following points of time when measured in degrees:

4 Octob er 2011 (start) = 10 For example, on 4 October 2011, the sun was in the position 10 25. In other words, we were 10 degrees into the sign of Libra. As Libra commences at 180 degrees, if we have travelled a further 10 degrees into this sign, then according to the rocket scientists, we must be 190 degrees into the cycle. As the 90 degree and 180 degree time counts are the most important to watch, we would naturally calculate the exact date to tell us when time has moved 90 degrees from the 4 October 2011 low. As the 4 October 2011 low is starting at 190 degrees, an additional 90 degrees takes us to 280 degrees. Referring to the previous table, we can see that this would mean 10 degrees into Capricorn . Repeating the process again to calculate our 180 degrees movement would bring us to 370 degrees, which is the same as 10 degrees into Aires .

25

4 October 2011 + 90 degrees = 10 4 October 2011 + 180 degrees = 10

25 (which gives us Monday, 2 January 2012) 25 (which gives us Saturday, 31 March 2012)

It just happened to be that 2 January 2012 was a public holiday and 31 March 2012 was a Saturday – both being dates where the market did not trade. In circumstances where a time count in degrees occurs on a weekend or non-trading day, you should closely observe the market on both the trading days immediately preceding and following your calculated date. In the case of 31 March 2012, this would mean we watch Friday, 30 March 2012 and Mond ay, 2 April 2012 as the two trading dates. As you can see on the following chart, Monday 2 April 2012 produced a very significant top in the S&P500 index.

The following chart highlights a number of significant time counts in degrees that produced significant changes in trend in just over a full calendar year period from the 4 October 2011 low in the S&P 500. I have used various important tops and bottoms as the starting points, and have calculated the significant time counts in degrees to measure future dates. Notice how the first 180 degree count from 4 Oc tober 2011 to 2 April 2012 was exactly 180 days, but the second 180 degree count between the May to November 2012 highs occurred over a period of 185 days.

This is an example where time counts in degrees can pin point your turning points to the exact day whereas calendar day counts would have left you just that little bit out.

1600 –

2 APR 2012

3 JULY 2012

5 OCT 2012

1560 –

4 OCT 2011 1520 –

1480 –

1440 –

1400 –

1360 –

1320 –

1280 –

2 NOV 2012

2 AUG 2012

1 MAY 2012 1240 –

1200 –

4 JUN 2012

5 OCT 2012

1160 –

1120 –

180 DEGREE COUNT 90 DEGREE COUNT

1080 –

120 DEGREE COUNT 1040 –

SEP

OCT

NOV

DEC

S&P 500 Stock Index – 1 Day Bar Chart – USD

JAN

FEB

MAR

APR

MAY

JUN

JUL

AUG

SEP

OCT

NOV

13.02

In my analysis, I use time counts in degrees to measure future dates from tops and bottoms 90, 120, 180, 240 & 270 degrees apart. For all of my other daily time counts, I stick to a daily calendar day time count and use my ‘trading to Time’ as the dates to watch. Accordingly, I do not measure the interim time counts of 30, 45 and 60 in degrees. I have found that these simply do not produce any consistent results to base your trading off. I have observed that without doubt, the 90 and 180 degree time counts are the two most consistent counts in degrees which work in all financial markets. If you go back and review a historical chart of any stock, currency or commodity, you will soon see the number of times that significant, tradeable changes in trend occurs either 90 or 180 degrees away from a previous top or bottom – it is truly astonishing!

Important note:

Always watch the 90 and 180 degree counts from any major or minor top or bottom – these are the most important time counts for future changes in trend.

The predictable yearly highs and lows in 2000 and 2001 The following chart is a daily bar chart of the Australian equity markets futures contract – the Share Price Index. We referred to this chart in an earlier chapter where we discussed repeating cycles of price. In that example, I mentioned why I thought it was quite easy to anticipate the key dates which the market was going to turn on during that period of trading. Each of the dates in the following chart represents a very significant turning point in the market. Gann was aware of the significance of these exact time frames each year – all of which were permanently marked in his Master Square of Nine Calculator.

22 March 2000 (cycle top)

+ 180 degrees = 22 September 2000 low (major low)

22 September 2000 low

+ 45 degrees = 7 November 2000 (yearly top)

22 September 2000 low

+ 90 degrees = 21 December 2000 low (major low)

21 Decembe r 2000 low

+ 90 degrees = 23 March 2001 low (major low)

23 March 2001 low

+ 180 degrees = 24 September 2001 (yearly low)

In the following example, I have also highlighted the 29 March 2001 low which was a double bottom with 23 March 2001. You will see that the yearly top in 2001 occurred on 29 June – exactly 90 degrees from the 29 March 2001 low – proving again, how powerful a tool measuring 90 and 180 time counts in degrees can be for calling major market tops and bottoms.

3600

29 JUN 2001

3500 7 NOV 2000

3400

22 MAR 2000

3300

3200

21 DEC 2000

29 MAR 2001

22 SEP 2000

3100

23 MAR 2001

3000

2900

24 SEP 2001

2800 Jan-00

Mar-00

May-00

Jul-00

Natural TIme – Square of Nine (ASX 200 Daily Chart)

Sep-00

Nov-00

Jan-01

Mar-01

May-01

Jul-01

Sep-01

Nov-01

13.03

Chapter Fourteen – The Master Time Factor – explained, simply

Discovering the secret to the “Master Time Factor” has intrigued many Gann students and experts, even today. I believe the best description by Gann of his Master Time Factor was written in section seven of The W.D. Gann Master Stock Market Course – which, funnily enough, can be found under the chapter titled ‘Master Time Factor and Forecasting by Mathematical Rules.’ In my humble opinion, chapter 7 of the WD Gann Master Stock Market Course contains the greatest discovery Gann made in all of his extensive years of analysing the markets. It is some of the best material ever written by Gann on the subject of Time. In this chapter, I will show you how to interpret the Master Time Factor and how to apply it in a simple manner. Incorporating the Master Time Factor will significantly improve your analysis of financial markets and your investment decisions. By the end of this chapter, you will have the tools to identify, years in advance, major cyclical lows that market the start and end of major bull and bear markets. I will also show you how to construct a yearly road-map that can guide you on the future price action for the year ahead (and in some cases many years in advance).

The Ten Year Road Map Calendar In chapter 7 of this Master Stock Market Course, Gann describes how he constructs his long term forecasts using major cycles of time – these major cycles span a number of years and decades. One of the discoveries Gann made in his analysis of the US equities was that the market moved to a 10 year (or decade) long cycle which has characteristics that often repeat again and again.

I believe the Ten Year Road Map Calendar was the greatest discovery by Gann of all – it was also his most simple. At its core, Gann used this 10 year cycle to determine whether to expect higher or lower prices throughout the particular calendar year ahead. By observing what the market was doing in one year, he could refer to the greater 10-year cycle to determine whether prices should be higher or lower over the next. Even Gann himself recognised the simplicity of this discovery, saying that all that one needs to learn how to use this technique is to count the digits on your fingers to determine what type of a year the market is going to be in.

If the Ten Year Road Map Calendar is telling you that higher prices should follow for the next twelve months, then the objective should be to look for buying opportunities throughout the year to trade each section of the market. One of the most worthwhile exercises I have ever done, was to go through the historical price movements of the Dow Jones and S&P 500 as far back as possible, and record what the market did in each year of every decade. By doing so, you will see a familiar pattern emerging, particularly during certain years of a decade. These stock market movements have an uncanny ability to repeat and repeat. By doing this, you will then be able to construct your own general road map for each decade, that can help you determine future stock market movements over the next ten years ahead.

My analysis of the Ten Year Road Map Calendar (the Gann Decade Cycle) Based on my study of the US equity markets over the last 100 years, I have identified the following characteristics attributable to each year in the Ten Year Road Map Calendar.

My analysis of the Ten Year Road Map Calendar (the Gann Decade Cycle)

– The early years of the decade typically see the formation of significant cyclical lows from which a bull market will be based. Years 1 & 2

– Lows which are created in the “year 2” are often major bull market bottoms, from which a strong bull market will commence. – Refer to 1932, 1942, 1962, 1982 and 2002

Year 3

– The third year will often be a year of stronger prices, particularly if a low has been formed in year 1 or 2. – You should study 1933, 1963, 1993, 200 3 and 2013.

– It has been my observation that you should look for significant intermediate cycle lows to form in the fourth year around May to July. – In these situations, it normally presents a strong buying opportunity, particularly if the fifth year is a strong year in a bull market. Year 4

– Look up 1914, 1924 and 1984 in particular. – Also look up the major low in 1974 which came in December. – This occurred on a 60 year cycle from the World War I low reached in December 1914.

– Consistent with Gann’s analysis, the fifth year has always been a year of Ascension and has normally produced considerably higher stock prices. Year 5

– When measuring the combined annual performance of the Dow Jones since 1900 and S&P5 00 since 1970, the 5th year has always resulted in a positive year each year over the last 100 years with an average return of over 30%!! – Study the years 1905, 1935, 1975, 1985 and 1995. The year 1915 in particular was an extraordinarily strong year.

– Will often produce a year of consolidation with sideways to slightly lower behaviour, particularly if prices have been strong in the fifth year or if a major bull market began from a low starting in the fourth year of the decade. Year 6

– In a number of cases, minor tops will often form in the sixth year. – Look up the tops in 1906, 1916, 1946, 1956, 196 6 and 1976

My analysis of the Ten Year Road Map Calendar (the Gann Decade Cycle)

– The seventh year has an uncanny knack for producing extreme volatility in the markets, including panic and sell-offs. Gann sometimes described the seventh year as a ‘fatal’ year and a bear number. Year 7

– It is always wise to watch for the US equity markets to make highs in August or October during the seventh year – this will often see a sharp sell-off follow in October. – Look up the Panic of October 1907, October 1917, October 1957, October 1967, the October 1987 stock market crash, and the October 1997 Asian currency crisis

– Gann said to look for the eighth year to be a bull year, particularly if prices begin rising off a low that has been formed in the seventh year. – After the fifth year of the decade, the eighth year is normally the next strongest year in a bull market. Year 8

– Always watch for strong gains in the eighth year of a decade that is working to a bull market. It is often a prelude into higher prices which are achieved in year 9 which often marks the end of major bull market cycle. – The years 1908, 1928 and 1958 in particular were very strong bull market years. Also look at 1988 and 1998 which were strong bull market years.

– The ninth year often culminates in a major bull market high. This is particularly so if the eighth year of the decade has been a strong bull year. Gann noted that the ninth year would often mark the end of a major cycle. – In most cases, extreme high is reached in the months of September or November. Year 9

– Recent exceptions have been 1999 (where equity markets extended slightly longer and made final highs in early 2000), and in 2009 which was a significant bear market low. – Note: The 2009 low was preceded by lower prices in 2008 and did not display the characteristics typic al of a 9th year ending in a bull market. It was also 60 years from another major bear market low reached in 1949 – both were indicators not to expect a market top in that year.

Year 9 Look for cycle highs to form

Not all market cycles will exactly follow the sequence described in the 10 Year Road Map Calendar, however the chart below provides an average annual performance history of the Dow Jones for each year of the decade since 1900.The Gann Decade Cycle (Index = 100)

200

180

Year 7 Volatility and panic

The 10 Year Road Map Calendar is best use d in conjunction with the Master Time Factor and long term cycle analysis. When your long term cycles are aligning with the Road Map, it can produce incredible results.

160

Year 8 Big gains towards the end the bull market

140

120

Year 5 The year for strongest gains

100

Years 1 & 2 Look for cycle lows to form 80 YEAR 1

YEAR 2

YEAR 3

YEAR 4

YEAR 5

The Ten Year Road Map (the Gann Decade Cycle) Calendar – typic al pattern (US stocks)

YEAR 6

YEAR 7

YEAR 8

YEAR 9

YEAR 0

Illustrati on 14.01

The Master Time Factor Gann always referred to major time cycles when he made his annual forecasts. He often quoted that –

Important note:

There must always be a major and a minor, a greater and a lesser... In order to be accurate in forecasting the future, you must know the major cycles.’

In his Master Stock Market Course, Gann goes through the major yearly cycles and how to apply them, describing the need to look at 60, 50, 45, 30, 20, 15, 10, 7, 5 and 2 to 3 year cycles.

I have spent years and years of study to identify which major time cycles to use and why. In the end, I find that simplifying the analysis will often produce just as good a result and with much less effort than trying to use every single working cycle of time. The three major cycles I therefore use in my forecasting analysis are the 60 year, 20 year and 30 year cycles. I use these in conjunction with the Ten Year Road Map Calendar described earlier. I also observe the 90 year cycle (as this is three repeats of the 30 year cycle) and the half way points of those two cycles which are the 45 year cycle and the 15 year cycle, respectively.

Begin your long term cycle analysis using the 20, 30 and 60 year cycles. Next, look at the 90, 45 and 15 year cycles. Use these in conjun ction with the Ten Year Road Map Calendar to forecast the start and end of major bull and bear markets.

The Great Cycle Gann referred to the 60 year cycle as his “Great Cycle” or his “Master Time Period”. He described this cycle as the greatest and most important cycle of all and advised that one should look for it repeating every 60 years particularly when it coincides with the completion of a 20 year cycle.

Gann observed how the cycle from 1861 to 1869 was repeated again 60 years later in 1921 to 1929. In both cases, the cycles had distinct similarities, with great panics following the end of each of them. In my observation of the 60 year cycle at work, I have found that in almost all situations, the start and end of the cycle will share common features.

The 60 year cycle will often work in a calling a low to low or a top to top sequence, and is most powerful when it coincides with the end of a 20 year cycle. When using a 60 year cycle, it is best to do so using a monthly chart. A common misconception is that a 60 year cycle works only when it produces exact results – ie a bottom on 1 January 1900 must be followed by a bottom on 1 January 1960. As with all market cycles covering long periods of time, you should not expect this type of perfection. Quite often you will see 60 year cycles starting and ending in the same month – for example the 1914 war low and the 1974 major stock market low both occurred in the month of December. In some instances, the 60 year cycle may produce major cycle turning points one or two months either side of the start date – for example, the November 1916 and September 1976 major stock market tops.

SEP 1976

JAN 1966

DEC 1974

NOV 1916 JAN 1906

DEC 1914 00

10

10

30

Dow Jones Industrial Average – The Great Cycle of 60 years

40

50

60

70

80

Illustration 14.02

Other examples of the 60 year cycle at work include: The 1924 low (May) + 60 years = 1984 low (June). You should compare the market run-ups from both of those lows to the highs that were reached in September 1929 and October 1989. The 1949 cycle low + 60 years = March 2009 low. These two years occurred in the 9th year of the decade in a year which typically produces a major market top. The lower stock prices which occurred in 2008 indicated to you that 2009 was not going to produce a final high and the 60 year cycle gave you the guidance to expect a major low instead. By studying the Great Cycle of 60 years, you will find that it can be applied to all financial markets. In my observations, the commodities markets in particular work the best to the Great Cycle than any other markets – the agricultural commodities such as wheat, soybeans and corn in particular work extremely well to this cycle. In order to properly appreciate the value of the Great Cycle in your long term analysis, you should go back and review historical data for your chosen market as far back as possible. In many cases, monthly closing prices of a number of markets (particularly the soft commodities) are available going back for hundreds of years. A study of these prices will demonstrate to you the power of the Great Cycle at work.

The 20 Year Master cycle Gann wrote that the 20 year cycle is also one of the most important cycles, with most stocks working closer to this cycle than to any other. The 20 year cycle he referred to is actually a natural cycle of time that averages approximately 19.85 years, and will often run longer or shorter than an exact 20 year period. It is for this reason that when you are working with the 20 year cycle, you should not expect your dates to give you exactly matching time frames – ie do not necessarily expect a low in August 1982 to be followed by another low in August 2002, although this can occur in some instances. The simple way to use the 20 year cycle is to line up each of the periods of 20 years into a chart, and look for major a pattern emerging between each 20 year period. Gann developed a Master Chart of the 20 year cycle which specifically applied to US equities. He referred to this as his ‘New York Stock Exchange Permanent Chart’. The chart begins on 17 May 1792, which is the date the NYSE was first incorporated. The year 1792 therefore becomes your zero date, and the chart begins with year 1 (or 1793) in the bottom left hand corner. The Permanent Chart then simply measures each year of the calendar moving 20 years up and 20 years across, giving a permanent square representing a cycle of 400 years.

The chart can be adapted to count weeks or months if one feels that 400 years is outside the scope of their lifetime, however I think the best results are produced by using a yearly time count.

The fourth dimension – The 20 year Master Cycle Gann overlayed his NYSE Permanent Chart with 45 degree angles to provide his ‘fourth dimension’ to the chart. He did this by drawing 45 degree angles across certain mid-points of the chart – these angles could also be followed to determine years when significant tops and bottoms would be made. The two angles I feel are the best to follow is the angle starting at “10” (the 1803 angle) on the left hand side of the Permanent Chart running up and the angle starting at “5” (or the 1798 angle) on the Permanent Chart. Both of these angles start on natural divisions of the Permanent Square – with “10” beginning at the half-way point (or 50%) point in the Square which is the most important, and “5” representing 25% or the first 90 degrees of the Square, which is another important geometric point.

Each of the years on these angles will often represent significant tops or bottoms in the market or major events that will affect the US markets. For example, the 1803 angle contains the years 1929 (the start of the Great Depression), 1950 (which began the Korean war) and 1971, which was the year the United States dollar was last devalued. The 1798 angle has similarly produced calendar years which coincided with many significant events in American history – the angle marked 1861 was the year the Civil War broke out; 1882 started the Depression of 1882-1885; and 1945 was the year World War II ended and one of the greatest periods of economic growth in American history began. More recently on the angle has been the years 1987 (the year of the great stock market crash) and 2008 which was the year Lehman Brothers collapsed, triggering a wave of panic and the global financial crisis of 2008. Interestingly, the next year in this sequence is 2029 – a very significant time frame as you will soon see.

New York Stock Exchange – Master 20 year cycle chart

Illustration 14.03

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The simple way to use the 20 year cycle Master Calculator The easiest way to use the Master 20 year cycle, is simply to identify points within the Permanent Chart where significant market tops and bottoms occur and repeat. To illustrate this by way of example, the following chart represents a section of the NYSE Permanent Chart covering the years 1893 to 2032. I have selected this period as it represents the period when information on the Dow Jones Industrial index is available – the first calculation of the Dow Jones Industrials index occurred on 26 May 1896. In the following chart, you will see three rows highlighted with red or green boxes, which represent years where a significant low or high occurred in the market, respectively. The selected rows are years where the 20 year cycle has consistently produced significant events in the US stock market. These rows should therefore continue to be followed and each of the following years in the 20 year cycle sequence should be watched as significant years in the US equity markets.

18

1910

1930

1950

1970

1990

2010

2030

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1909

1929

1949

1969

1989

2009

2029

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2028

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2027

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Title

Illustration 14.04

The tenth row in particular is a significant row to watch as it represents the half-way point in the Permanent Square, which is the most important. It has produced a series of major cyclical lows in the US equity markets in 1942, 1962, 1982 and 2002. The period of time between each of these turning points has been exactly 246 months, with the third 20 year cycle from 1942 ending a Great Cycle of 60 years when the October 2002 bear market low came in. The seventeenth row in the Permanent Chart is also worthy of some attention as it has been a year which has produced some very major bull and bear market highs and lows, including the Great Depression high of 1929 and the more recent GFC low of 2009. Interestingly, the next major time frame in that sequence is 2029 – which will be 100 years from the 1929 high and 120 years (or two Great Cycles) from the high in 1909. This makes 2029 (in particular late August to early October) a very important time period to watch.

242 months

Third Cycle of 20 years

OCT 2002 LOW 242 months

Second Cycle of 20 years

242 months

First Cycle of 20 years AUG 1982 LOW 1929 HIGH JUN 1962 LOW

APR 1942 LOW

The Great Cycle = 60 years

1932 LOW

The Master 20 year Cycle at work – Dow Jones Industrials index

Illustration 14.05

How to use the Master Time Cycles to create a forecast The easiest and most efficient way to use the Master Time Cycles in your forecasting is simply to look back every 20, 30 and 60 years and compare your current market forecast to any significant highs or lows which formed back on those time cycles. As mentioned earlier, I like to check the 90 year cycles as a major point in time, as well as the 45 year and 15 year (or 180 month) cycles. The cycle of 100 years should also be watched as a period of importance. The key to using long term cycle analysis is to identify a point in the future that has a number of major time cycles ending at the same date. Using just a small set of examples, you can see the power of these cycles and the simplicity with which to apply them.

October 1997 (Asian Crisis) Minus 10 years

October 1987

Global stock market crash, October low.

Minus 30 years

Oc to ber 19 67

Strong dec line in Oc to ber.

Minus 2 x 20 years

O cto be r 19 57

S ev er e d ec lin e, O cto be r l ow.

Minus 90 years

O cto be r 19 07

S ev er e d ec lin e, p an ic o f 19 07

October 2002 (Major Bear Market Low) Minus 10 years

Oc to ber 19 87

Glob al stoc k m arket crash

Minus 30 years

Aug us t 19 82

Ma jo r low befo re 19 87 bull ma rket

Minus 2 x 20 years

June 1962

Minus 45 years

O cto be r 19 57

S ev er e d ec lin e a nd ma jo r c yc le lo w

Minus 60 years

A pr il 19 42

M ajo r c yc li ca l l ow b efo re s tro ng b ul l m ar ket b eg an

Minus 90 years

October 1912

Major yearly high.

Major cyclical bear market low before strong bull market began

OCT 2002

OCT 1987

AUG 1982 JUN 1962 OCT 1957

OCT 1912

APR 1942

1900

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1940

Dow Jones Index (Log Scale – Master Time Cycles)

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1960

1970

1980

1990

2000

2010

2020

Illustration 14.06

OCT 2007

Looking to the future – what do the major time cycles tell us To end this chapter, I would like to outline the following significant major cycles ending in 2017 to show how this technique can be applied into the future. The following chart of the Dow Jones highlights some significant market turning points which have major cycles ending on or around August to October 2017. Other significant time frames to consider when reviewing this chart include the end of the Great Panic & Depression of 1893 to 1897 (marking a 120 year cycle of time, or two Great Cycles of 60 years), and the more recent Asian currency crisis in 2007.

OCT 2002

OCT 1987

OCT 1957

October 1917 decline

Oct 1907

1900

1910

DEC 1917

1920

1930

Master Time Cycles – Constructing a Forecast

1940

1950

1960

1970

1980

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2000

2 010

2020

Illustration 14.07

What is interesting to note about these major time cycles is the following:

2017 minus 120 years = 1897

(Major Stock Market Low) 

2017 minus 60 years (half of 120 years) = 1957

(Major Stock Market Low) 

2017 minus 30 years (half of 60 years) = 1987

(Stock Market Crash) 

2017 minus 15 years (half of 30 years) = 2002

(Major Stock Market Low) 

Each of those major time cycles is an exact half of the cycle preceding it. (ie. 120, 60, 30, 15.) Whether or not the August to October 2017 time period produces anything of significance remains to be seen, but it is a time frame I will be watching. In order to be confident that our long term cycles are working, we would refer back to our Gann Decade Cycle Calendar as a confirmation indicator. You should also look for major daily or weekly time frames expiring on or around that period as a further indicator that the time cycle will produce a significant change in trend.

SECTION FIVE

In this section of the course I will share with you some mechanical points of entry and exit to make your trading decisions more clinical, as well as five simple rules for trade psychology and risk management.

The best rules for trading

This section of the course is actually a recap of a topic that we covered in volume one. The reason why I am including it again is that I believe it is one of the most important topics to understand in the entire course. At the risk of sounding repetitive, let me say that again. I think this topic is one of the most important to understand in the entire course. If you are an experienced trader, you will understand why. If however you are only new to this game, then my suggestion would be to come back and read this section of the course after your first three months of trading. You will very quickly understand why. I cannot emphasise enough that in my view, making fewer but longer term trades is the easiest and the most profitable way to trade the markets. It also requires far less work. Trading the markets however is a skill that requires you to master the techniques of trade entry and exit, as well as the psychology associated with each of those steps and everything else that happens in between.

Chapter Fifteen – Trading psychology and risk management

I am confident, that with practice, the techniques I have shown you in this course can make you a much better trader. But make no mistake, there is no single system or no single trader who has a fool proof system for trading. The reason for this is that markets are essentially made up by an aggregate of human emotion. When people are feeling good about things, the markets will generally trade up. When things are not looking so optimistic, human emotion will tend to see markets trade down. Human emotion however is the one element that not even the most sophisticated computer algorithms or ‘black box’ market systems have been able to predict. This is particularly so near market tops and bottoms where human emotion is at its greatest, whether it be the irrational exuberance at a market top or the fear and panic that often ensues at a market low. Whilst winning trades will provide you with a huge adrenalin rush, it is important too to realise that losing trades are also inevitable. And it is the losing trades that will test your mettle. If you do however find yourself on the end of a losing streak, then my advice would be to come back and visit this section of the course first before any of the others. I can almost guarantee that the five rules I am about to describe will take on a whole, new meaning.

Five simple rules for risk management Most of the trading books and courses which I have read (the good ones at least, that is) include a section on trading psychology and how human emotion has such a large impact on actual trading decisions. Make no mistake, this is certainly true. Putting your own money at risk will affect your trading decisions in a way that you simply cannot simulate through paper trading a market. I have found however, that to properly learn how to control your emotions in your trading and investment decision-making, you need to experience the process first of making an actual trade. You will never fully prepare yourself for the rollercoaster ride of emotions that go with trading until you place that first trade no matter how many trading psychology books you read. Please do not interpret that as me dismissing the need to have the right trading psychology to beat the markets. It is absolutely necessary. In my view however, the subject matter of psychology is something I think is best left to be explained by someone who is actually an expert in psychology. And don’t worry, there are plenty of books out there on the subject. In addition, each individual person has their own temperament, their own risk appetite and their own differing desires for profit. And whilst I am more than happy to share my own personal experiences with anyone who asks, just because that was my experience, it does not necessarily mean it will be the same as yours.

At the end of the day, the objective in trading should be getting yourself profitable. To do this, you need to make sure you have more winning trades than losers, and that your winners are bigger than your losing ones. Having said all of that, there are a few simple rules that you should know for certain which I do think are absolutely necessary to control your trade decisions and keep your investment capital intact.

The greatest lesson  you will ever get about trading psychology will come from your own experience in trading the market.

Rule 1:

Rule 3:

Never enter a trade without placing a STOP LOSS order

Don’t be greedy when it is time to take profits

Entering a trade without a stop loss is the cardinal sin in trading. ALWAYS identify your stop loss position before you enter a trade and stick to that price level religiously. Your stop loss is not only there to quarantine your risk, but it represents the point where the market is telling you that you are wrong. As the saying goes, ‘don’t leave home without it’!

Identify where you want to take your profits at the beginning of the trade and do not change your mind unless the market is giving you a very good reason to do so. The trick here is to avoid getting emotionally attached to a winning trade. Not wanting a good feeling to end when you should in fact be taking your money and banking it is a common trap. Avoid the expectation that you need to get every last cent out of a move – even though your forecasting will at times pin point turning points to the exact price – as trying to squeeze out the last cent in a move will often be the most costly.

Rule 2: Hope is for dopes If you are uncertain about a trade and begin to “hope” that you are right, reassess your position as it is probably a good indicator that it is time to get out. This is particularly so if you are still holding on to a position even though your Stop Loss indicator has been reached.

Rule 4: Minimise your risk wherever possible The market will often give you an opportunity to take some profit off the table and reduce your position and exposure. One of the lessons Bob learned in his trading was to take profits at points where it either covered his position or significantly minimised his risk. Not only will this help you sleep better at night, but it will allow you to execute your trade decisions in a much more clinical manner and with less emotion. It also has the added benefit of significantly improving your strike rate between your winning trades and losing ones. For example, assume that you are looking to trade a recent low in your favourite stock after it reached your price target of $20.00. Your price forecast is now suggesting that the stock may make a move up to $22.50 per share. Let’s then say that you entered your trade by purchasing 2000 shares of stock at $20.40 after your signals confirmed that a potential low was in place. Your identified stop loss should now be underneath that low of $20.00 – for this example, let’s call it $19.90. That gives your trade a risk of $0.50 per share if you are wrong, or a total risk exposure on your 2000 shares of $1000. (Note, we will cover trade entry and exit points, as well as stop loss positions in the next chapter). If the stock then makes a move to $20.90, you would be sitting on a paper profit of 50 cents per share, or $1000. By using this price level as an opportunity to take

profits on half your position (ie by selling 1000 shares), you can book the 50 cent gain (or a $500 profit) and keep a remaining 1000 shares long position in the stock. At this point, even if the stock trades back down and triggers your original stop loss position at $19.90 (or creating a $500 loss), you have put yourself in a position where overall, you will not lose on the trade (putting aside for the moment any brokerage or trade commissions). Pretty clever, huh!? The effect of this strategy on your trading decisions can be enormous, as it can completely change your trading psychology. By booking profits on half your position, you are minimising your potential for loss, and putting yourself in a position to hold on to your trade for further upside with significantly reduced risk. In the example above, if the stock ultimately does move higher to hit your price target of $22.50, it would mean that you would stand to make a $2.10 per share profit on the remaining 1000 shares long position you hold (or $2100 gain) in addition to the 50 cent gain on the 1000 shares you sold earlier (or $500 profit). Not only have you made a healthy profit, but you have done so by minimising your risk. The other significant advantage of this type of strategy is that it can significantly reduce your number of losing trades, thereby improving your overall win to loss ratio. In the next chapter, we will discuss how to identify price entry and exit levels that allow you to identify trades where your potential for profits is greater than your potential risk.

The benefit of this approach is that by taking trades where your average profits are greater than your average losses, even if you have a win to loss ratio of 50:50, on an overall basis you will still be profitable. For example, if you made 5 winning trades where the average profit was $2.10 per share (or $10.50 in profits) and you made 5 losing trades where the average loss was $0.50 per share (or $2.50 in losses), on an overall basis, from your 10 trades you will have made an $8.00 gain (or $0.80 per share) overall. Now that might sound to you like it is absurdly simple, but that is because it actually is!

Rule 5: Keep your trade sizes consistent Another one of the easiest mistakes to make is to increase the amount of capital you are putting at risk on a single trade. Whilst this might sound obvious, breaking this rule is actually easy to do, particularly when you have all of your Trading Tools confirming your market top or bottom and you have convinced yourself that there is no other possible outcome other than for your forecast to be right! There is no worse feeling than to have made four or five profits in a row, and then doubling or tripling up your bets only to have all those profits wiped out by the next trade. Equally, you will need to avoid this temptation if you have been on a bit of a losing streak and you are looking to make up all those previous losses on the next trade. Taking on trade positions that are too large and that will end up causing you to be hurting badly (emotionally) if you take a loss is something that you should avoid at all costs. Trading is a tough enough game emotionally and psychologically as it is. There is no need to give yourself added pressure on a single trade by over committing yourself to one particular trade or position. My advice – AVOID THE TEMPTATION FROM OVERTRADING.

Only once you have built up some considerable profits, would I suggest that you start thinking about increasing your contract sizes. For example, if you are starting with a trading account of $10,000 and are taking trade sizes of 10 contracts for each trade, maintain those trade sizes until your trading account hits a milestone of (say) $20,000. At that point, you could look to increase your trade sizes to 15 or 20 contracts as this would be proportionate to your account balance. The worst thing to do is to take a 20 contract position if your account has gone from $10,000 to $5,000 as that is just amplifying your risk.

Important note:

The market will often give you an opportunity to take some profit off the table and reduce your position and exposure... Not only will this help you sleep better at night, but it will allow you to execute your trade decisions in a much more clinical manner and with less emotion.

Chapter Sixteen – How to know when you are right

They often say that patience is a virtue, and when it comes to forecasting and trading, this is certainly true. I cannot stress to you enough how important it is to wait for your trading signals to provide you with confirmation that your forecast top or bottom is in and that the trend has changed. Gann referred to this in a number of different ways throughout his books although his language was so opaque at times that these references can be easily missed. Throughout our 30 years of collective experience, Bob and I have developed what we consider to be the four most reliable signals to confirm that a forecast top or bottom has a higher probability of producing a meaningful change in trend. We have also found that these signals can also be used to trade off significant ‘trading to Time’ dates on a more regular basis if you are looking for additional points of entry within the longer term trend.

Indicator one – reversal signal The first indicator is to watch out for a reversal pattern on the projected day of your forecast top or bottom (or trading to Time) date. The bar marked with the arrow on the following chart shows that although the market had moved higher and created a higher bar compared to the previous day, the daily close on our forecast date is below the daily open – this is the reversal signal. I have found that the best market set-ups occur when a market moves to create new highs (or lows) within a broader move, and then creates a reversal signal to confirm your forecast date. What the price action of a reversal signal is actually telling you is that the trend has already changed from an intra-day perspective. Prices have moved higher earlier in the session (at the open), but have changed trend and moved lower by the close. A reversal signal allows you to enter the market in the last 15 to 30 minutes before the market close if prices are trading below the open. Your stops should be placed at the top of the daily high, as if this is broken, the market will have told you that the date has not worked.

Important note:

I cannot stress to you enough how important it is to wait for your trading signals to provide you with confirmation that your forecast top or bottom is in and that the trend has changed.

trading to Time date = reverse signal

Reversal indicators (short trade)

1800

1) Market has made a new high compared the previous day. 2) Market close is lower than the open

1775

Reverse the above for a long trade signal

1750

1725

1700

1675

SEP

Indicator one – reversal signal

OCT

NOV

Illustration 16.01

As we discussed in the earlier chapter, your ‘trading to Time’ dates should give you a reliable indicator to forecast a significant change in trend within a trading day or two. On some occasions, you may experience the market provides you with a reversal signal on one day, and then a further reversal signal on the next day. In these situations, you will be stopped out of the trade on the first date, and you should look to re-enter again on the second reversal day.

Sometimes, it is just the market’s way of trying to throw you off the platform before the train departs the station.

Indicator two – confirmation day The second indicator is to determine whether the market trades lower (or higher) on the following day after a potential reversal pattern top (or bottom) has been made on our forecast date. The confirmation day indicator can be used whether or not a reversal signal was generated on your forecast date. In a number of instances, market tops or bottoms will be formed without providing a reversal signal – the confirmation day allows you to initiate a trade when no reversal signal is made. In the next example, after the reversal signal occurred on our ‘trading to Time’ date, the next day’s price action further confirmed the trade by moving lower and creating a down bar. The break of the previous day’s low is where the confirmation day signal is created. If you have not already initiated a trade position, the confirmation day provides you with another opportunity to do so. You may also use the confirmation day to add to your position on the trade. Stops should be placed above (or below) the top (or bottom) you are trading, and not above the high (or low) of the confirmation day. In other words, your stops are the same here as they are with indicator one.

Keep stops here. 1800

trading to Time date = reverse signal 1775

1750

1725

confirmation indicator two = previous day’s low broken

1700

1675

SEP

Indicator two – confirmation day

OCT

NOV

Illustration 16.02

Indicator three – lower swing top (or bottom) The third indicator is to refer to your swing charts and wait for a confirmation that the swing charts turn in favour of the changing trend. In the case of a market top, this is confirmed when the swing charts create a first lower top, and in the case of a market bottom when the swing charts creates a higher swing low. The next chart shows the point where the first lower sign top is created using a daily swing chart. The swing is created by the down day when the low of the previous day’s bar chart is broken. This allows you a further point of entry to initiate a trade (or add to your position) once the swing confirms lower. The first lower swing top (or bottom) also gives you an opportunity to assess your risk and manage your stops. Depending on your risk appetite, you may wish to move your stops down to just above the lower swing high (in the case of a market top), or just below the swing low (in the case of a market bottom). Using the third indicator to adjust your stop loss position is a personal decision and will depend largely on each individual’s own risk appetite. I therefore suggest it is something you can experiment with to identify whether the stop adjustments work for. Where possible, I like to keep my stops above (or below) the actual forecast top (or bottom) I am trading, and will try to only use a swing chart stop in instances where I am conscious of risk

trading to Time swing top

1800

trading to Time date

first lower swing top

1775

1750

lower swing bottoms

1725

1700

1675

Indicator Three – Swing Charts

Illustratio n 16.03

Indicator four – lower swing top and bottom (or bottom and top)

How to determine the strength of each indicator

The fourth indicator is to wait for the swing charts to make both a lower swing top and bottom (when you are looking to trade a market top) or a higher swing bottom and top (if you are trading a market low). If you refer back to our earlier lesson on trading with the trend, it is when the market is making higher tops and bottom that confirms we are in an uptrend (or lower tops and bottoms to confirm we are in a down trend). Indicator four therefore uses our swing charts to confirm that the trend has finally changed, providing you with a higher probability that your forecast top or bottom has in fact, worked.

Each of the signal indicators should be used to build upon each other. When all four indicators are present, then there is a higher probability of a forecast top or bottom producing a decent move. The strength of each indicator increases sequentially – confirmation of indicator four will give you the highest probability results that a change in trend has taken place. Next is indicator three, then indicator two and finally indicator one. For this reason, I place varying degrees of confidence in the trade decision depending on which indicators have confirmed.

The highest probability set-ups occur when all four indicators are present to confirm your forecast top or bottom.

Chapter Seventeen – The best trading entry and exit points

Earlier I mentioned, that in my view, making fewer but longer term trades is the easiest and most profitable way to trade the markets. I simply cannot emphasise the relevance of that statement, and this is certainly what Gann meant when he described trading the “long swings” as the most profitable way to trade. In an earlier section of this course, we discussed how to identify the definable waves or sections of a market that all major bull or bear market campaigns move to. Whilst it may have appeared unassuming at the time, that chapter of the course is actually one of the most important. When trading, your primary objective should be to ensure you are trading with the trend and capturing as much of the move in each of those sections as possible. Put simply, if the market is in a major bull campaign, you should be looking for one or two buying opportunities to trade each section using your Trading Tools – this is where you will make the most profit with fewer trades and the least amount of work. The Trading Tools however are also useful indicators to identify counter-trend trades within a major bull or bear market. As highlighted in earlier chapters, you can also use your Trading Tools to determine points in price and time where you can either hedge your longer term position with the trend, or for the more aggressive trader, to actually take an against the trend position. In this chapter of the course, we describe how to do both.

Rules for trading with the trend. Rule 1: When to enter • 0% to 38.2% Is the place where you should look to initially enter your trade • Consider placing your stops 2.0% above / below the market top/bottom you are trading.

Trades entered within this point will give you a profit to risk ratio of approximately 2 to 1. For example, if we are looking to trade a price range of 100 points, then we ideally want to have entered before the 38.2 point mark is reached. If the price move hits our profit target of 100, then we have made a 61.8 point profit on a risk trade of only 38.2. In an ideal situation, trades entered into before the 23.6% Fibonacci level provide the best set-ups as they come with a much lower level of risk and a higher profit to risk ratio of more than 3 to 1.

Rule 2: When to reduce your position (the ‘break-even’ rule) • At ‘break-even’ consider reducing your position at this level to minimise risk

Traders who have a lower risk appetite may look to use this area as a place to reduce their position or cover their trade to avoid a loss. For example, if the range you are seeking to trade is 100 points, and you entered at the 23% point in the range, then you would have a total risk position of 25 points (including 2 points for your stop). Once the market reaches the 50% level, by reducing half your position, you will have taken profit of 25 points on half your trade, whilst maintaining a risk exposure of 25 points on the remaining position. At this point, your overall position is at a ‘break-even’. For those who have a lower tolerance for risk, the break-even point will mean you should end up having more winning trades. The flip side to this is that you may see yourself taking profit off the table too early and missing out on some further gains. Using the break-even rule therefore will depend on each individual trader and their own desired level of risk appetite

Rules for trading with the trend. Rule 3: Risk management

Rule 4: Profit taking levels

Rule 5: Additional profit taking levels

• At 61.8% consider moving your stops higher/lower to 38.2%

• At 100% consider taking profits and fully exit your position (or hedge your position)

Once the trade has crossed 50.0% and reached the 61.8% mark, you typically do not like to see it moving back below the first of our key Fibonacci levels. By moving your stops to 38.2% (which is the place at which you should have entered your trade), you should no longer be in a losing position. Not only will this help improve your winning average, but it should help you mentally to stick with the trend and ride the winning trades.

• At 123.6%, 138.2%, 150.0% and 161.8% consider these as additional areas for taking profits, if the indicators are telling you a move ofmore than 100% is likely

The 100% level marks our trade objective, and is where we should look to thank the market and take profits off the table. The exception to this rule is if your indicators are telling you that a move beyond 100% is likely (see rule five below). If this is the case, you can then use the 100% level as a place to hedge your position – for example through a put option strategy or writing some covered calls if you are long the market.

Markets will often give you clear signals when a new move is more likely to exceed t he previous move in terms of price. In situations like this when a market is trending strongly, you will leave some considerable upside profit on the table by exiting completely at the 100% level. You should refer to the Barillaro Box and the Price Retracement trading tools as your gauges of strength to determine if such a move is likely. Use a trailing stop strategy at each of the above Fibonacci Levels can allow you to lock in profits whilst at the same time allowing you to continuing riding the market.

2000

WITH THE TREND TRADE (LONG POSITION)

Risk (38.2%) = 975 Minus 667 (or 208pts) Reward (100%) = 1474 minus 975 (or 499pts) 1750

OCT 2007 TOP = 1576

1500

100% = 1474 (PROFIT TARGET)

PROFIT RANGE

1250

61.8% = 1166 (MOVE STOPS)

1000

38.2% = 975 (ENTER TRADE BY HERE)

750

TRADE ENTRY RANGE OCT 2002 LOW = 768

MAR 2009 LOW

0.0% = 667 (INITIAL STOP LOSS)

500 2001

2002

2003

2004

2005

2006

S&P 500 example – entry and exit rule for trading with the trend

2007

2008

2009

2010

2011

2012

2013

Illustration 17.01

Rules for trading against the trend (counter-trend trades) A more cautious approach should be adopted when attempting to take a trade against the main direction of the trend – after all, in these situations you really are attempting to swim against the tide. A counter-trend trade occurs when you are looking to trade short off a top in the middle of a bull market or go long off a bottom in a bear run. The latter in particular can be a hair-raising experience – particularly in a fast moving bear market, as you don’t want to be caught out trying to catch the falling knife. I therefore adopt a slightly different approach when determining rules to follow against the trend exit and entry points than those used for ‘with the trend’ trades. The price levels below refer to moves using Fibonacci Retracement levels of the previous ‘with the trend’ range.

Rule 1: When to enter • 0% to 23.6% Is where you should look to initially enter your trade • You can place your stops 2.0% above/below the market top/bottom you are trading. Notice how the entry point for a counter-trend trade is tighter than that of a with the trend trade. This is purely designed to minimise your risk from the outset.

Rule 2: Covering risk • At ‘break-even’ Reduce your position and look for the ‘break-even’ rule where possible. The half-way point of any price retracement is the most important area where price support or resistance will occur. This level should therefore be used as an area of caution and monitored closely.

Rule 3: Risk management • Aim to take profits at 100% of previous counter trend move • Also watch the 50.0% and 61.8% retracement levels for profit taking. When taking a counter-trend trade, I will often look at the 61.8% price retracement levels as an area to take profit or exit the trade. Equally, I will use 100% of the previous counter-trend move as an area to set exit targets. For example, if I am trading short in a bull market, and the previous price reaction down was 50 points, I will also look to see a repeat of that move off the current top I am trying to trade as a potential exit level. I will pay particular attention to this level when it also converges with either a 50% or 61.8% retracement.

A final word The trade entry and exit techniques described above are designed to make your trade decisions more clinical and to develop areas that allow you an opportunity to ensure that your gains from winning trades are greater than the losses on your losing ones. This will mean that even if you have a 50:50 win: loss ratio, you should still end up being a profitable trader!

1550

END = 1474

1500

0.0% (INITIAL STOPS)

TRADE ENTRY RANGE

1450

23.6% = 1425 (TRADE ENTRY)

PROFIT RANGE

1400

50.0% = 1371 1350

61.8% =1346 (PROFIT TARGET)

1300

1250

START = 1267 1200

1150

TRADE ENTRY RANGE 1100

1050 Apr-11

Jun-11

Aug-11

Oct-11

Dec-11

The best trade entry and exit points (counter-trend trading)

Feb-12

Apr-12

Jun-12

Aug-12

Oct-12

Dec-12

Illustration 17.02

THE FOUR POINT FORECAST CHECKLIST

1. Check

Identify the trend Primary indicators

2. Check

Do your Trading Tools tell you that you are trading with the trend: • higher tops and higher bottoms = trend is up • Lower tops and lower bottoms = trend is down

Check

Supporting indicators (for trades with the trend) Identify which section of a bull or bear campaign you are in -

Section Section Section Section

1 2 3 4

Time Primary indicators Is your forecast on a ‘trading to Time’ date?

Check

Supporting indicators Are there any significant time counts ending on your forecast date (90 or 180 degrees the most important, 270, 120 and 240 the next important)

Do you have any repeating time cycles ending on your forecast date minor time cycles major time cycles

Is your forecast on any significant anniversary date Is there any overbalancing in price or time

Do your moving average indicators support your identification of the trend

Do your trend line indicators support your identification of the trend

Do your weekly swing charts support your identification of the trend

3.

Price

Check

Primary indicators

4. Check

Has the market reached a significant price retracement level on your forecast date (38.2%, 50.0% or 61.8%)

OR

Confirmation indicators Primary indicators Have your trade signals confirmed your forecast top or bottom reversal day signal confirmation of reversal day

–

lower swing top or bottom confirmation of swing top or bottom

Are there any repeating extensions of price occurring on your forecast date

The greater the number of confirmation trade signals, the higher the probability of a successful change in trend.

Check

Supporting indicators Is price supported by a percentage of a previous high or low

Check

Supporting indicators (for trades with the trend)

is there a repeating multiple of a previous low is there a significant division of a previous high

Are there any significant Time & Price angles supporting your price forecast

Price retracements – has price retraced < 50%, indicating a resumption of the trend

Barillaro Box – has the market been trading above its current Pitch Angle, indicating a move greater than its previous range is likely

Is the market displaying any overbalancing in time and price no time and price overbalancing supports trades with the trend time and price overbalancing supports counter trend trades

CONCLUSION

Putting the jigsaw puzzle together

There is definitely a benefit that comes with hindsight. While the rear view mirror will tell you where you have been, successfully trading the markets is all about knowing where the road ahead is going 

I can understand that a critic or a sceptic might make the comment that t he Trading Tools and the examples I have shown you can easily be ‘made’ to work with the benefit of hindsight. To those in that camp, please read the following series of emails which I wrote to friends and colleagues outlining my forecasts for the S&P500 for the years 2012 and 2013. It will show you how to put the jigsaw puzzle pieces together using a real-time example. The email forecasts below were written on 18 September, 6 October and 11 October 2012, respectively – Australian time. In the first of them, I outlined the reasons why I felt the 1474 top was going to be a significant top in the S&P 500. That email actually reflected a series of discussions I had been having with colleagues late in 2011 where I first nominated 1474 as a future price that I felt the S&P500 had to reach during the recent bull market. That price, proved to be a significant top – to the exact point. The second email was written before the US markets had opened for trade on 6 October after the 1474 had occurred. I had written the email in Australian time, therefore the last available day of price action at the time of writing was actually 5 October 2012.

The date of the 1474 top was 14 September 2012. But the best date for actually trading it was off the secondary top made on 5 October 2012. Each of the forecasts were shared with close friends and family only – they were therefore, quite informal. I have sanitised them in parts where appropriate for publication in this book, but I have provided the same charts which were attached to identify what I was looking at. The working charts providing my calculations in the email attachments will very closely resemble many of the illustrations used in earlier chapters of this book – I trust this will prove to you that I was in fact watching and using the Trading Tools I have described in this course before the event and that I practice what I preach.

The email of 18 September 2012

This email was written only two trading days after the 1474 top on 14 September 2012. It highlighted some of the reasons why I was expecting this price to be significant, but why I also expected it to be taken out at a later point.

For those of you who may have been paying some attention to some of my previous emails, you may recall this chart which I have been watching since the start of the year. I have maintained pretty consistently that I expected the S&P500 to ultimately reach the 1440 to 1474 range at some point during this bull campaign. Last Friday, the index touched 1474 exactly. For those interested, this is an exact repeat of the run up from the 768.63 low in Oct 2002 to the 1576.09 high in Oct 2007. It was a run of 807.46 points. If you take the 666.79 low in March 2009 and add 807.46 you will get a price target of 1474.25 . The S&P reached a high of 1474.51 on Friday. There are a bunch of other reasons suggesting why 1474 might give us a top which I won’t go into detail right here. Of note however, is that this latest run of 807 points has occurred over a period of 1287 days compared to a period of 1827 days off the 2002 low. This normally suggests that this “cycle” is stronger than the previous cycle, meaning that it is likely the market has more upside to go than the 1474 target. What all of this means from a portfolio perspective, is that I wouldn’t be buying into the market at these levels. I would like to see 1474 clearly taken out first, and then use dips as buying opportunities. From a short term trade perspective, those inclined might very well like to short the S&P50 0 market with stop losses above the 1474 highs. Further, it might be a good time to take out some put option protection at these levels given volatility is cheap to protect the portfolio from a possible decline.

Email of 18 September 2012

The email of 6 October 2012

I sent the second email to friends and colleagues once I had seen the price action on 5 October 2012 provide a signal indicating that the top was in. By this time, I was receiving more and more requests to explain how I was producing my calculations – the email therefore was like a minilesson on a number of the Trading Tools described in this book.

I thought I would provide a brief update on the markets and where things seemed to be headed. Looking at the US futures (as that is the market I have been following), the S&P50 0 continues to flirt with the 1475 level. As I mentioned in a previous email, the ‘speed’ of this market compared to the last cycle suggests to me that overall this market will go higher and 1475 will be taken out at some point. Whether that point happens next week or next quarter is the critical question. I would still not be a buyer at these prices. I would want to see a very clean move above 1475 (and ideally, above 1485) to give me confidence that this market will continue to go up, up and away. One of the advantages that I have gained from all of my market studies over the years is how to “time” the market. People often say that it is not “timing the market, but time in the market” that will make you money. In my view, those people haven’t worked out when the market gives you signals. I’ve been building up in my last emails a series of lessons that if you wish to study them, can also help you understand how to time the markets. I started off by providing you with a series of time sequences, particularly in the “90 day” counts. Ninety is a full quarter of a circle (or in other words a “cycle”). When we talk day counts, we speak in terms of calendar days. As you know, there are 365 calendar d ays in a year, so breaking up a year into quarters won’t give you exactly 90 days apart. That is why you will sometimes see day counts coming in at 90 days, other times at 92 or 94. The chart named “5 Oct update” shows the harmony in the market beginning off the 4 Oct 2011 low last year. The day count to the 2 April 2012 high as you know was 181 (2 cycles of 90 ). From that 2 April high, I have marked in the “scientific way” of counting key dates upon which you would expect the market to change in trend. I won’t get into the detail here, as I don’t want to give away my trade secrets, but suffice to say, the market either hit those days on the head, or was within a day or two out (which I can easily live with).

Email of 6 October 2012

The email of 6 October 2012 (cont.)

Cutting a long story short – one quarter of the cycle (which is a cycle of 90 ) from 2 Apr gives you 4 July (notice the 3 July top). And another cycle of 90 from there gives you 5 Oct 2012. This brings me to the chart labelled “S& P500 futures”. You will notice from that chart that the S&P500 index last night started higher, but ended the session lower (or a classic “reversal” pattern). You won’t see this come up on a S&P50 0 cash index chart, which is why we look to the futures charts for the “reversal” signals. So what does this mean? It means that if Friday’s top of 1471 can hold, and we can see a break through 1433 on the S&P50 0, then I think we will see a run down to at least 1400, but probably much lower prices. This will give us the buying opportunity on quality stocks for a much higher run. Friday was actually a ‘short trade’ signal. You could have sold short the S&P50 0 index at 1468 and have your stops placed abov e 1471. You could also add to the position on last night’s close. You would further add to the position on Monday if the low of Friday is taken out at 1456. Keeping stops tight above 1471 gives a good risk reward trade off. I have attached another file showing some geometric lines which is another tool I like to use on the markets. These are similar to the standard trend lines that every man and his dog use, but unlike the trend lines which require two points to ‘connect’ a line, my geometric lines can be used immediately following a top or b ottom being confirmed. So, overall - we still have no clear direction [yet]. It is still a wait and see game as to whether 1475 can hold. Personall y, I was hoping for a “reversal signal” on Friday night, which we got, so I am expecting lower prices, but I wouldn’t bet the house on it.

Important note:

I had also highlighted two key dates in this chart – 19 December 2011 and 19 June 2012. Both these are ‘trading to time’ dates and directly related to the 14 September 2012 top, as they are 270 and 90 degrees apart.

Email of 6 October 2012

The email of 11 October 2012

The last of the series of emails, identifies how I used the counter-trend entry and exit rules described in this course and how they were influencing my thinking at the time. In particular, the email highlights how I was keen to follow the rules on risk management by taking profits where possible, given it was an against the trend trade.

The S&P500 has broken down nicely and the short trade has been confirmed. The initial profit target of 1427 has been reached, so it is an opportunity to take some profit off the table and leave 50% of your position to run, which means this can no longer be a losing trade. The 1427 area is some key support and resistance, so the expectation would be for there to be a bit of a counter trend rally off these levels. If the 1425-1427 level is cleanly broken, then I would expect a move at least down to the 1398 area. The price target of 1427 identified, simply represented a 100% repeat of the first move down from the 1474 top to a low of 1430, which gave a range of 44 points. After the S&P500 had rallied back to the 5 October 2012 high of 1471, I figured that a repeat of this 44 point price range down would give me a target of 1427 as a place to minimise my risk. This is consistent with the rules about taking a counter trend trade and looking for repeating price ranges as an area to take profit.

The broader counter-trend move off the 1474 top however can be referenced back to the 207 point range up leading into the high. As the earlier charts illustrated, the market ran up 207 points to reach the 1474 top, so this gives us our reference range to calculate our Price Retracement levels on the way down. These identified the price levels of 1426, 1371 (50%) and 1346 (61.8%) to watch. The level of 1426 coincided with my minirepeating price range and target of 1427, so it was naturally a sensible area to reduce risk. Interestingly, the counter-trend move off the 1474 top eventually bottomed out at 1343, which is within a fraction of our third Fibonacci level and our ultimate profit taking target point.

So there you have it. The jig saw puzzle of putting together a forecast and trading it, is now complete – showing you that with some simple application, forecasting the prices of future market tops and bottoms can be made easy.

Email of 11 October 2012

The Conclusion

So there you have it. The jigsaw puzzle of putting together a forecast and trading it, is now complete – showing you that with some simple application, forecasting the prices of future market tops and bottoms can be made easy.

Thank you for letting me share with you the most consistent and reliable time and price forecasting techniques that I have discovered working in financial markets. We’ve covered a lot of ground together to get to this point, but I hope you feel it has been a journey well worth spent. Throughout the years, I have tried and tested many theories about timing markets and making successful forecasts. It has taken me many years of study, trial and error to identify those techniques which work and those which don’t. In the end, I have discovered that there is no one tool, or no single method which will bring absolute success without any application or work. But with a little application and a little bit of work, you are now equipped to make your investment and trading a huge success. Understanding the importance of time and the presence of geometric symmetry in financial markets will help you identify what a bull market top and a bear market low should look like. Once you have mastered the skill of identifying the geometric symmetry that has unfolded, you will quickly begin to learn how to predict it unfold ahead of time.

I have done my sincere best to identify those techniques which I believe are the ones you actually need to know and those which work. Now it is your turn to study these lessons and begin applying them to your own market analysis. The techniques described throughout this course have stood the test of time. They worked long before you and I were here and they will continue to work long after you and I are gone. Most importantly, the techniques I have shown you will stay with you for a life time. I hope this course has changed the way you look at financial markets – and that you too can now achieve what others will tell you is the impossible. Until next time.

Acknowledgments

My journey throughout life would not be possible without my friends and family. They are my inspiration in all that I do and this book would not have been possible with them. Firstly, to my father who taught me that in life, it is always better to give to than to receive. Each day your presence is missed but your memory is felt. This book is dedicated to you.

To my good friend Joe who has worked tirelessly with me on this project and has found the time with so much more going on. The result is such a wonderfully presented course that is truly, second to none out there. To Andrew and Gary for providing me with feedback on the contents along the way. Good friends are truly hard to find.

To my beautiful wife and two even more beautiful children who energise me with spirit each day as we move forward in time. For my two children especially, this book is from me to you.

And finally, to the works of WD Gann and the books and courses he has left behind. They have truly inspired, challenged, confused and amazed. And they have stood the test of time.

May you both never grow old.

It is possible to do what many will tell you is the impossible. Until next time.