Michael Jenkins, in his book „The Geometry of Stock Market Profits. A Guide to Professional Trading for Living.” says that fear and greed are the main reason for price changes. He says that if we track day to day price movements, apply mathematical models to them, we can time highs and lows on the market if we identify underlining currents of greed to fear and back to greed.
He says that the stock’s angular momentum of the stock’s initial rise has the ability to forecast the size and duration of the total movement.
Jenkins suggests that the main secret of the stock market is that the price level at which the stock trades tells us something about its own internal time cycle. If the stock goes up to $50, tops out, then this 50 has an important connection to the time cycle. The time cycle has a mathematical numerological equivalent of 50 and we can use this number to find turning points in the future at units of 50 time periods.
Before going on then I feel like reading about a financial markets Nostradamus or old-old philosopher who thinks he has found the simple answer to the ever-philosophical question „What is good?”. But at the same time I do have to say that we need to keep our minds open, after all, even if many of the theories we have learned about can’t be accepted 1:1, there’s some good ideas in all of them. Michael Jenkins has brought out the thoughts of greed and fear very well and this is very logical. Maybe there’s something more. And he is talking about cycles which is very familiar term to technical analysis as a whole. So...lets go on....
He says that every individual low and high in the history (independent of the actual timeframe, weeks, months, years ) are spinning out their own eternal cycle and this makes it possible for us to find future prices. To do that we need to bring in hundreds of observations of highs and lows from the history (within specified time frame). He says that we could take a stock with a high of $20 and low of $10 and this would tell us that there will be major high every 20 weeks and major low every 10 weeks. Nostradamus...I say....
Now he would note that every other low of ten weeks would also be twenty weeks so that the high and low would come out together, reinforcing the cycle, making it even stronger, and this is where cycles can change on us. Don’t ask me what it all means though, it sounds...weird.
So I won't be talking much more about his book, even though I „sort of” read it. Should you be interested in the book then just search for "The Geometry of Stock Market Profits. A Guide to Professional Trading for Living.” by Michael Jenkins.
But just to let you know about couple of other things he talkes about in his book that actually might make sense:
· He suggests using mainly hourly charts as these give pretty good indication where the price is going. Search for 5 higher bottoms or tops to confirm a reversal of the previous major trend.
· He also suggests that even though you can use charts in your computer, it’s a good idea to also draw one chart per stock on paper yourself as this makes it easier to memorise later what has happened and such.
· Hea talks a lot about squares, angels of 45%, 30% and 60%, arcs etc. That’s where the geometry comes in. I would really not go into it too much. You can read about that yourself if you're interested.
· He talks about Fibonacci numbers that usually make up hourly movement lengths. Eg if you can see some sort of swing or short term trend going on then it usually lasts eg. 8, 13, 21 hours (or anything above that...34, 55 etc)
· Do not guess, don’t make emotional decisions, it’s not professional nor winning idea to guess the stock’s movements.
· Observe the 50% point – for example, if a stock goes from 50-100 it will usually retrace 50% to $75. And if the advance lasted 12 weeks then the decline might take 6 weeks. Then again, he also says that usually ¼ or 1/3 retracements are the norm for strong trending markets.
And some general rules when trading, there are couple of simple things to keep in mind:
- we need find a clearly identifiable uptrend (or downtrend)
- we need to wait a pullback for a higher bottom entry point
- we need to place a stop loss at the previous or the second previous back stopout point.