Market forecasting – it really works!

Like most traders, I started trading stocks, futures and commodities through news, government reports, harvest reports, occasional advice and an inner sense. Needless to say, they were not very effective.

But then, in the late ’80s, I became more aware of price charts and a few chart indicators.

The indicators on the chart excited me, because then I thought I had come across a way to know in advance what the market would do next. The stochastic oscillator was really intriguing and almost seemed to predict when the market would move up or down.

But again, as most have found, these indicators do not actually predict. How can they, when based simply on averages, volume, or a host of other historical back-view data, split into two forward-design algorithms that no longer have anything to do with the future of five dice in a shaker cup!

Now don’t get me wrong. Graph indicators are quite useful and I continue to use them today (now 3 decades later). However, market forecasting is NOT what these indicators do best. However, they give us a lot of useful information, which has its place even among those of us who rely mostly on market forecasting methods.

This is true. I said “market forecasting methods”.

In the early 1990s, I learned how to apply Fibonacci ratios to the action of market prices. Then the idea seemed a little strange to me, until I decided to try it on my favorite market for pork bellies. Over the next 6 weeks, I would practically catch each bottom or top for just a few ticks, turning a small amount of money into a larger small amount of money (I used borrowed funds). Eureka!

But it soon became my doom. Due to my initial long period of catching each new market move, often just a few ticks from the bottom or top, I began to think I couldn’t go wrong. Wrong! I traded futures on Live Cattle that I was so sure I had to turn around, but I didn’t. I insisted on losing the deal because it was impossible to make a mistake. It wasn’t until I was erased that I had to admit that I was still human. My golden goose had become my golden ticket to the bust-villa.

It was a science lesson then that led me to greater enlightenment. Market forecasting was actually possible. However, market forecasting requires the inclusion of discipline and confirmation and that you can never be 100% accurate 100% of the time.

It has also become quite clear to me that the path to greater market forecasting will require deeper digging into the reasons why Fibonacci can be effective sometimes and not so much at other times. This made me realize that it all revolves around the “natural laws” of which Fibonacci is a part.

My search in the field of natural laws led me to the teachings of WD Gann. With Gan, I found value in calculating time and price squares (Gan’s Wheel, also known as the Square of Nine), angles, ratios, market geometry, and more.

Armed with Fibonacci and Gan and all the variations that come with a deep understanding of them, my research pushes me beyond the stars. Yes, the effect of the Sun and the Moon and several of the neighboring planets on our planet Earth. It just made sense!

Now I do not mean astrology. This is just not my cup of tea. I am a man of science, not of mysticism or divination. What I mean is astronomy and the gravitational and seasonal effects that come with planetary motion and interactive influences.

So let me simplify this.

As the Moon orbits the Earth, it affects water bodies as well as the Earth’s electromagnetic field. As a result, we have tidal charts and it has been shown that people tend to act differently (as a group) during a full moon. The term “lunatic” comes from the Latin “Luna”, which means “moon”.

While the Earth rotates once every 24 hours (giving us days), it revolves around the Sun once every 365 days approximately (annually). Because the Earth is in an elliptical orbit around the Sun, it will approach or move away, leading to what we see as “seasons.”

Now think about how these “seasons” affect our markets and you will begin to see the connection.

After I came to see the connection between Fibonacci, Gan, the geometric patterns of prices, the effects of the Moon and the Sun, it all came together in the so-called CYCLES!

24-hour cycle (day), 90-day cycle (season), 365-day cycle (year), lunar cycle and any other cycles happening at the same time, but to different degrees with different effects on different markets!

The effect of market prices is influenced by human behavior (we are buyers / sellers), which is influenced by supply and demand, which is influenced by the seasons, which is a cycle, and human behavior can be influenced by the moon, which is also a cycle and on and on.

With all this understanding of what affects markets, and realizing that much of this can be revealed through a price chart and several different approaches, market forecasting has become even more effective than the simple Fibonacci model. This model looked at markets only in a narrow way, thus sometimes effective and missing other times. True market forecasting requires knowledge of several different techniques that relate to different aspects of price behavior.

When the avid chart reader moves forward to learn about these effects on price action, announcing “market forecasting really works” becomes an outcast and part of the daily chart reading ritual.