Squaring Price with Time

by Stan Harley [2007-10-18 5:22 PM @ http://borisc.blogspot.com/2007/10/dear-readers-national-sopitalist-casino.html ] This technique involves counting forward in time an equal number of time units as units of price from an important high or low. I find it useful not only in projecting trend reversals in individual stocks, the indices, and commodities, but predicting reversals in the trends of the casino games like roulette and craps as well, demonstrating that time and price are inextricably related.
Squaring price and time is a technique that alerts me to the potential - but not the certainty - for a change in trend. The advance projection does not indicate whether that trend change will be a high or low; one must incorporate the use of additional tools, e.g., pattern analysis, cycles, range oscillators and/or measurement of price velocity to make that determination. It also does not project the magnitude of the move following the trend change. But, it is a very, very useful tool none-the-less. I have spent literally hundreds and hundreds - no thousands - of hours researching the mathematical relationship between price and time. I am going to share with Crystal Ball readers the results of my research, which has been, very expensive - I think you know what I mean. I suspect I've done more research in this area than just about anyone, including W. D. Gann. As a scientist in the financial markets, I share my work product with fellow colleagues because I know it will come back to me many times over. "Behind the wall the gods play; they play with numbers of which the universe is made up." Le Corbusier

The Scaling Factor

The major problem inherent in the squaring of price and time involves the application of a scaling factor, or multiplier, to the raw data. In working with the stock indices, for example, the price units are so large that the direct conversion of the price units into time units produces an expected trend change date/hour that is very distant and of little use. To fix this problem requires the application of a scaling factor. The question, then, what scaling factor to use? My research has shown the fibonacci constant that is the key factor. But not just 0.618034 - it is .618034 raised to powers of itself that is the key: .618034^2 = .381966 .618034^3 = .236068 .618034^4 = .145898 .618034^5 = .090170 .618034^6 = .055728 .618034^7 = .034442 and .618034^8 = .021286. With so many scaling factors to choose from, the question, then, which one to use? Le Corbusier was right; the gods of numerology have the solution: It matters not which scaling factor one uses, because they all produce the same turning points. The smaller numbers produce shorter time-span turning points. For calendar day analysis, I have found that the best factor to use is 0.618034 raised to the seventh power (= 0.034442).

I take the value of an important high/low point on the price chart and multiply it by 0.034442. I also apply the additional factors of 0.618, 0.786, 1.000, 1.272, 1.618, 2.618, 3.000, and 4.236. Squaring the extreme high or extreme low price of an index can be very foretelling. I should also note that one should be very cognizant of the 3rd square of the price extreme, as ***very important***(3rd square is turns tend to occur at this point. very impt. .618034 squared 3 times or For my analysis, I employ the squaring of price and time for three .145898) time periods: Calendar days, trading days, and trading hours. I use seven hours per trading day. From experience, I know the orb in the projected change in trend tends to average about 2-3 time units (CDs, TDs, THs). Often times, it is zero. At first, it may seem as though the analyst is confronted with so many turns and scaling factors to render the analysis of little substantive use. In my work, I use the sort function in Lotus for assembling my data in the proper time order. In addition, most of the turning points are from the same date with different scaling factors are exactly the same, which I eliminate in the program. As such, it's actually quite easy to calculate, sort, and analyze the data. Calendar Days Example 1: 21-Dec-2000 L at 1254.07: Take the value of 1254.07, multiply it by .034442 (= 43), add 43 calendar days to the day that the low occurred, and you'll arrive at the high on January 31, 2001. Example 2: 24-Mar-2000 H at 1552.87 (Extreme high in the S&P): Take the value of 1552.87, multiply it by 0.034442 X 3 ***(very Important for the (.034442 X 3) price extreme)*** (= 161), add 161 calendar days to the day that the high occurred, and you'll arrive at September 1, 2000.

Example 3: 31-Jan-2001H at 1383.37: Take the value of 1383.37, multiply it by .034442 (= 49), add 49 calendar days to the day that the high occurred, and you'll arrive at the 22-Mar-01L. Trading Days Example 1: 24-Mar-2000H at 1552.87 (Extreme high in the S&P): Take the value of 1552.87, multiply it by 0.090170 (= 141), add 141 trading days to the day that the high occurred, and you'll arrive at the October 18, 2000 low. Trading Hours (7 hours per trading day) Example 1: 21-Dec-2000L at 1254.07: Take the value of 1254.07, multiply it by .148 (= 186), add 186 hours to the hour that the low occurred, and you'll arrive at the exact hour of the FOMC price high on January 31, 2001. Example 2: 20-Mar-2001H at 1180.56: Take the value of 1180.56, multiply it by .021286 and again by 0.618 (= 16), add 16 hours to the hour that the high occurred, and you'll arrive at the exact hour of the price low on March 22, 2001. Example 3: 22-Mar-2001L at 1081.19: Take the value of 1081.19, multiply it by .021286 (= 23), add 23 hours to the hour that the low occurred, and you'll arrive at the high on March 27, 2001. In the Short-Term Example 1: 22-Mar-2001L at 1081.19: Take the value of 1081.19, multiply it by .021286 X 1.618 (= 37), add 37 hours to the hour that the low occurred, and you'll arrive at the first hour of trading on March 30, 2001 (tomorrow). Example 2: 27-Mar-2001 H at 1183.35: Take the value of 1183.35, multiply it by .021286 X.618 (= 16), add 16 hours to the hour that the high occurred, and you'll arrive at the second hour of trading on March 30, 2001 (tomorrow).

Conclusion
I want to be alert to the first hour of trading tomorrow (+/- 2 hours) for the potential - but not the certainty - of a change in trend. Since we've been going down for the last two days, I would therefore look for an upside reversal tomorrow morning. If today's low at 12:18 pm Pacific was the low, that would certainly fall within my +/- 2 hour window. As a trader, I look for confirming signals: A turn up in my 3/9/34 hour %R oscillator and a turn up in my 9 hour velocity. In addition, I have shown in the past that the primary hourly cycle in the stock market is 39.25 hours; we are presently 36 hours from the prior bottom - right in the heart the envelope. One more thing. Crystal Ball readers are free to use and build on my research. But, let me emphasize this, and I am dead serious: I don't want anyone to publish my work as their own - or anyone else's work either. Good Trading to All, STAN HARLEY Editor/Publisher The Harley Market Letter Timer Digest 1998 Market Timer of the Year