COURSE

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THE ARC HYPOTHESIS

Copyright © 2016 J. Andrew Goodman

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 TABLE OF CONTENTS


1. A CHALLENGE TO THE RANDOM WALK HYPOTHESES

2. AN EARLY MAP OF HIDDEN ORDER

3. THE DISCOVERY

4. THE STRUCTURE OF ARCS

5. FOCUSING THE TELESCOPE

6. THE HIDDEN ORDER BEHIND THE 10 MOST POPULAR U.S. STOCKS

7. THE WRINKLE IN TIME AND PRICE

8. TRADING ARCS

9. WHEN TO GET OUT

10. CONCLUSION

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1.

A CHALLENGE TO

THE RANDOM WALK HYPOTHESES



Recently it was announced that Eugene Fama, Lars Peter Hansen (both of the
University of Chicago) and Robert Shiller (of Yale University) won the Nobel Prize in
economics for their research of asset prices. Considered “groundbreaking,” the
research demonstrated that prices could be predicted over periods of three to five
years, even though prediction over shorter time periods was thought to remain
difficult.

Prior to this development, the prevailing view among academicians and the
lay public alike has been that the markets simply cannot be predicted. The accepted
theory, popularized by Burton Malkiel of Princeton, is that stock market prices move
in a manner akin to a random walk that is inherently unpredictable. The companion
“efficient market” hypothesis, which Professor Fama originally developed, holds that
market prices already reflect all publicly available information, thus prices are
rational, and yet again, inherently unpredictable.

Through studies that compared the volatility of stock prices against the
volatility of corporate dividends, Shiller’s work challenged the notion that markets
are always rational. Shiller is credited with calling the housing price bubble in 2005
and predicting prices would crash by 40%.

From one point of view, the efficient market and random walk theories seem
true. They describe the experience and performance of most of the investing public.
Warren Buffet may stand as proof that a skillful investor can glean valuable

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information from available data that others don’t see, but this doesn’t disprove the
fact that market prices generally reflect the available information. Shiller’s claim,
that bubbles and “irrational exuberance” can take hold of a market and be partly
predictable, also seems true, especially in the period preceding the so-called Great
Recession. One can accept these theories on their own level and find them useful.

The theory presented here looks at the markets through an entirely different
lens. It is a faintly kindred spirit to Mr. Shiller’s view that human psychology can
affect market prices, but the way this expresses cannot be gleaned through a study
of group psychology or economics. This is because the ordering principle is
numerical, or more accurately, geometric.

An underlying geometric order is ever-present in the markets.

This order underlies both rational and “irrationally exuberant” market
behavior. The existence of this order implies that the actions of millions of investors
are somehow being orchestrated, unbeknownst to the participants. You and I are
swept up in this orchestration too!

While other forms of mathematical or geometric order may also be present,
the hypothesis presented here is that all freely-traded markets are ordered based
on the fundamental geometric form of the Circle or “Arc”.

Reminiscent of Plato's "theory of forms,” these Arcs are non-material,
abstract forms that, philosophers might say, act as archetypes which govern the
physical manifestations in the world. When Pythagoras proclaimed “all is arranged
according to Number,” he was neither being scientific1 or poetic. He was asserting
that life itself is infused with a divine quality of number. In present times, thanks to

1
Well, in a sense, Pythagoras was being scientific, but it was a science centered on
sacred knowledge, as it has been for all of recorded human history, up until the last few
centuries.

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the graphic quantification of the markets and computers, it is possible to track
events in the real world that show the prescience of this ancient wisdom.

The ease with which we can now use computers to make the calculations
does not mean that the underlying order is easily discoverable. Most market
researchers, past and present, have not been looking in the right way, or in the right
place.

And yet, there is a small but dogged group of traders and investors who eat,
sleep and breathe “market geometry theories,” in particular the theories advanced
by two early 20th century legends, W.D. Gann and R.N. Elliott. To many of these
students, the Arc Principle will neither seem surprising nor particularly new. One
thing (among several) that I believe to be new, is that the layered geometric form of
Arcs in the markets often displays self-confirming concurrence of form.
“Concurrence” means two or more things are happening at the same time. Turning
points are marked via two or more of time, price and perimeter—structural
elements of one circle—at the same time. This is something that a Fibonacci
retracement, Elliott Wave count, or Gann angle won’t do.

The significance of concurrence is that it is a giant step toward proof.

To substantiate random walk theory, Princeton Professor Burton Malkiel
came up with a clever anecdotal form of “proof”. It consisted of dummying up a
stock chart that was plotted, not from actual price movements of a stock, but from
flips of a coin. Malkiel then presented this chart to a stock analyst for his opinion.
The analyst proclaimed that the “stock” was an immediate buy, and was only
informed of the ruse after his pronouncement.2 Malkiel argued that this experiment
demonstrated that the stock market could well be just as random as flipping a coin.


2
Ed. Note: I would have asked if the analyst was “right” as to the subsequent trend of the
“stock” if the coins continued to be flipped beyond what was shown on the chart!

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 In Chapter 3, we will perform something akin to the opposite of Malkiel’s
experiment. We will take the stock chart of the 1929 Crash of the Dow Jones
Industrial Average using a randomly selected scale, and show a circular geometric
pattern encompassing four prominent turning points, including the end of the crash
in 1932—but not touching the high in 1929. There will be a consistency along the
time axis, which is independent of scale. Then we will re-scale the chart so that the
price axis, in dollar increments of $10, is “squared” to the time axis, in monthly units
of 100 bars.3 This re-scaled chart will then show a complex and precise geometric
order. If the markets are indeed random, then an ordered relationship should rarely
if ever occur between horizontal (time), vertical (price) and the perimeter of the Arc
(by “Arc” we mean to include additional circles or “vibrations” radiating at levels
fixed by the Fibonacci ratio).

This thought/picture experiment will show a high degree of geometric order
amongst the major turning points, including the exact beginning and end of the ’29
Crash. By analogy to Malkiel’s coin-flipping experiment, it suggests that the stock
market is about as random as a flipped coin that consistently lands on its edge.

But before we attempt our reverse-version of Malkiel’s experiment, I want to
show you a chart that impressed me deeply when I was in the early stages of this
discovery, inspiring the ten thousand hours of research that followed.

3
Proper scaling of charts is a routine exercise for students of the trading methods of
legendary market forecaster W.D. Gann.

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2.

AN EARLY MAP OF HIDDEN ORDER


Figure 2-1 (on the following page) shows the daily chart of the March 1994
daily Eurodollar futures, courtesy of CRB’s Futures Perspective, which contains my
original handwritten marks, dated from the mid-1990s. On the chart, I’ve circled 4
turning points, marked A, B, C, D, and E. These points, either highs or lows,
represent the extreme points in a trend or swing followed by a significant reversal
in market direction that continued for several weeks before reversing again. While
there are other turning points on the chart, A, B, C, D and E are the major ones.

This is one of the early “maps” of hidden order that I discovered, which
convinced me that there was something very special going on in the markets that
had been missed by others, and that this something involved circles, or “Arcs.”

The circle has been drawn using the line BC acting as its radius. This line
marks the extreme points of the trend from point B to point C. While slightly long of
the mark, the perimeter of this circle, at its furthest edge to the right, is on the
vertical line—the daily trading bar—containing turning point E. This is not
particularly exciting by itself. That E should lie on the vertical line of the right-most
edge of the perimeter could very easily be pure chance. In fact, it probably happens
all the time, you might say.

And you would be right. It does happen all the time. From a statistical point
of view, that right edge of the circle’s perimeter had to be somewhere. Maybe once
in every hundred or so bars it happens to coincide with a major turning point. But
that would be purely by chance. Given the reams and reams of market data

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happening every minute, hour, day, week and month over hundreds of years, once in
a hundred is actually quite frequent.

What if you were told that, in properly scaled charts, the circular expression
of market swings similar to that seen in Figure 2-1 represents the foundation for a
hidden order in market movements, linking together the primary turning points in a
complex, meaningful way all the time?

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Figure 2-1. Chart of June 1994 Eurodollars

Take a close look at Figure 2-1. Note the internal lines that relate to the basic
geometry of the circle: a square and an equilateral triangle. Notice that point A is
on the same horizontal line as the bottom side of the square, labeled “Square Line 4”.

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Point B is on “Square Line 2”, the horizontal line along the top of the square; so is
point B1 and point E. Point B is also on Square Line 1--the vertical line of the left
side of the square. Point D is on (or very near to) Square Line 3--the vertical line of
the right side of the square. If you draw a straight line through points A and C, it will
equally bisect the lower left side of the triangle and intersect its upper right hand
apex. If you extend the lower right hand line of the triangle, it intersects point E.

There is more that one could analyze, but that’s enough. The main point is
that, starting from the radius BC with C at the center, we have drawn a circle
containing a square and equilateral triangle, which structure connects (among other
lesser points) points A, B, C, D and E. These are all the major turning points evident
on this chart. Each of these major points is integrated into the geometric structure
in at least two ways: time of square, price line of square, time of circle, or lines of
triangle. This concurrence expresses, for lack of a better term, “perfect order.”4

I could go further…. The length of the swing from A to E extends almost
exactly 1.618—the famous Fibonacci ratio— of the BC radius, a crucial clue. But
let’s stop here.

If this is the first time you’ve seen something like this, your reaction to the
foregoing could run the gamut from incomprehension…to skepticism…to
disinterest…to bemused uncertainty....to interest…to fascination…to Eureka! If you
are a student of Gann, Elliot or other “natural law” market theorists, you might not
be so impressed, because you’ve seen something like this before.5 Or perhaps, being

4
The “perfect order” you will be exposed to in this course will indeed be geometrically
perfect at times, although sometimes it will be slightly off. That itself is an interesting
fact—it is almost as if the market is striving for this order, and sometimes misses the
mark.
5
Students of W.D. Gann will have recognized that the square shown in Figure 1-1 is a
“square of the range,” with point C at the intersect of the 1 x 1 Gann Angle lines (angle
lines not drawn). Gann’s methods generally are not considered to extend to the geometry
of the circle, except with respect to off-chart calculations such as the circular Square of 9.
But they do.

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a strictly rational sort, you might quickly conclude that any apparent mathematical
or geometric ordering can only have a simple explanation, ranging from the way the
chart was made, to the fact that coincidences sometimes seem to defy the odds (but
in the end are just coincidences). The reason a rational person might come to this
conclusion so quickly is that it simply is not possible that there should be any other
sensible explanation. Perhaps the rationalist is right. The markets are random.
Every right thinking person knows this. Investment banks and hedge funds have
spent millions of dollars trying to find something like this and they couldn’t do it. It
is a waste of time to even look any further.

Still, there is this chart. It seems to suggest that price movements are
organized geometrically around that circle. Suspend your disbelief and assume for
the moment that the chart really does represent evidence of a hidden order. What
are the odds that the pattern formed this way by pure chance?

Let’s start back with line BC as the radius and source of the circle. What are
the chances that the next major turning point, at point E, would occur on the
perimeter extremity in time? Let’s be conservative and say that E could reasonably
occur only over, say, some 20-bar period. So let’s say there is a one in twenty
chance that this occurred completely by chance.

Now look at the square. It is not just any old square. It is the only one whose
sides are aligned with the vertical and horizontal axes of the chart. What are the
chances that E would fall on the top horizontal line of this square within the circle?
Since the square had to have a side somewhere, let’s be ultra-conservative and say
that the chance of the next major turning point being on any such side is one in
fifteen. Now what are the chances that point E would both be on the perimeter and
the square at the same time? 1/20 X 1/15 = 1/300. The chance of this happening
by accident is one in three hundred.

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 What are the chances that B, B1 and E are also on that upper line of the
square, by chance? Again, let’s err on the side of conservative and say one in ten
chance for each. 1/10 X 1/10 X 1/300 = 1/30,000. There is a one in 30,000 chance
that this collective pattern formed by accident. How about point A being on the
lower line? 1/10 X 1/30,000 = 1/300,000. One in three hundred thousand.

We could go further. We could talk about the chances of point A figuring into
the exact geometric order. Or point C. But let’s stop there. Maybe I violated several
tenets of probability theory. Even if the chances of this happening purely by chance
is a thousand times less, only one in three hundred, it is intriguing, isn’t it? I assure
you, I have looked at far more than three hundred charts and what you see before
you is a chart pattern that shows a high degree of order. It is evidence that there is
an underlying geometric order at work in the markets—one that few people are
aware of.

“If you’re right, why haven’t other people seen it?” you might ask. The
answer is that other people have seen it, or at least seen something like it. Over the
past century, there have been a number of discoveries of hidden order made by
others, and we will discuss some of them. Granted, the underlying order is hidden.
To find it, first you need to know how to properly scale charts so as to sensibly
relate units of price to units of time. Most software charting packages don’t
automatically do this. Then you need proper tools with which to conduct your
research. In this case, most technical analysis software packages now give you the
necessary tools, but they need to be re-calibrated to do the proper work. Next you
need some idea as to what to look for, or you just might just stumble across the next
rosetta stone and totally overlook it. Finally, you need to be naïve enough, or
inspired enough, to believe that there really might be such a hidden order after all.

Naïve or not, it is at least arguable that the Eurodollar chart in Figure 2-1
shows a complex geometric pattern expressing itself across price data. The way the
major turning points fit in the overall pattern doesn’t seem random. The question is

13
whether it is a meaningful, underlying order or whether the pattern is an accidental,
chance occurrence.

The most obvious refutation of the “meaningful pattern” view is that we are
“fooled by randomness”. This is usually framed as the “gambler’s fallacy”, that a
string of 20 heads can’t occur in a row, so just double your bet on tails and you will
surely win, eventually, every time. But 20 heads can occur 20 times in a row, or
more, and can be expected to do so every once in a while. Many a gambler has
landed in the poor house because of this mistake. A slightly more technical
expression of this fallacy is the “law of large numbers”, which holds that in any large
sample of data, odd coincidences (like coherent geometric patterns) are likely to
happen. But they are still just coincidences.

For now, let’s just state that neither you, nor I, nor the statisticians know for
sure just what the above Eurodollar chart signifies. Thus far, all we have is a piece
of evidence of hidden order, not proof. There is no reason not to be in complete
agreement. 1 in 300,000, even 1 in 3,000,000 absolutely can occur by chance.
There’s an awful lot of data out there. And the perimeter missed point E by a little.
Good enough reason to hold off judgment for now. My job is to see if I can overcome
reasonable doubt with some really strong evidence, with rules and principles for the
construction of the blueprint of geometric order that repeats regularly. Then you
the jurer can decide.

The Eurodollar chart in Figure 2-1 is new evidence of hidden order, by virtue
of its graphic specificity and complexity. There on the page is a detailed map of
price action over time. The more significant points that tie in to the geometric
structure, the less likely the appearance of order is the result of chance.

If the only example you ever found was this Eurodollar chart, you would of
course dismiss it as intriguing, and probably quite rare, but still the result of chance.
Obviously, this won’t be the only evidence we will show. The markets are literally

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teeming with examples of a hidden, geometric architecture. It is a rich field for
investigation. Every trend does not exhibit the same degree of concurrence (with
more than one aspect of the geometric form pinpointing the same turning point).
But virtually every chart does. This kind of geometry happens often enough to prove
that there is a hidden order behind virtually all price movements.

Thus far unspoken, but in the back of your mind, likely looms the question:
can you predict the markets based on this theory? The short answer is yes. But this
doesn’t imply that at any point in time you will know for certain what is going to
happen next, though you may have a very good idea of what won’t happen next. Let
me explain what I mean.

As I write this, a Friday, the S & P Index closed on its high, precisely on a
geometrically ordered point in the market. By doing so, all options have been
preserved. The market can either continue up on Monday’s open or fall
precipitously. There is possible order, but you still don’t know what will happen
next. As another example, an apparent “perfect” set up for a major turn in the stock
market forms and one convinces oneself that a crash will now follow. The market
starts to go down, and even goes down for weeks. But then it reverses and makes
one more, this time final top, then crashes. The prior presumptive “final” top turned
out to have been an interim one. The prediction would have been a fail. And yet, if
the market has been moving in an established trend for some time and a top forms
that doesn’t have certain geometric requirements for a major top, it is my view that
one can fairly reach the conclusion that the primary trend is still in effect. This will
become clear as we proceed.

Famous prognosticators have fallen from grace because they made a bold
prediction that failed miserably. Yet their methods may have been sound. It doesn’t
matter to the market how human psychology interprets what it sees. If disclosing
the Arc Principle contributes but one thing to the trader in the search for the Holy

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Grail, it will be to point out the special trap (that I have come to know intimately) for
those who would predict the future: perfect order has options.

The question of prediction should remain in the back of your mind, but for
now, let a most incredible concept sink in: that there may in fact be a hidden order in
the markets! If the world really is constructed the way our finest academicians,
statisticians and quantitative analysts have told us it is, this would be impossible.
And yet the actions of millions of investors appear to be choreographed by high
geometry on a monthly, weekly, daily, hourly, even minute by minute scale.

Precisely.

Continuously.

Unbeknownst to us.

The implications of this discovery are mind-bending in terms of what it says
about the world and mankind’s place in it. In the rush to capitalize on the potential
predictive advantage of this or any other method, we risk overlooking the elephant
in the room: that an extraordinary geometric order, which some would consider
sacred, underlies every move the market makes, and probably underlies everything
else too.

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 3.

THE DISCOVERY



All freely traded markets obey a hidden order based on the geometry of
the circle.

While this principle, as stated, is simple enough, its manifestation is often
complex. The mathematical ratio discovered by the famous Medieval
mathematician Leonardo Fibonacci, 1.618 to 1.0, is its mathematical basis. Each
circular expression is really made up of concentric vibrations which expand and
contract based on the Fibonacci ratio.

I made the basic Arc discovery many years ago while I was a still a law
student, before I went on to become a Wall Street attorney. Even during my
demanding law career, I managed to continue with my research, and have done so to
this day.

That the initial discovery was made at all has to do with some fortuitous
circumstances. First, I had in my possession a physical compass (calculating tool)
based on the Fibonacci ratio. Second, I had subscribed to a futures charting service
that happened to properly scale its charts based on increments of 100 units of time
to $10 in price. Third, I was naively unaware that what I was seeking should have
been impossible!

My search for underlying order in the markets was a labor of love.

I don’t believe anything quite like this discovery has been made before. Some
market researchers have worked successfully with circular calculations. Michael
Jenkins is one. Bryce Gilmore is another. But I don’t believe their work with Arcs

17
proceeded as far as mine has. It is also true that most trading software toolboxes
include a version of Fibonacci Arcs. But no one appears to have any idea as to their
potential.

Credit must be given to the legendary W.D. Gann who brought the concept of
proper scaling of charts into use. Gann “squared” time and price in a manner similar
(although not identical) to the way I scale the charts here. However, neither Gann
nor his followers ventured too far from “squares” themselves. Gann also never
openly revealed his probable knowledge of the Fibonacci ratio, which is integral to
the use of Arcs revealed in these pages.6

Re-framing Malkiel’s Random Walk experiment

Now let’s undertake a version of Malkiel’s random walk experiment—in
reverse!

The 1929 Crash: Self-evident Perfect Order

Look at the following two charts, both of the Dow Jones Industrial Average at
the time of the 1929 crash. In the first chart, Figure 3-1, no studies or calculations
are made. I’ve simply highlighted, via gold-shading, five turning points, including all
principal lows prior to the 1929 high, the ’29 high itself, and the final 1932 low
following the crash.

These are arguably the most important turning points in the first third of the
20th Century.

6
That Gann knew of and valued the Fibonacci Ratio has recently been demonstrated in
the scholarly work by Tony Plummer, The Law of Vibration: the Revelation of W.D.
Gann, Harriman House, 2013.

18

Figure 3-1 Dow Jones Industrial Average; 1929 Crash

Were there an inherent order that could possibly link these major turning
points together in a harmonious way, what would it be? I submit that there is only
one geometric form that could accomplish this. It is not a line, triangle, square, or
any 5-, 6- or 7-sided polygon. The only geometric form that can sensibly relate the
four major lows with the 1929 high is circular in nature, consisting of concentric
vibrations that expand based on the Fibonacci ratio. However, even if you were
experimenting with Arcs, if you were unaware of the proper scale of the chart, the
correct structure would never show itself.

Figure 3-2 shows the same chart with the Arc drawn in, but with a randomly
selected scale. The lows still line up properly. This is because the horizontal
Fibonacci time relationships are not dependent on scale. However, the largest circle
clearly misses the peak of the 1929 high. This typifies what anyone would see if
they were ignorant of the importance of proper scale.

19

Figure 3-2 Dow Jones Industrial Average; 1929 Crash; Arc shown, but with
incorrect scaling.

Figure 3-3 below shows the same chart with the heretofore hidden order
revealed. All the points are connected. The largest circle’s perimeter passes right
through the 1929 high. It is a striking pattern.

Figure 3-3 Dow Jones Industrial Average; 1929 Crash, correct scaling.

If the sole point were to challenge the random walk hypothesis, you could
almost stop right here. Either the chart before you graphically represents a high

20
degree of geometric order or it doesn’t. Assuming you understand what the chart
represents, how the circles are constructed and, importantly, that the scaling of
price to time was predetermined according to a reasonable principle consistently
applied (we cover proper scaling in Chapter 5), then this chart is self-evident proof
that the markets are not random, and that something else is going on unbeknownst
to virtually all participants.

Could Professor Malkiel have been wrong?

Could generations of academicians and economists, investment advisors and
investors been wrong right along with him?

The next question is—is this chart, which appears to show significant
geometric order, just a one-time coincidence, like a monkey whose random jabs at a
keyboard types a grammatical sentence? Or is it a sign of something more profound,
more inexplicable, that in fact, as the ancient Greeks claimed, all is arranged
according to Number? It is my hope that as we proceed with the many examples
that follow, you will agree with me that it is the latter. I aim to demonstrate that
most, if not all, major turning points in the markets are similarly ordered by the Arc
Principle.

To the extent this is true, these turning points are to some degree
predictable. But it is a mistake to equate order and predictability. As has already
been suggested, the markets will sometimes produce ordered turning points that
have all the markings of a final, major turning point, only to make one further high
or low, also with all the markings.7 This actually validates the theory. But one could
dismiss the whole discovery by failing to understand this important subtlety.


7
Just what constitutes “all the markings” of a final major turning point are
elucidated both here and in the advanced Courses available through
TheArcPrinciple.com.

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 As to why the Arc Principle hasn’t been found by anyone else before, the
answer is, first of all, it is not entirely true that it has never been discovered before.
As has been said, a number of market researchers have observed various circular
expressions in the markets, and most trading software packages include “Fibonacci
Arcs” in their toolkits. Perhaps the main reason why no one else appears to have
brought Arcs to the point of usefulness is that they have been looking in the wrong
place or the wrong way. There are so many possible ways to look at the markets,
perhaps it is not so strange that this discovery hasn’t been made before now.

The rudiments of the Arc Principle were discovered empirically, while I was
attending Columbia Law School in the 1980s. I had purchased the Golden Section
trading method from Robert Fischer, and the materials included a hand-held
calculating tool that Fischer called “the golden section compass”. This is pure
speculation, but I am inclined to think that, because I regularly improvised at the
piano, my hands found the answers where my mind alone could not. Seemingly of
their own accord, my hands started playing around with Fischer’s compass, not just
horizontally across the time dimension of the chart, but also vertically, and
importantly, “diagonally,” in a circular fashion. Like Parsifal, no doubt there was a
certain naivete that would have me believe the Holy Grail of the markets could be
found, and then to keep at it for years and years.

From the very beginning, I was finding something. Otherwise, I would have
abandoned the search long ago.

The Arc Principle bears relation to the techniques of the old time masters, in
particular Gann, Elliott, Andrews, Marechal. But on the surface it looks totally
unrelated. The angle, the square, the count, the channel, the trendline, and finally
the circle find relevance in the exact same data. This in itself is worth noting. They
all may be valid expressions of geometric order, albeit with differing levels of efficacy.
Geometric order in the markets is ubiquitous. It is the exact opposite of random

22
walk theory. Arcs prove this by interrelating with others’ geometric trading
techniques in specific, repeatable ways.

Fooled by non-randomness you might say.

The discovery of the Arc Hypothesis is enough, I believe, to prove that the
markets are very much ordered, and that this order has been missed, or simply
dismissed, by many observers. If it receives a hearing at all, the material before you
may yet again be dismissed, for any number of reasons, including: (i) the academic
community tends not to consider theories that deviate too far from accepted views,
(ii) the implications of the Arc Principle extend beyond rational comprehension,
uncomfortable for many, and (iii) the discovery may too quickly become stepchild of
the rush to predict, at the expense of understanding more and yet more of the what
is actually taking place, leading to error, which leads to discounting the findings.
The baby still may get thrown out with the bathwater!

23


4.

THE STRUCTURE OF ARCS


In this Chapter we will further introduce the circular form that constitutes
the structure behind the Arc Principle. The basic Arc is composed of concentric
circles that expand (1.618) and contract (.618) from the center based on the
Fibonacci ratio.

I may have lost you already. Sorry! The pictures that follow will help.

Definitions

Some simple definitions:

M-line: the measuring line used as the circle’s radius. The M-line is usually based
on a specific swing from high to low or low to high, but it can be the horizontal
distance between two adjacent highs or lows;

HH or LL: when the horizontal distance between two consecutive highs (HH) or two
consecutive lows (LL) is used as the M-line;

m-1: the earliest point, chronologically, of a swing that is used as an M-line;

m-2: the endpoint of a swing that is used as an M-line;

Note: The center of an Arc can be either m-1 or m-2;

m-pts: short for “m-points”, this identifies m-1 and m-2 generically;

24
Vibration: any concentric circle from the center of an Arc that is based on 1.0 of the
M-line, expanded or contracted based on the Fibonacci ratio (.618);

Note: Another heretofore unrecognized vibration is also utilized, which is introduced
in the Advanced Course;

Alpha: a turning point indicated by an Arc vibration that represents the start of a
move or swing; and

Omega (“Om” for short): a turning point that represents the end of a swing that
began at an Alpha for a given Arc.

Figure 4-1 below illustrates the basic components of an Arc using the weekly
chart of Halliburton. First notice on the lower right hand of the chart a Chart Scale,
with a pink square and circle that has been placed between the $10 and $20 price
lines to the right. This corresponds to 100 weeks and thus constitutes a “squaring of
price to time” based on the power of ten. Depending on the price action, a given
chart can be properly scaled at $5 per 100 time units, $10 or $20. This is usually
easily determined simply by looking at past price action and seeing what works: if
at a given scale the Arcs easily identify past and future turning points using the set-
ups described in the following chapters, you have the right scale. If they don’t, try
another setting based on the power of ten: change the price spread of the square
from $10 to $5 and vice versa, or $10 to $20 and vice versa. If none of these choices
work, you are probably doing something wrong!

25

Figure 4-1 Halliburton; basic components of an Arc

In Figure 4-1, notice that the Arc uses the swing from the 2006 low to the
2008 high as the M-line, with the center of the circle at m-1. The vibrations of the
middle three circles have been labeled .382, .618, 1.0 of the M-line. The turning
points that correspond to vibrations in time (not price or perimeter in this case) are
shaded in gold.

Also notice the 1.0, 1.0 and 1.618 markings across the red line at the top of
the chart. This shows pure time relationships beginning with the span of time of m-
1 to m-2, which then “multiply” in time—using basic the spatial relationships of 1.0
or the Fibonacci ratio itself (1.618)—to indicate the time of the second and third
turning points marked in gold. This calculation uses straight time and yet hits the
same turning points that were hit using the perimeter of the swing from m-1 to m-2.
As such, this constitutes inherent, and usually “hidden” order. See “Concurrence”
below.

Just because a vibration extends into the future doesn’t mean that you should
expect a significant turning point at every time, price or perimeter extension. At the

26
same time, it is not an accident that the gold-shaded turning points derived from
this one Arc give both Alpha in 2008 and Omega in 2010, and again an Alpha in
2012. That one Arc will give both Alpha and Omega of a completed swing is not
uncommon; it is rule-based, and represents evidence that the Arc Principle is true.
But we are still at the beginning. I haven’t yet given you any rules by which you can
start to analyze and trade Arcs.

Construction of the Arc Calculating Tool

I use ProphetCharts software, offered for free to customers of Ameritrade’s
ThinkorSwim, to construct the Basic Arc Calculating Tool.8 It is constructed by
taking the standard Fibonacci Arc drawing tool (found in most charting software
packages) and customizing the pre-set .382, .5 and .618 Arc settings to the
following9:

Value (%) Line Style
23.6 Normal
38.2 Normal
61.8 Normal
100 Normal
161.8 Normal


You don’t need so many concentric circles. You could simply go with 38.2,
61.8 and 100. I find having more vibration levels simply makes it a little easier to
quickly adjust the tool to find correspondence between various turning points. At
the same time the vibrations are not intended to be limited to these 4 levels. It
could hit at 14.6, 23.6, 38.2, 61.8, 100, 161.8, 261.8 and so on.

8
ThinkorSwim offers a 60-day paper money account that allows you to use the
Prophetcharts software for free.
9
In a later course we will expand upon this basic setting.

27


Tolerance

For an Arc to be considered a “hit” in time, it should be on the precise bar of
the low or high, +/- 1 bar. However, if the Arc vibration hits 1 bar early it is
considered more accurate than 1 bar late, so I would only consider a late bar if it is a
big Arc and it is at a potentially major turn confirmed by other Arc calculations. The
same basic rule applies to price “hits” (+/- 1 smallest price grid). As for diagonal
perimeter locks, it is a judgment call; experience must tell you when you are
granting too much or too little tolerance at the possible signal.

Concurrence

A central tenet of the Arc Principle is that the concurrence of two or more
aspects of a single Arc structure converging at a single significant turning point
graphically represents self-evident “perfect order.” Concurrence can occur in a
variety of ways, but I bring four to your attention here:

1. Single Arc. Two or more vibrations of time, price or perimeter, centered at a
single m-pt (m-1 or m-2), intersect at a future significant turning point. This is
illustrated in Figure 4-2 where price and perimeter are concurrent.

28

Figure 4-2 Halliburton; Arc from 2001-2008 gives major turning point at 2008 low
via price and perimeter

2. Two Arcs, one m-line. Two or more vibrations of time, price or perimeter intersect
at a future significant turning point based on a single m-line, but from a combination
of Arcs centered at each of m-1 and m-2, respectively. This is illustrated in Figure 4-
3, in which the pink Arc hit both time and perimeter and the blue Arc hit time of the
turning point.

29

Figure 4-3 Halliburton; “Wave 1” Arc off of 2008 high circles to 2012 low on the
perimeter of the 2.618 vibration centered on m-1 and 1.618 of the blue perimeter
centered on m-2. The pink Arc is also concurrent via the 1.618 vibration to the time
mark

Figure 4-3 allows us to also remark on the oft-time primacy of Arcs using the
first completed wave in a trend (“Wave 1” or “W-1”) in the finding of future turning
points. We refer to these as “Master Circles”. Master Circles frequently lock in the
ultimate Omega of the trend, in time or perimeter (and less frequently, via price). A
chapter is devoted to them in the Advanced Course.10


3. Straight time. A straight Fibonacci time calculation, as in the red time
calculations at the top of Figure 4-1 above, matches a turning point occurring at a

10 In the interest of presenting what can be a complex body of material as simply as

possible, not all aspects of Arc analysis are being presented in Course One. If in your
own research you are unable to find correspondence of a Master Circle to the end of
a trend, it may be due to the fact that you do not yet have the complete geometric
structure before you.

30
perimeter or price vibration using the same two base measuring points. In Figure 4-
1, concurrence of straight time and an Arc based on the m-line occurs at the 2010
high and the 2012 low.


4. Fibonacci price grid. A Fibonacci price grid hits a turning point that is matched by
an Arc in time or perimeter using the same two base measuring points, with either
m-1 or m-2 as center. This is illustrated in Figure 4-4.

Figure 4-4 Halliburton; 2008-2010 Arc from m-1 gives 2012 low on perimeter,
together with 38.2% Fibonacci price grid

In this particular example, the concurrence of a Fibonacci price grid and Arc
from m-1 shown in Figure 3-4 is not even the full story. By adding the pink Arc from
m-2, Figure 4-5 shows that Arcs from both m-points corresponded to the 2012
major turning point at the 38.2% price mark:

31

Figure 4-5 Halliburton; 2008-2010 Arc from both m-1 and m-2 gives 2012 low on
perimeter, together with 38.2% Fibonacci price grid

All of the foregoing examples of concurrence have been found on a single
chart. Yet I assure you, there is far more geometric harmony at work in
Halliburton’s weekly chart than I have shown you. But just taking what I have
shown you in Figures 4-1 through 4-5, they show concurrent confirmations of
significant turning points using only 2 base measuring points (which form the Arc’s
m-line) all on one chart. This is not a coincidence! I didn’t spend years looking for
this one chart to mislead you into thinking that Fibonacci Arcs are a primary
ordering principle in the markets. Students taking the complete courses can prove
this to yourselves. Conduct your own research; I would not expect you to find even
one properly scaled chart in any freely traded market that doesn’t have at least one
self-confirming (concurrent) Arc.

Grasping the significance of the self-confirming Arc structure is not just an
intellectual exercise. It can evoke the intuitive sense that something is going on that

32
transcends ordinary reason. We are on the same ground as Plato, who held that the
study of sacred geometry can “illumine the eye of the soul.”

Ok. Let’s go one step further.

The markets are teeming with geometric order based on Fibonacci Arcs, on
every time scale.

But it is not just Arcs!

The ordering of the markets through geometric forms is pervasive,
ubiquitous, omnipresent.

This is why Gann had his squares of price, time, and range, why his Square of
Nine and multiple other methods also “worked”, why Elliott found order in his wave
counts, at times with huge predictive implications, and why Elliott also found
evidence of the Fibonacci ratio primarily in the price dimension of his waves. It is
why Christopher Carolan made his extraordinary discovery of precise mathematical
correspondence between the ’29 crash and the ’87 crash and why George Marechal
could copyright a chart closely tracking the next fifteen years of the stock market in
advance. It is why Michael Jenkins’ “secret angle method” can be true alongside his
square root calculator (really Gann’s Square of Nine), why DeMark Indicators have
been successfully employed by major hedge funds. Etc., etc., etc.

All true.

All the time.

But there is a catch.

33
 “All true” doesn’t mean “all expressions of market geometry will only
indicate each and every major turning point, and nothing else.” Every famous
market prognosticator (well, at least the many who applied market geometry) who
ever fell from grace, did so in ignorance of this catch. “All true” can mean a pivot,
even a tradable pivot, with 2- or 3-to-1 reward-risk. But the one who fell from grace
was expecting the market to crash. Or explode upward. Not just to have a little
tradable pivot. When all the calculations come together, perfectly, concurrently
confirming what you believe to be the major turn of a lifetime, it sputters out!, only
to re-emerge so powerfully the very next time, after you’ve moved on in your search
for something that “really works.”

I am pointing out something that has been missed by many seekers of the
Holy Grail in the markets. The fact that the methods behind a forecast can be
spectacularly accurate at times, then fail miserably at others, doesn’t mean the
theory was untrue or even that it doesn’t work. It means that the forecaster didn’t
grasp that perfect order doesn’t mean perfect forecasting. Nor should it! What would
it mean if every Fibonacci retracement or every textbook Elliott wave 5 was a
guaranteed win? The markets would cease to exist.

So you could fairly say we have a problem. Believe me, I have struggled with
and suffered over this problem for longer than I care to relate.

The very ubiquity of market geometry, an unending source of excitement and
confusion for the thousands of intrepid researchers, can make one crazy! Nothing
seems to make sense, or rather everything seems to make sense some of the time,
but nothing seems to be dependable when you really need it to be. Not for the big
turns.

Except for one thing.

34
 The Arc Principle can be relied on to confirm virtually every major
turning point. This does not mean that such expression guarantees a major move
fill follow (although usually a tradable move occurs). But it does mean that if you
don’t have such confirmation, the trend is not yet over.

In one fell swoop, this one observation makes everything different. First, you
stop gnashing your teeth when a seemingly amazing set-up for a multi-year bear or
bull market doesn’t pan out. Second, you learn that when the market makes a pivot
(e.g. a bar break or even a retracement against the trend) yet no such confirmation
is present (via Arc Principle rules), the prior trend is likely to re-emerge.11

Being right that there is a pivot but wrong about the trend doesn’t mean that
the order was untrue. Being wrong about the trend may even mean that you have
lost money on a trade. Normally the pain of losing will cause you to re-examine
what you are doing. That’s good. The oft-time repeated axiom, that the definition of
insanity is doing the same thing over and over and expecting a different result,
applies here, but not to the perception of market order itself. The order is really
there. The implications of geometric order in the markets are generally not yet
rightly understood.

You may find all this confusing. So many Arcs, so many vibration levels, so
many ideas, so much philosophizing. Your head is starting to hurt. But just think
what the Halliburton chart has already demonstrated. On one chart you have more
than one major turning point concurrently pinpointed, using time, price and/or
perimeter via a single m-line. How could this not constitute true order? How could
this not fly in the face of everything taught in our institutions of higher learning?

11 The Advanced Course introduces a strategy for trading based on these

observations under the “Theory of Nodes.”

35
 I also offer you some comfort that you do not need to become a major market
guru by predicting major trends and becoming famous. You can just trade the
turning points according to one of the trading methods outlined in Chapter 8. Use a
tight stop and take profits at 2 or 3 units per unit of risk.

In the following Chapter, we illustrate the importance of proper scale, using
the established methodology of Fibonacci time ratio analysis as the basis for the Arc.

36
 5.

FOCUSING THE TELESCOPE



Many years ago, while I was still in law school, and before entering my first
trade, I had purchased and became fascinated by Robert Fischer’s Golden Section
Compass trading method. This was my first introduction to the possibility of finding
hidden mathematical and/or geometric order in the markets. Fischer’s idea was to
apply the Fibonacci ratio to the horizontal time interval between two consecutive
highs or lows and look for a turning point at the 1.618 extension. Turning points
would often, but not always occur at this time juncture.

In this Chapter, we will take this most basic form of Fibonacci ratio analysis
and use it to show the hidden order of the Arc Principle. The base calculation, per
Fischer, would be to take the time between two highs or two lows and look for a
third turning point at a Fibonacci ratio extended into the future. However, unlike
Fischer, we won’t limit ourselves to the 1.618 time extension; we will also include
.618, 1.0, and 2.618. The interesting thing is that proper scaling allows the circular
dimension to be observed, thereby adding another octave of order beyond the two-
dimensional time calculation.

Figure 5-1 shows a time calculation. The 1987 high to the 2007 high is .618
of the time length between the 1987 high and the 2007 high. (I was struck by this
formation when it formed toward the end of 2007, took positions south on the basis
of it, and begged a relative to sell her valuable home, which she thankfully did,
preserving hundreds of thousands of dollars of capital.)

37

Figure 5-1 Dow Jones Industrial Average; Fibonacci time extension to the 2007 high


Now look at the pink-shaded square to the lower right on the chart. It shows
100 months in time “squared” to $5000 in price. $5000 is one-half of $10,000. This
is the proper scale for the Dow monthly chart and because of it, we will be able to
see the more complete geometry at work in a moment. All proper scalings will use
the power of 10, in which 100 bars (whether in months, weeks, days, hours, or
minutes) are “squared” to price (whether $1, $10, $100, $1000, or $10,000). One
further refinement is that the price dimension can present either as is (say, $100),
or it can be doubled or halved ($200 or $50), depending on the price action. While it
may seem difficult to know which exact scale to apply, it actually quickly becomes
obvious because, at the proper scale, everything fits! Once the scale is found, it often
will not need to be changed for years. Don’t worry about finding the proper scale if

38
you don’t quite get this at the moment. You will see plenty of examples of proper
scaling along the way.

The correct time-price scale, in the Figure 5-1 example thus far, actually isn’t
needed, because the calculation takes place only along the time axis. It is only when
you add the geometric form of the circle that you involve both the time and the price
axis, and this requires that proper scaling. It will come as a revelation to some that
traders have been marking Fibonacci time extensions on their charts for upwards of
three-quarters of a century without ever realizing that there was more to these than
the horizontal calculation.

Figure 5-2 below shows the same chart with an Arc centered on the 2000
high with its radius set based on the time between that high and the 1987 high. It
now shows the .618 Fibonacci time extension at the horizontal extremity of the
smallest circle. But now, that same circle also corresponds to the price of the 2002
low at its downward vertical extremity. The larger 1.0 circle that runs from the
1987 high to the 2000 high circles to the 2009 low along its perimeter.

This is not a coincidence.

39

Figure 5-2 Dow Jones Industrial Average; High-high-high Arc centered on 2000 high

It is an expression of geometric order. It’s true, it could be a one in a
thousand, or one in a million coincidence to have price, time and perimeter form a
relation between four consecutive major turning points so perfectly. But this, or
something like it, happens over and over. In fact, while the above pattern was
forming on the monthly scale, the weekly scale had its own expression of perfect
harmony. See Figure 5-3 below.

40

Figure 5-3 Dow Jones Industrial Average; weekly chart showing concurrence at
2004 low and lock of 2007 (which is concurrent with monthly lock of the 2007
shown in Figure 5-2)

Figure 5-3 shows the radius of the pink Arc from the 2000 high (m-1) to the
2002 low (m-2), centered on m-2, circling precisely to the 2007 high at the 1.618
vibration perimeter. This was going on at the same time as the 2007 high was being
“locked in” on the monthly scale in Figure 5-2. The mind scrambles, tries to figure
out how this is even possible. Perhaps the monthly and weekly charts are related
somehow. You settle on “amazing coincidence”. But then you notice that the larger
blue circle from the 2000 high intersected the smaller pink circle from the 2002 low
exactly at the 2004 low, another instance of concurrent order.

The order we are revealing is only apparent if you know about (i) proper
scaling of the chart, (ii) converting the horizontal time calculation into a circle, and
(iii) expanding and contracting the circle at concentric vibrations based on the
Fibonacci ratio.

41
 Otherwise, the order simply “doesn’t exist”.

That’s what the random walk experts would proclaim. Geometric order in
the markets doesn’t exist—couldn’t exist. And from their vantage point they are
correct. Given the data before them, the markets are random and almost entirely
unpredictable. To show this, take a look at Figure 5-4. Figure 5-4 is the same chart
as Figure 5-2, only now we have “unfocused the telescope” by changing the scale of
price to time from $2000/$7000 over 100 months to $2000/$8000 (a random
choice) over the same timeframe. It remains accurate with respect to the Fibonacci
time extension. That calculation uses only the “x” axis and so isn’t affected by the
random selection of scale. But as you can see, the price concurrence of both the
2002 low and the 2007 high now misses entirely. This is what the markets look like
to most people most of the time. It is like trying to look at the stars through an
unfocused telescope.

Figure 5-4 Dow Jones Industrial Average; scale changed to $2000/$8000 throws off
the circular order both vertically and on the perimeter

42
 Similarly, Figure 5-5 takes the chart shown in Figure 3-3 and shows the effect
of randomized scaling on the perimeter lock of the 2007 high.

Figure 5-5 Dow Jones Industrial Average; randomized scale throws off the circular
order at the perimeters of the two circles

Of course, all this is obvious. It is easy to see that any given circle, of
whatever vibration level, will present differently at different price to time scales.
But even as clear as this example may be, the harmony expressed by the
concurrence of time, price and perimeter has to be seen over and over again before
this kind of visual evidence approaches “proof”. Until then, many will not accept
that the Arc Principle really demonstrates a near universal template for inherent
market order.

In the next Chapter we will advance our proof, by testing the Arc Principle on
the ten most popular stocks in the U.S. This, it is hoped, will accomplish two things.
First, it will provide you with practical knowledge to start applying the Arc
methodology yourself. Second, it will provide repeated examples of self-evident
geometric order, demonstrating that the Arc Principle is true, for what you see
before you would simply not be possible if the markets are random, as is widely
believed.

43
 6.

THE HIDDEN ORDER

BEHIND

THE 10 MOST POPULAR U.S. STOCKS

As of this writing, the ten most popular stocks for trading/investing in the
U.S. are:

Apple
Google
Facebook
Microsoft
Amazon
Bank of America
Exxon
General Electric

44
 McDonalds
Nike

We will take the weekly chart (with two exceptions) of the last 15 years or so
of each stock and look for 3 examples of concurrent Arcs using prominent swings on
each chart. If concurrence appears, then this will be evidence that the order I claim
for the Arc Principle is real.

In the following charts of the ten most popular stocks in the U.S., we will
demonstrate:

(i) Basic Concurrence: the blue Arc(s) will represent an m-line with
concurrent vibrations to the time, price or perimeter of a significant turning point,
using either a single m-point or both m-1 and m-2;

(ii) Straight Fibonacci time: the gold Arc will represent Robert Fischer’s
straight Fibonacci time with concurrence in either price or perimeter; and

(iii) S/R Arc: the pink Arc will represent a “0” degree line turning point
horizontally across from the circle center, which is referred to as a “S/R Arc” trade.
“S/R” stands for support and resistance. The radius of the Arc is set by one of the 2
swings leading into or away from the circle center.


Charts of the Ten Most Popular Stocks in the U.S.

Note: in order to present as much information as possible, and to
demonstrate the frequency with which the Arc Principle expresses, these charts
contain the three Arc structures on a single chart. Since each Arc is a different color,
you should be able to follow what is happening. Remember that each circle is set by
a Fibonacci ratio multiple or fraction of the M-line.

45

For some of you this will be hard to follow. But there is no hurry. Revisit
this Chapter often, until you develop a feel for what is being presented. There is a
great deal that you can learn about the markets just from this chapter. The charts
are the primary teaching tool. They provide example after example of what you
need to look for to find your own trading set-ups.

1. Apple

Figure 6-1 Apple

Notes/Observations:

1. The pink S/R Arc signal was derived based on the radius from the 2011 low to
the circle center at the 2012 high. Note the smallest vibration also “circles back” to
the 2011 low, which would have been all a trader of straight Fibonacci time
extensions would have seen. For our purposes, this represents double
concurrence, and thus further evidence that the Arc Principle is true.

2. After I uploaded this chart to the present text, I noticed that I had made a
notation across from the 2014 high while the market was still in retracement, then
entirely forgot about it. The notation says: “has fc time and hhh but no clear diag
pair/hhINV or master”. This summarized a number of advanced concepts, beyond

46
the scope of this Course, but the point is that it led me at the time to surmise that the
uptrend was not yet over, which proved to be correct.

2. Google

Figure 6-2 Google

Notes/Observations:

1. The ThinkorSwim Prophetcharts software re-set the Google chart data as of
December 2014, so for the purpose of this exercise, I have used this data, on the 60
minute scale. The Arc Principle applies to the timescale of any freely traded market,
so long as the scaling is “trued” to increments of the power of 10.

2. No obvious “S/R Arc” set-up was observed on this chart, so I substituted a pink
colored Fibonacci price grid trade for a S/R Arc trade, which is an equally valid and
regularly occurring form of concurrence. The Fibonacci price grid technique is
described a little later on in this course. Note that price and time of the turning
point is on the same vibration. This is geometrically the same as Gann’s 1 x 1, 45
degree “Gann Angle”.

47

3. Again note: the point of concurrence is that turning points are confirmed in at
least two ways, such as time and price, time and perimeter, or price and perimeter
off of one M-line. With the possible exception of (i) some of Gann’s work, and (ii)
straight Fibonacci time (per Robert Fischer’s work) conjoined with Fibonacci price
calculations based on a single swing, no other form of technical analysis that I know
of provides this kind of graphically self-evident geometric order.


3. Facebook

Figure 6-3 Facebook

Notes/Observations:

48
1. Since Facebook began trading in 2012, we don’t have data that stretches back to
the beginning of the 21st century. So the chart in Figure 6-3 is a daily chart, not
weekly. The chart contains all the data since commencement of trading.

2. This chart actually had two clear S/R Arc signals, each shown via pink Arcs.

3. If you step back and look at all of these Arcs expressing concurrence, it is quite
beautiful, don’t you think?

4. Microsoft

Figure 6-4 Microsoft

Notes/Observations:

1. The pink S/R Arc stretches all the way across the page and clearly connects the
2001 high and the 2010 high. The farther apart the two highs, the less likely that a
vibration would match the turning point so precisely.

49
2. The pink S/R Arc also catches the 2004 low via the second smallest circle’s
perimeter, along with the blue concurrent Arcs. Multiple locks of a single turning
point increase the likelihood of a good, tradable move. But they don’t guarantee it!

3. With respect to the set-ups shown in this Chapter, whether a signal is profitable
or not tends to boil down to whether the trade is with the trend or against it. Both
the 2010 S/R Arc Signal and the 2013 fib time extension were against the trend.
The 2010 signal could well have been profitable, depending on your entry and exit
strategy, but at best the 2013 signal would have been breakeven. Advanced
coursework will go into the question of trading with the trend. But here I will make
three preliminary suggestions/comments:

(i) If you have more than one scale giving an Arc signal, such as a S/R Arc signal on a
daily chart and a Fibonacci time extension Arc on the hourly scale, you are likely to
have at least a two to one reward-risk opportunity on the smaller scale;

(ii) Paul Tudor Jones once made a very important observation, that Elliott Wave
Theory allows one to create great reward/risk ratios. I tend to use Elliott Wave very
loosely, really just as a kind of language for estimating where we may be in a trend.
Whether or not your wave count is correct in any particular instance, a wave 2 low
is in a very different place structurally than a wave 3 low. Which potential set up
offers the better reward/risk opportunity for a bullish move?

(iii) S/R Arc signals obviously connect with classic notions of support and
resistance. If you like these set ups, focus on ones in which an impulse high turns
into support for a retracement low and vice versa, within one trend, not across two
or more trends.

5. Amazon

50
Presented here are two charts for Amazon instead of one, so that the blue
concurrent Arcs are clearly seen.

Figure 6-5a Amazon showing blue Arc concurrence in two places along the vesica
piscis line

Figure 6-5b Amazon Fibonacci time extension and S/R Arc signals

Notes/Observations:

1. The Vesica Piscis is a line that intersects two circles that share the same radius. It
is considered one of the “most sacred” lines in ancient studies of sacred geometry.

51
Here the Vesica Piscis passes through two clear turning points at the point of
concurrence of the extended vibrations of the circle, each of which would have been
profitable trades. This is an expression of a high degree of order. It strains credulity
to imagine that this is a random occurrence.

2. I personally prefer large circular vibrations to small ones, perhaps because they
are viscerally more dramatic. I am also somewhat inclined to favor concurrence of
two circles at the “diagonal” (perimeter) over one involving vertical price. So I
would likely not have taken either of the trade set-ups in Figure 6-5b absent
additional Arc reasons to do so. You will need to decide based on your own practice
and experience.

52

6. Bank of America

Figure 6-6 Bank of America

Notes/Observations:

1. The blue m-line is what I have previously referred to in Figure 3-3 as a “Master
Circle”. It is no accident that this particular swing (wave 1 in Elliott Wave terms)
circles to the final endpoint of the trend in early 2009. You will note that I have also
marked a blue shaded turning point that represents an intermediate “wave 2” lock,
which is also common for a Master Circle, suggesting as well that the move will
ultimately continue lock out the extreme point of the trend. Master Circles are
discussed in greater detail in the Advanced Course.

53

7. Exxon Mobil

Figure 6-7 Exxon Mobil

Notes/Observations:

1. On the chart of Exxon Mobil, two key turning points were identified by the blue
Arcs. The first one uses m-1 as center for the price calculation and m-2 as center for
the confirmation along the extended vibration’s perimeter.

2. The second blue turning point uses only one Arc, the one centered on m-2. It
circles to the 2008 high in both time and price on one vibration. Students of Gann
will recognize that this time-price relationship would exist anywhere along a 1 X 1
or 45 degree Gann Angle. True enough. But what they would not have realized is
that the “squaring of price and time” is derived from a Fibonacci extension of the
prior 2000-2002 swing. That correspondence is to be looked for with every valid
Gann angle.12 I have seen nothing to indicate that Gann was aware of this profound
Arc/Angle connection.

12
However, the complete configuration of the Arc calculating tool, as presented in the
Advanced Course, is needed to find the Gann Angle/Arc radius in all instances.

54
8. General Electric

Figure 6-8 General Electric

Notes/Observations:

1. My only comment is to observe the bold, geometric clarity of the two blue Arcs
centered at m-1 (2008 high) and m-2 (2009 low) respectively. The time and
perimeter concurrence at the 2011 low is simply perfect. Perfect, concurrent order.

55

9. McDonald’s

Figure 6-9 McDonald’s

Notes/Observations:

1. I had trouble finding a prominent S/R Arc set up on this chart. So, similar to what
we did in Figure 6-3 for Google, I substituted a Fibonacci retracement with Arc.
The concurrence in these signals consists of the Fibonacci retracement, on the one
hand, and an obvious Arc confirmation centered at m-1 or m-2. These signals occur
all the time. I wouldn’t trade a Fibonacci retracement without the corresponding
Arc confirmation.

2. The gold Arc that makes use of the late 2012 low and the early 2014 low, as a
straight Fibonacci time extension, wouldn’t have inspired confidence. The swings
just don’t seem all that important. But when you the largest gold circle that
confirms the time measurement on its perimeter, all is clear.

56

10. Nike

Figure 6-10 Nike

Notes/Observations:

1. Sorry for the confusion of the three Arc calculations right on top of each other!
But I’ve done it for a reason. Each of the blue, gold and pink Arc structures involve the
2009 low and the 1010 high. And yet they are entirely different calculations: a self-
confirming blue Arc, a pink S/R Arc signal, and a yellow Fischer .618 time extension
rule with Arc overlay.


In Summary

57
 The foregoing charts were not cherry-picked to find instances of Fibonacci
Arcs showing concurrence of two structural elements coinciding at a single point.
We used the charts of the ten most popular stocks in the U.S., and with limited
exceptions focused solely on the weekly scale over the last 20 years. These charts
present evidence of regularly recurring Arc formations that obey rules of order that
can only be seen in properly scaled charts, based on the power of ten. What has
been shown thus far is a mere fraction of what is truly going on. I have not even
introduced the advanced concepts of the Arc Principle, which expand the universe of
Arcs significantly.

Your assignment, should you choose to accept it: repeat the exercise I have
just gone through with the same charts in the same timeframes as shown above, on
your own computer-generated chart service. Create the Fibonacci Arc tool
described in Chapter 4, but first allow the scale to be based solely on what your
computer randomly selects based on what most easily fits on the screen. See how
the configurations I found just don’t form if the scale is improper. Then try to find—
on each Chart—at least one Fibonacci time extension with price or perimeter
confirmation of a clear turning point, at least one S/R Arc signal with confirming Arc
in one of the two swings leading into or away from the circle center, and at least one
turning point marked by the intersection of time, price or perimeter from an Arc
beginning at each of the two m-points of the given m-line. While chance allows for
the possibility of some accidental hits, I venture to say that your results will not
have the consistency found on the above charts. In doing this, you will have proved
to yourself that the random walk hypothesis, which seems to describe market
conditions so well, is not the complete story as to what is really going on in the
markets.

58
 7.

THE WRINKLE IN TIME AND PRICE


Gann’s squaring of price and time.

Elliott Wave Theory.

Fibonacci time and price ratios.

Many traders and investors have passed through these doors.

Some became rich in the process. Others succeeded for a time, only to grow
disillusioned with the inconsistency of their results after a while. Skeptics scoffed at
the so-called experts when their grand predictions missed the mark. The academics
patted themselves on the back for their prescient naysaying.

The Arc Principle is grown from the same soil as Gann and Elliott, which is
the underlying “natural order” of the markets, and which is geometric in form. The
Arc Principle can “see into” these older methods, thus holding out the promise that
it can overcome some of their deficiencies and make them more reliable. Even so,
the methods of Gann, Elliott and known Fibonacci ratio strategies don’t always
work, at least not the way we wish them too. The Arc Principle helps to see why.


Failed set-ups

A Gann angle, Wave count or Fibonacci retracement could fail because:

59
 i. The trader made a mistake. It can even be an innocent mistake. There is
a certain tolerance in the accuracy of angle, price line, or time of turn. You thought it
was locked in, but it really wasn’t;

ii. The trader didn’t know enough. Knowledge and experience obviously
count for a lot. With Arcs, one can sometimes see that the reason an expected big
move didn’t occur is geometric—a component of the structure itself aborted the
move. The swing circled out at an early Omega.

iii. The markets are not predictable in every respect. While the markets
are clearly (in my view) governed by forces of market geometry, one can’t always
predict what the outcome of the geometric structure will be. Sometimes the
markets close on the exact point in price and time that satisfies the conditions of the
Arc Principle for a turning point, but it is as yet not confirmed by price action. The
next morning, it may gap in favor of the turning point projection, but it may also
continue the foregoing trend. The market kept its options open. This suggests that
the markets, and therefor the underlying geometric forces, are much more dynamic
than we might first expect.

But this dynamism may also suggest a wrinkle in the way the markets
express geometric order. Not every Wave count makes sense, not every Gann angle
supports a profitable trade. And not every Arc structure resolves the way you
expected.

A fourth possibility thus exists:

iv. The complex dance of market geometry sometimes even “makes
mistakes.” It is only because the Arc Principle allows one to see so deeply into
market structure that it is even possible to postulate this.

One can see this clearly in the workings of the “Circle-Forward” Principle.

60

The Circle-Forward Principle

The complete explanation necessary for the proper use of the Circle-Forward
Principle is available in the Advanced Course. Nevertheless, the basic Rule is:

Every significant high will “circle forward” to the next significant
high. Every significant low will “circle forward” to the next significant
low.

Translated, this means:

For high-to-high measurements, there will be an Arc:

(i) centered on the immediately prior high,

(ii) having a radius based on: (a) the swing leading into the Arc center, (b)
the swing leading away from the Arc center, or (c) the prior high before that (so that
3 consecutive highs are horizontally connected by one Arc),

(iii) which will extend in time (horizontal extremity of a circle) to the next
high.

The same rule would then express with the next low-to-low, and so on.

The promise of the Circle-Forward Principle is pretty great. It is not just to
predict a tradable turning point. It is to predict a change in the overall trend. And
yet, however perfect the Circle-Forward Principle often is, the turning point
identified by the Rule can turns out to be . . .

--the turning point immediately preceding the final high (w-3);

61

--the final high or low itself (w-5); or

--the turning point immediately following the final high (w-2).13

Figure 7-1 below of Goldman Sachs shows a high-to-high Circle-Forward Arc
that hits the December 2014 high. This was it! The December high satisfied the
Circle-Forward rule for the “next significant high.”

13
While you don’t have to know Elliott Wave Theory to trade The Arc Principle, I use
the basic wave count 1, 2, 3, 4, 5 and a, b, c for labeling purposes. I don’t use w-3, w-5
and w-2 with any technical precision under the Wave Principle, rather they are just a
short-hand way of saying, “the high before the final high” (w-3), “the final high” (w-5)
and “the lower high just after the final high” (w-2). The same would of course apply to
the sequence involving lows.

62


Figure 7-1 Goldman Sachs Group Inc.

And yet, a few months later, this high was taken out, with the final high of the
trend occurring in June 2015. Were you to have shorted this stock and gotten
stopped out, the method would appear to have been unsuccessful. But the
complete Circle-Forward Rule remained true. The complete Principle allows for a
w-3, w-5 or w-2. On rare occasions, the market could even have 2 further highs
before the final turn, or worse still, more than two further highs during Elliott Wave
3 extensions.14

Lest you think that these optional endings are a cop out, realize that these
“missed” turning points—the -3’s and the -2’s—will often exhibit a high degree of

14
At risk of overcomplicating things, I should say that the options of “w-3, w-5 or w-2”
arise at certain levels of analysis and perhaps not others. The 2009 low did not lock in at
“w-5” on the weekly scale. It locked at a w-2 mark after. However, the same calculation
also could be run on a difference time scale, and a different price-to-time chart scaling,
which perfectly locked the primary low.

63
geometric order. They may be locked in by a number of rules for a major turning
point covered in the Advanced Course. They may even have internal concurrence
within the Circle-Forward Arc, such as hitting both the horizontal time on one circle
and the perimeter of another. It is this aspect of the Arc Principle that allows one to
perceive that a turning point may seem to “fail” (to predict a major change in trend)
and yet the geometric structure is still true.

The market doesn’t care if you get stopped out. The very next significant
turning point could well be perfectly locked in at the w-5 final high or low, with one
or another form of structural concurrence, again a stunning testimony to the fact
that the markets obey a heretofore hidden perfect order.

Perfect, with the option to frustrate.

It is far less frustrating if you know that it could be a w-3 and not the final w-
5. Knowing this means you can plan for how to deal with it.


Traversing the wrinkle in time and price

At the same time, from the perspective of us humans down below, if you are
trying to forecast a major change in trend, a w-3 lock of a Circle-Forward Principle is
a mistake, not in the sense of the pivot itself—there was a 3-to-1 reward-risk move
off of that December high on the Goldman Sachs chart. It was a mistake because the
Circle-Forward Principle holds out the promise that it will tell you when the next
significant high will occur, followed by the next significant low, and onward. It will
do that . . . in its own way.

How could you trade the Circle-Forward, even though you may get stopped
out at a w-3 lock? Each trader must come up with his or her own answer. But three
suggestions to consider are:

64

(i) Only trade Circle-Forwards when you have a match, via an Arc Principle
rule for a tradable turning point on the next larger scale; or

(ii) Only trade the Circle-Forwards that come late and lock the w-2s following
the w-5 high or low! While these entry points do not guarantee that you are
hopping on board the next ensuing trend, there is a good chance that you are; or

(iii) Let’s say you traded the December 2015 high hoping it was a w-5 and
got stopped out because it was a w-3 . There is a good likelihood that the final turn
will be next, so you could look to get back in on a trendline break and hold until the
next significant low. In this case, the next “significant low” might not have been until
2016. Any loss would have more than been made up in the ensuing decline that
followed.

What do we mean when we say “perfect order”?

The first time I heard the term “perfect order” to describe a theory for
forecasting the markets was in the 1980s when Welles Wilder marketed the Delta
Phenomenon. The Delta Phenomenon was not so much about market geometry as it
was a theory of cycles based on solar and lunar cycles. While a small number of
traders swear by the Delta Phenomenon, the term “perfect order” as applied to that
theory seems inapt. The cycles were neither precise in time nor did they pinpoint
the price of a projected turning point at all.

“Order” is defined as an arrangement or disposition of things in relation to
each other according to a particular sequence, pattern or method. “Perfect” suggests
that that order would have all required or desirable qualities, and be as good as it is
possible to be.

65
 When it comes to the markets, no principle that expresses of inherent order
would likely be considered “perfect” unless it defines both the price and time of a
turn. If a market turns exactly at the 1/3 time mark and the 50% price mark of a
Gann Square of the Range, this would probably qualify as “perfect order” if: (i) the
move was substantial, and (ii) this particular set-up happened regularly and was
frequently successful.

Elliott’s Wave Principle would probably never be described as “perfect
order” because there are almost always alternative wave counts. Nevertheless, at
times, the Wave Principle expresses with perfect precision, such as when the “fifth
of the fifth” end of a wave corresponds to a Fibonacci price projection to the exact
high.

But it is the combination, at a single point, of two or more related indicia of
order, that makes it “perfect.” Figure 4-3 of Halliburton (repeated below)
exhibits this degree of order with the both time and perimeter lock via the pink Arc
of the 2012 low. I refer to this kind of order as “concurrence.”

66

Copy of Figure 4-3 Haliburton

Perfect order is also shown in Figure 2-3 of the 1929 crash. But in this case,
the perfection of order had to do with the fact that, in a period spanning nearly a
third of a century, both the ultimate high in 1929 and the ultimate low in 1932, as
well as several other prominent turning points, were encompassed in one Arc
structure. That is phenomenal. I would argue that this is “as good as it is possible to
be.”

Obviously it is a high degree of order if a single Fibonacci Arc encompasses
most of the major turning points in the first half of a century, including both the
highest high and the lowest low. I am not aware of any other form of technical
analysis—market geometry or otherwise—that comes close to this.

Then there is the phenomenon of Circle-Back and Circle-Forward Principles.
Each rule is expected (with rare of exceptions) to work every time, in every market.
That is certainly order that is often, though not always, perfectly timed.

67
 Taken as a whole, I think the Arc Principle is a fair candidate for the “perfect
order” description. But this must be understood from the perspective of the market
itself and not the trader.

There are many ways in which the Arc Principle could express perfectly, yet
the trade ends up in a loss: gap markets, bad fills, overstaying the move,
misinterpreting the signal as a high when it was really the adjacent low, and
plain old human error, are all factors that regularly come into play.

In the final analysis, we are dealing with a phenomenon that transcends
ordinary reason. To judge it solely on the human level, in terms of hoped for trading
profits, may miss how extraordinary this phenomenon really is. The Arc Principle
challenges not only the random walk hypothesis, but the cause of market
movements themselves, and perhaps even the cause of the unfolding of all human
events, of which we are the unwitting participants.

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 8

TRADING ARCS




There are many distinct methods for trading the Arc Principle, a number of
which have been demonstrated in this course. In one category, Arcs give stand-
alone trade set-ups. In another, Arcs can forecast likely market direction, from short
to long term.

In this Chapter, we will describe 4 methods for entry into trades that fall into
the first category, stand-alone trade set-ups:

A. S/R Arc trades;
B. Fibonacci price grid trades;
C. Fibonacci time series trades; and
D. Bowl trades.

You have already been introduced to S/R Arc trades and Fibonacci price grid
trades in an earlier Chapter. But here, we will go into further detail as to what to
look for in your set ups so you can do these trades yourself. These methods have
been selected because they are relatively simple and clear, and also because you
don’t need to know the advanced Arc structure to trade them. Advanced course
material would enhance your ability to trade these set ups primarily by giving you
more opportunities than what you will find with the simplified model. But there are
more than enough opportunities in the markets to keep you busy with these.

General set up

1. Construct your Arc.

69
 Chapter 4 lays out the proper construction of the Arc measuring tool.

2. Select your desired time frame.

You can choose any time frame to trade Arcs set ups: the 1 minute, 5 minute,
10 minute, 15 minute, 30 minute, hourly, daily, weekly, monthly.

3. Establish proper scale on chart.

We introduced the concept of proper scale in Chapter 2, then explain how to
scale your charts in Chapter 5. Each time frame for each trading instrument has its
own proper scale.

4. Trade entry.

Once you have identified a potential trade set-up, there are many versions of
an entry signal to get you into the actual trade. Many use candlesticks for trade
entry. Here, I will suggest two versions of an entry signal using a simple bar chart:

i. Bar break: Using a standard bar chart, enter long following a new low,
upon a break by the subsequent bar that breaks the high of the previous bar that
contained the new low, and enter short upon a new high, followed by a subsequent
bar that breaks the low of the previous bar that contained the new high.

ii. Key reversal: Again using a standard bar chart, enter long upon a new low
and higher close than the high of the previous bar, and enter short upon a new high
and lower close than the low of the previous bar.

See Figure 8-1 below.

70

Figure 8-1; Monsanto. Illustration of entry upon bar break, and key reversal. (No
Arc entry signal shown).

5. Trade exit.

Similarly, every trader must decide on a strategy for exiting a position. The
Advanced Course discusses Arc techniques for “Finding Om”—the projected end of a
move based on the Arc Principle. However, this is not necessary or even advisable
at the beginner level. Suggestions on exiting a position will be discussed in Chapter
9.

A. S/R Arc Trades

As introduced earlier, S/R Arc trades connect the center of the Arc to a
prospective turning point via a horizontal line, which Gann traders refer to as the
“0” degree line. In theory these trades set up across an Arc center regardless of
“polarity”—a low center could match with a low or a high along the horizontal line,
and a high center could match with a high or a low along the horizontal line. But for
the trades I am showing you here, we want to only match high to low and low to
high. A high at the Arc center acts as support for a low turning point; a low at the

71
Arc center acts as resistance for a high turning point. Furthermore, we want the
turning point to be a simple retracement against the prevailing trend, so that if the
trade is triggered, you will profit if the prevailing trend re-emerges. See Figure 8-2.

Figure 8-2; Monsanto. S/R Arc trade on daily scale.

In Figure 8-2 the proper scale for the daily bar chart is $10 for $100 trading
days. Thus the turquoise square in the lower left of the chart shows a price range
from $85 to $95. The S/R Arc signal connected the January 2015 low with the June
retracement high via 1.0 of the Arc radius from the January low to the February
high. That radius is based on the swing proceeding away from the Arc center, which
is called Swing B. The swing leading into the Arc center is called Swing A.

Note that if you get a support/resistance trigger that doesn’t appear to
correspond to a Fibonacci Arc, this doesn’t mean that the Arc influence isn’t there.

72
There are Arc configurations other than the basic one shown here, that may be at
play.


B. Fibonacci Price Grid trades

Fibonacci Price Grid trades have also been introduced earlier. Unlike typical
Fibonacci price retracements or projections, the use of the Fibonacci price grid can
use any line in the grid, in any direction. I even flip the grid over to check if the .78.6
line or the 23.6 line corresponds to a potential turning point. And you are not just
limited to the lines between the low and high (or high and low) of the swing used to
create the grid, you can project Fibonacci Price Grid lines above and below the
swing itself.

The first thing to do is to select a swing and put up the Fibonacci Price Grid.
In Figure 8-3 below, we again use the Monsanto chart and have placed a Fibonacci
Price Grid on the move from the September 2015 low to the December 2015 high. If
you look at the price action that followed, you can see that turns occurred at least 5
times on grid lines. I have highlighted 2: the February 2016 high on the 78.6% line
and the April low on the 23.6% line. In the first case, the Fibonacci Arc centered on
m-2—the December high—the smallest blue circle intersected the turning point via
its perimeter. In the second case, this time using the same Arc radius but centered
on m-1—the September low, the horizontal extremity of its smallest circle from m-1
hits the April 2016 low in time. Both turns were perfect trade entry points.

One observation is that you can use horizontal time or the perimeter of an
Arc to find a match to the Fibonacci price grid. I would not use the vertical price
vibration of the Arc to find a match in this method.

Also, I wouldn’t use either of the horizontal lines of the Fibonacci Price Grid
that represent the 0 and 100% price points. They could actually be signals based on

73
either the S/R Arc method, or a Fibonacci Price Grid using another endpoint. Use
only the Fibonacci Price Grid points in between the endpoints and Fibonacci price
projections of the grid above and below the price lines of m-1 and m-2.

Figure 8-3; Monsanto. Two Fibonacci Price Grid trades on daily scale.


C. Fibonacci Time Series trades

Ah, the much under-appreciated Fibonacci time series. The Fibonacci time
series is one of the simplest technical tools to apply, and is found in most all charting
software packages. All you usually do is place the beginning of the time series at the
start of a new trend and see whether any turning points form at a time slot.

74

The time series itself is constructed based on the Fibonacci number series: 2,
3, 5, 8, 13, 21, 34, 55, 89 and so on. If you are on a daily chart, daily bars are
counted. If you are on a 60 min chart, hourly bars are counted. I would count as a
“hit” a turning point that lands on a time series line or 1 bar after.

The way we will use this is to start the Fibonacci time series at the beginning
of a trend, and look for retracements against the trend at the time junctures of the
series, at 3, 5, 8, 13 bars etc. But the set up is not just the fixed time series, it also
includes an Arc centered at the start of the trend, with radius set to the time series
count itself. Extend the arc out to 13, 21, 34 bars, whatever you like. Each circular
vibration will match one of the time junctures of the count. In other words, the Arc
is a fixed Arc based on the Fibonacci time series. It isn’t based on any specific
market swing.

Since the Arc and the Fibonacci time series match at the time series lines by
definition, that is not what we are looking for in this trade set up. We are looking for
concurrence of the time series count and the intersection of a possible turning point
on the perimeter of one of the Arc’s circular vibrations.

Figure 8-4 below, again using the same Monsanto chart, shows the Fibonacci
time series in gold starting from the March 2016 low. As stated above, the blue Arc
has been set to the Fibonacci time series, which is why you can see the two smallest
circles extending horizontally to two of the vertical lines of the time series.

75

Figure 8-4; Monsanto. Fibonacci time series trade on daily scale.

Notice that the turquoise-shaded low in April 2016 falls on the time series
and the green-shaded low in May hit the perimeter of an Arc vibration but not a
vertical time series line. Neither counts as a trade set up for this particular method.
What we are looking for is only turning points at retracements against the primary
trend (thus, lows in an uptrend) that hit both a vertical time series line and a
Fibonacci Arc vibration on its perimeter (not straight time or price). Only the pink
shaded mark on the May time series line qualifies.

The pink shaded turning point almost looks like it was just a continuation of
the trend. But it actually was a quick retracement that ended at the low of the gap.
The bar then closed near its high, completing the appearance of a possible turning

76
point. Generally, the low of a gap bar qualifies for a trade in an uptrend, and the
high of a gap bar qualifies in a downtrend, provided they intersect the perimeter of
one of the Fibonacci Time Series Arc’s circular vibrations.

One final comment. Both the turquoise and green shaded turning points
were also valid trades, but would have been based on a different set of rules under
the Arc Principle shown in the Advanced Course.

D. Bowl trades

Once you get the hang of it, Bowl trades are simplicity itself. First take a look
at Figure 8-5 below.

i. Create 2 Arcs, with the center of each at the apex between the last 2
completed trends and the radii based the two swings leading into and away from the
apex. Of course, when you do this in real time, you will be presuming that the
second trend (here the downtrend labeled Swing B) is complete, but further new
lows could still form. Your aim is to be trading any early retracement low in the
direction of the new trend once it gets underway.

ii. The radius of Swing A, the pink Arc shown in Figure 8-4, is set on the low
that initiated the prior uptrend.

iii. The radius of Swing B, the blue Arc, is set on the presumptive end of the
current downtrend.

iv. You are looking for early retracements against the ensuing uptrend as an
opportunity to get long. The concentric vibrations (based on the Fibonacci ratio) of
each Arc will be sweeping in the shape of a “bowl” upwards and one is looking to
catch a retracement low on its perimeter.

77
 v. You would apply the same set-up in reverse at the next presumed end of
the uptrend and look to trade the early “w-2” retracement south.

Figure 8-5; Monsanto. Bowl trades on daily scale.

In Figure 8-5, the Swing A pink Arc would have triggered a trade when one of
its circle perimeters passed through the November 2015 low. The ensuing price
action proceeded upward until the latter half of December. If you were holding for a
longer uptrend you would have been taken out, presumably at breakeven. The
Swing B blue Arc also gave signals. First, the blue-shaded February 2016 low was
caught for a tradable move 2-3 times as large as the risk, and second, the blue-
shaded May low was caught for an explosive move up.

Conclusion
The four trading methods described above could be all you ever master and
you would never run out of good trading opportunities. As I was preparing to write

78
this Chapter, I picked the Monsanto chart without yet knowing that all four methods
would be fairly represented in the data. I didn’t spend hours and hours searching
for it. That all four methods could be exemplified on this one chart alone is further
evidence that the Arc Principle is true. The random walk hypothesis, on the other
hand, is only true for those who are satisfied with that answer.

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9

WHEN TO GET OUT



Closing a position initiated at an Arc signal

When to get out is often a more difficult question than when to get in.
Advanced students of the Arc Principle will find relevance in the esoteric adage, “the
ending is foretold in the beginning.” But for now, I want to suggest an approach to
closing out a winning position that is relatively simple. It’s greatest strength is that
it takes the surest part of the trade and let’s the devil take the hindmost.

First, the Stop loss

The stop loss part is relatively straightforward. In most instances you would
want to place a stop, say 3 or 4 tics above the high or low that was locked in by the
Arc entry signal. Too close and you could get ticked out in a double top or bottom.
Too loose and you could have less than ideal reward-risk parameters.



In general, we want to cut our losses short and let our profits run. At the
same time, the early part of the move is the surest. For research purposes, and I
suggest your initial trading with Arcs, I propose a very straight-forward money
management system: 2:1.

2:1

“2:1” means that you will set your stop at “1 unit” which means the dollar
amount you would lose if you are stopped out, and take profits at 2 units—2x your

80
risk. You will miss some good gains this way, but you will also be keeping your risk
low. But risk will never be non-existent. You will experience gaps and slippage and
human error and bad luck. But that is true with most every trading approach.

Figure 9-2 illustrates two hypothetical trades (I haven’t ascertained if there
would have been an Arc confirmation) showing placement of stop and where to take
profits using 2:1.

Figure 9-2; Monsanto. Illustration of stop loss and 2:1/take profits at 2 units. Note:
the illustration of the long entry on December 15th indicates that entry was “at open
of bar;” this will happen only when the break of the high of the prior bar occurs at
the open of the next bar; otherwise the entry will be on the break of the high itself.

Bear in mind, there is nothing sacrosanct about 2:1. It could be 3:1, 4:1.
Experiment with what works best over a number of paper, then real-time trades.

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 10

CONCLUSION

I don’t quite know what to say in this, the conclusion of Course 1. Thank you
for joining us this far. It is fervently hoped that The Arc Hypothesis is the beginning
of a new and rewarding direction in the evolution of your trading and investing.
This labor of love began for me more than three decades ago. It has been a search
for the Holy Grail, which I have come to equate with perfect order. Finding the Grail

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is not the end of the search. With respect to the Arc Principle, the search is research.
The greatest discoveries and trading of the Arc Principle may be yet to come, by my
children’s children. Or yours.

Mankind has a long history of viewing the world as having been divinely
created according to “sacred geometry.” The Pyramid of Gizeh, built with exquisite
precision, embodied the Golden Ratio (1.618), more than 4500 years ago.
Pythagoras taught music, mathematics and geometry as a part of an esoteric
spiritual teaching in which initiates could be put to death for violating their vow of
secrecy, over 2000 years ago. The great cathedrals of the Middle Ages were
constructed based on ancient knowledge of sacred geometry, eight centuries ago.
The Founding Fathers, many of them Freemasons, caused our nation’s Capital to be
constructed according to sacred geometric principles, over 200 years ago.

Thus it is that over thousands of years of recorded history, some of
civilization’s greatest thinkers associated themselves with sacred geometry. It is
only relatively recently, against the rise of the purely secular viewpoint, that this
tradition has faded into the background of our collective consciousness.
Nevertheless, starting early in the 20th Century, there was the inevitable attempt to
apply principles of sacred geometry to the markets.

Sacred Geometry in the Markets

The question was surely there. Would the prices of stocks, bonds, and
commodities, as meticulously recorded from moment to moment, validate the
precept of the ancient Greeks that “all is arranged according to Number”? Efforts of
early researchers were of course hit or miss. But here and there, evidence, if not
proof, of hidden order started to mount.

1. In Ticker and Investment Digest, Volume 5, Number 2, December 1909, a
detailed report of W. D. Gann’s ability to call market turns was presented, including

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the following example (one of many):

"One of the most astonishing calculations made by Mr. Gann was
during last summer [1909] when he predicted that September Wheat
would sell at $1.20. This meant that it must touch that Figure before
the end of the month of September. At twelve o'clock, Chicago time, on
September 30th (the last day) the option was selling below $1.08, and
it looked as though his prediction would not be fulfilled. Mr. Gann
said, 'If it does not touch $1.20 by the close of the market it will prove
that there is something wrong with my whole method of calculation. I
do not care what the price is now, it must go there.' It is common
history that September Wheat surprised the whole country by selling
at $1.20 and no higher in the very last hour of trading, closing at that
Figure."

2. In a well-publicized speech given on September 5, 1929, Roger Babson
applied his action-reaction theory to predict that the market would soon crash. He
was publicly rebuffed, only to have his prediction proven accurate less than two
months later. Gann also predicted the ‘29 crash, as well as the end of the bear
market in 1932, by applying his “Master Time Factor.”

3. George Marechal, an acquaintance of Babson, copyrighted his famous
forecast of stock prices over a 15-year period. See Figure 10-1 below. While the
forecast was not always exact, it tracked actual trends well. No one has come
forward claiming to know how Marechal accomplished this. Some claim that the
method he used is related to Andrew’s Median Lines, but no one has been able to
reproduce Marechal’s calculations.

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Figure 10-1. Marechal’s copyrighted 15-year forecast.

4. In 1960, Elliott Wave practitioner A. Hamilton Bolton predicted a target
price of $1000 for the Dow, which was precisely hit, followed by huge bear market,
6 years later.

5. Elliott Wave Theorist’s Robert Prechter famously predicted the start of the
start of the bull market in 1982 using the Wave Principle. During the 1980s, his
opinion alone moved the markets. (He has faired less well in predicting the market
since then.)

6. Billionaire trader Paul Tudor Jones made a fortune predicting the 1987
crash, apparently by following a road map based on an analog to the 1929 crash
together with Elliott Wave Theory.

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 7. In his book, The Spiral Calendar, Christopher Carolan demonstrated a
precise correlation between the turning points leading to the 1929 crash and those
of the 1987 crash, based on Fibonacci relationships using a lunar calendar. The
evidence Carolan presents is compelling. Future forecasts made in his book did not
turn out as anticipated, suggesting that Carolan’s theory, while very possibly valid, is
as yet incomplete.

Each of the above findings of hidden market order have a certain validity on
their face. Yet, how quickly would the statistician dismiss this with a casual
reference to the Law of Large Numbers. After all, stock prices can’t be predicted.
They are random, which by definition means the movement is “without aim, reason
or pattern.”

As you have seen, the Arc Hypothesis provides new evidence of hidden order.
Three straightforward cases in point are:

1. There is at least one ordered correspondence of a Fibonacci Arc with price
action in virtually every completed swing in every freely traded market. That’s a
pattern! Patterns are the antithesis of randomness.

2. Taking just Gann Angles, Fibonacci Arcs will regularly identify the precise
time that price pivots on a Gann Angle. That’s a complex pattern! Complex, rule-
based patterns are contrary to the accepted random walk theory.

3. Whenever an Arc identifies a turning point with two or more aspects of a
single Arc structure, such as time of a smaller circle and perimeter of a larger circle,
that is an expression of order. In any 100 properly scaled charts, such “self-
concurrence” will happen regularly. De-scale those same charts to, say .8 of the
proper scale, and it will rarely be found to happen.

If the Arc Hypothesis is true it implies:

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1. The random walk hypothesis is incorrect;

2. Elliott was incorrect (or incomplete) when he theorized that the cause of
market movements was “mass human psychology” because this doesn’t address
market geometry;

3. Gann was correct when he said that the cause of market movements is
“mathematical points of force.” Future turning points in the markets are caused by
past mathematical points of force aligned geometrically.

4. In order for market movements to be subject to geometric forces, you the
trader/investor are somehow being choreographed, along with millions of other
investors, by the force of market geometry.

. . . All of which implies that, at least as evidenced by the markets, life itself is
organized in a manner that has barely been suspected, which is on-going intelligent
design.

On-going intelligent design is related to but not the same thing as the theory
of intelligent design at the start of the Universe. Neither theory has anything to do
with a particular religious belief.

Thank you for reading! Best of luck in your trading endeavors.



J. Andrew Goodman
November 17, 2016

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