The Forex Chartist Companion

MICHAEL DUANE ARCHER has been an active commodity futures and Forex trader for over thirty years. He has worked in various advisory capacities, notably as a commodity trading advisor and a SEC-registered investment advisor. Archer operates www.fxpraxis.com and is a professional Forex money manager. He is also the author of Getting Started in Currency Trading, which is also published by Wiley. JAMES LAUREN BICKFORD began trading in commodity futures in the early 1980s. Since 2001, he has focused his investment efforts solely on trading spot currency pairs via online Forex dealers. Bickford's academic background is in computer science, mathematics, and statistics. By profession, he has been a software engineer for nearly three decades.

Acknowledgments xv

Introduction xvii

PART I Forex-Specific Charting Techniques 1

CHAPTER 1 Streaming Data 3

Overview 3

Tick Chart 3

Spread Chart 4

Conclusion 5

CHAPTER 2 Activity 6

Overview 6

Activity Bar Chart 6

Composite Activity 8

Time of Day Activity Chart 8

Day of Week Activity Chart 9

Equi-Activity Chart 10

Activity Mercury Chart 10

Uptick-Downtick Mercury Chart 12

Conclusion 13

CHAPTER 3 Direction 14

Overview 14

Direction Chart 14

Direction Mercury Chart 16

Activity-Direction Mercury Chart 17

Conclusion 18

CHAPTER 4 Forex versus Futures 19

Overview 19

Pip Differential Chart 19

Activity versus Volume and Open Interest 22

Conclusion 22

CHAPTER 5 Arbitrage 23

Overview 23

Transitivity 23

Triangular Arbitrage Chart 24

Equilibrium 25

Major Currencies 28

Observation 28

CHAPTER 6 The Mundo 29

Overview 29

Forex Beta 29

Mundo Line Chart 31

Weighting 32

Mundo Bar Chart 33

Observation 33

CHAPTER 7 Range Charts 34

Overview 34

Range Bar Chart 34

Composite Range Charts 35

Time of Day Range Chart 35

Day of Week Range Chart 37

Average Interval Range Chart 37

Observations 38

CHAPTER 8 Absolute Momentum 39

Overview 39

Absolute Momentum 39

Time of Day Momentum Chart 40

Day of Week Momentum Chart 41

Conclusion 42

CHAPTER 9 Two-Dimensional Momentum 43

Overview 43

Two-Dimensional Momentum Chart 43

Islands 45

Smoothing 47

Observation 47

CHAPTER 10 Moving Trend Analysis 49

Overview 49

Linear Regression 49

Ordinary Least Squares Method 50

Coefficient of Correlation 51

Trend Oscillators 51

Moving Slope Oscillator 52

Moving Correlation Oscillator 52

Moving Trend Index 52

Observations 54

PART II Point and Figure Charting 55

CHAPTER 11 History of Point and Figure Charting 57

Overview 57

History 58

CHAPTER 12 The Point and Figure Algorithm 59

Overview 59

P&F Anatomy 59

Box Size 59

Reversal Amount 60

Unraveling Bar Quote Data 61

P&F Algorithm 61

Time Representation 62

CHAPTER 13 Trend Lines 63

Support and Resistance 63

Trend Lines 63

Buy Signals 65

Sell Signals 65

CHAPTER 14 Double Tops and Bottoms 67

Overview 67

Double Top Pattern 67

Double Bottom Pattern 68

Double Top Signals 68

Double Bottom Signals 70

False Signals 72

Signal Percentages 72

Observations 74

CHAPTER 15 Triple Tops and Bottoms 75

Overview 75

Triple Top Pattern 75

Triple Bottom Pattern 76

Triple Top Signals 76

Triple Bottom Signals 78

False Signals 79

Signal Percentages 79

Observations 81

CHAPTER 16 Triangles 82

Overview 82

Ascending Triangles 82

Descending Triangles 83

Symmetrical Triangles 83

Triangle Signals 84

Ascending and Descending Frequencies 84

Symmetrical Frequencies 87

Observation 87

CHAPTER 17 Pattern Frequencies 89

Overview 89

Box Size =One Pip 90

Box Size = Two Pips 92

Box Size = Three Pips 93

Inverse Patterns 94

Usage 94

CHAPTER 18 Breakout Analysis 96

Overview 96

Preceding Columns 97

Succeeding Columns 100

Observations 102

CHAPTER 19 Count Methods 104

Overview 104

Horizontal Count (Buy) 104

Horizontal Count (Sell) 106

Vertical Count (Buy) 107

Vertical Count (Sell) 108

Observations 109

CHAPTER 20 Plotting Point and Figure Charts in Real Time 110

Overview 110

Tools of the Trade 110

Trading Platform 110

Trading Goals 111

Starting the Process 111

Real-Time Example 111

Performance Evaluation 114

PART III Forex Swing Charting 115

CHAPTER 21 Fibonacci Primer 117

Overview 117

Fibonacci the Man 117

Fibonacci the Series 118

Fibonacci the Ratios 119

Fibonacci the Equations 120

Binet’s Formula 122

Interpretation 122

Resources 124

CHAPTER 22 Swing Charts 125

Overview 125

Definitions 125

Box Size 126

Reversal Amount 126

Swing Reversal Algorithm 127

Time Alignment 128

Practical Examples 129

Composite Swing Charts 132

Usage 132

CHAPTER 23 The Measured Move 134

Overview 134

Testing Approach 135

Cluster Charts 135

Average Retracement 137

Decile Divisions 139

Practical Examples 141

Conclusion 146

CHAPTER 24 The Fifty Percent Principle 147

Overview 147

Testing Approach 147

Initial Results 148

Increasing Tolerance 150

CHAPTER 25 Improving The Third Wave Forecast 152

Overview 152

Methodology 153

Multiple Regression 154

Quartiles 154

Practical Examples 157

Fifty Percent Principle 160

Fifty Percent Examples 160

CHAPTER 26 Forecasting The Fourth Wave 162

Overview 162

Testing Approach 162

Practical Examples 164

Improving the Forecast 164

Three-Wave Trending Cycles 165

Trending Example 166
 
Three-Wave Nontrending Cycles 166

Nontrending Example 167

Extending the Forecast 167

Estimate Charts 168

Live Usage 170

CHAPTER 27 Cycle Frequencies 171

Overview 171

Two-Wave Cycles 171

Three-Wave Cycles 173

Four-Wave Bull Cycles 175

Four-Wave Bear Cycles 177

Usage 178

CHAPTER 28 Bull Cycles 180

Overview 180

Ideal Bull Cycle 180

Objective 181

Initial Results 182

Praxis 183

Caveat 185

Further Studies 185

CHAPTER 29 Bear Cycles 186

Overview 186

Ideal Bear Cycle 186

Objective 187

Initial Results 187

Praxis 188

Caveat 190

CHAPTER 30 Swing Properties 191

Overview 191

Wave Anatomy 191

Simple Ratios 192

Swing Averages 192

Swing Data Preliminaries 194

Bivariate Data 195

Swing Volatility 197

Swing Velocity 199

CHAPTER 31 Swing Summary 200

Overview 200

Selecting Swing Parameters 200

Composite Average Estimates 202

Caveat 207

PART IV Other Reversal Charts 209

CHAPTER 32 Western Reversal Charts 211

Overview 211

Geometric Chart 211

Trend Outline Chart 213

Pivot Chart 215

Observation 216

CHAPTER 33 Japanese Reversal Charts 217

Overview 217

Renko Chart 217

Kagi Chart 220

Three-Line Break Chart 224

PART V Goodman Swing Count System 227

CHAPTER 34 History 229

Charles B. Goodman 229

The Right Brackets 230

Later Developments 230

CHAPTER 35 Ordinal Principles 233

Ordinal versus Cardinal 233

The Measured Move 233

Congestion Phase 234

Equilibrium of Buyers and Sellers 235

CHAPTER 36 Cardinal Principles 238

Overview 238

Price Surge 238

Multilevel Matrices 239

Compensation 241

Carryover 241

Cancellation 242

Intersections 244

Five Points of a Goodman Wave 245

Double and Triple Intersections 246

CHAPTER 37 Goodman versus Elliott 247

Overview 247

Propagation 248

The Return 249

CHAPTER 38 Charting Study 251

Overview 251

Notation 251

Matrix 251

Propagation 253

Simple/Complex 254

Fat/Thin 255

Goodman and Computers 255

APPENDIXES

A.World Currencies 259

B. Exchange Rates 264

C. Euro Currency 267

D. Global Banking Hours 269

E. Monthly OHLC and Activity Charts 271

F. Daily OHLC and Activity Charts 282

G. Time of Day Charts (Activity) 293

H. Time of Day Charts (Range) 297

I. Time of Day Charts (Momentum) 301

J . Day of Week Charts (Activity) 305

K. Day of Week Charts (Range) 311

L. Day of Week Charts (Momentum) 317

M. Comparative Statistics 323

N. Unraveling Bar Quotes 325

O. Visual Basic Source Code (Point and Figure) 331

P. Visual Basic Source Code (Swing) 338

Resources 341

Index 349

About the Authors 361