VOLUME ONE – EDITION ONE

T R A D I N G W I T H T H E T I M E FA C T O R
TH E B E ST OF TH E TRADING TECH NIQU E S
B Y W . D . G A N N – E X P L A I N E D , S I M P LY.

BY FRANK BARILLARO
DEDICATED TO THE MEMORY OF CA R MELO BA R ILLA RO

Who always taught that in life it is much better to give, than to receive.

C I M A NC A L A T UOA PR E S E N Z A ,
M A T U R I M A N I SEM PR E PR E SEN TE N EI
NOSTR I PENSIER I E N EI NOSTR I CUOR I.
4 T R A D I N G W I T H T H E T I M E FAC TO R
THE BEGINNING It is possible to do what many
will tell you is the impossible.

T R A D I N G W I T H T H E T I M E FAC TO R 5
6 T R A D I N G W I T H T H E T I M E FAC TO R
 PREFACE
It is possible to do what many will tell you is the impossible.
I am convinced there is a calculable geometric symmetry present in all
financial markets. The secret is knowing how to find it. Once you know how to
find it, you can apply it to predict the exact time and date of future market tops
and bottoms, sometimes years in advance.
I am certain of this geometry because I have I seen it. I have also been able
to predict it occurring in the markets time and time again. In 2001, I am on the
record for outlining in writing that my timing calculations were indicating that
‘September 11, 2001 is a date to be wary of.’ I also nominated the date which
proved to be the yearly low for the Australian stock market in 2001 to the
exact day. All of this before the event.
I saw the geometry that unfolded in the precious metals Gold market which
coincided with the end of the 20 plus year bear campaign in gold prices. It
enabled me to make a number of long term investment decisions, including a
first purchase of gold bullion when it was trading just above US$300 an ounce.
Interestingly, the same geometry which ended the 20 year bear market was
also present to within a week of calling the current all-time top in gold prices.
In this course, I will share with you how all that unfolded.
I have calculated, and have shared with colleagues (including my stock broker),
future dates to watch in the Australian stock market which have been accurate
at predicting major turning points in the market, more than two years in
advance. More recently in 2011, I wrote to friends and colleagues outlining
that the US equities markets will continue on to higher prices in 2012 and
2013 – advancing the bull market in US equities that has since reached all-time
record prices.
T R A D I N G W I T H T H E T I M E FAC TO R
My friends and colleagues often ask me to explain how I can do it. However
I have always felt that it would need a book to provide them with an adequate
answer. So, after much convincing, I guess this is that book. This book draws
upon the input and experience of my good friend and long term confidante,
Frank “Bob” Nigro.
Together, we will be sharing with you over 30 years of collective experience
in the financial markets and thousands upon thousands of hours of study and
research into the trading techniques which we have seen consistently working
for us to predict future market tops and bottoms. We have seen which
techniques work. We have also figured out which ones don’t.
The course summarises that 30 years of experience into simple to follow
descriptions and illustrations. It does much of the hard work for you so
that you can better understand the financial markets. It filters out the best
of the best – and allows you to apply these techniques to your own stock,
commodity or currency market analysis. Importantly, I will show you how to
apply these Trading Tools in a manner that is simple to calculate and easy to
understand. A few of these techniques are what Bob and I consider to be
the best of those used by many of the professional traders and hedge fund
managers currently out there. The majority however have been adapted off
the works of W.D. Gann – who was legendary for his contribution to trading
by technical analysis.
The Trading Tools I am about to share with you have proven the test of time.
They worked over one hundred years ago and I am confident they will continue
working for the next one hundred years.
This course will change the way you look at financial markets. By the end
of it, I am confident that you will have learnt the geometric secret that is
present in all markets – and that you too can achieve what others will tell
you is the impossible.
Frank Barillaro
7
Before you begin, please read this really important stuff first...
Firstly, thank-you and congratulations for
purchasing Trading with the Time Factor. I have
absolutely no doubt that this trading course will
change the way you look at financial markets.
I also want to welcome you to the start of a
journey together. My goal is that by the end of it,
I will have helped you to make better decisions
about your investments and trading. The lessons
I am about to share with you will stay with you
for a life time. To fully appreciate them, you may
need to read this course more than once. In fact,
I strongly encourage you to do so.
This course has been separated into two parts.
Volume One is about PRICE. In it, you will
find the best lessons I could find to help you
determine the likely prices of future market tops
and bottoms. It is all about teaching you “where”
to buy or sell.
If you find Volume One of interest, then I assure
you that Volume Two will absolutely blow your
mind. Volume Two describes how to TIME a
market and your investments by using techniques
to forecast the exact date of major market tops
and bottoms. It is all about “when” to buy or sell.
Imagine knowing when the stock market or the
price of gold is going to make its next major
bottom. What could that do for your investment
portfolio? If you think it is impossible, then I
encourage you to keep reading. You will soon
change your mind.
8 T R A D I N G W I T H T H E T I M E FAC TO R
Before we begin, there are some important The contents of this course are
housekeeping matters which we need to cover confidential
off first. There is some fine print below that you
Please respect that I have spent hours upon
should take the time to read and understand
hours in researching, drafting, writing and
before you proceed. But just in case your time
publishing this trading course. Not to mention
is short, let me summarise the key points for
the thousands of dollars spent. If you spent
you below.
countless hours researching what the winning
lotto numbers for next week’s jackpot were
going to be and you told me, how would you
This course is not personal advice
feel if I shared those with the rest of the world
I am not a licensed financial adviser, nor do I on the internet?
know your individual circumstances. If you
are looking for personal advice, please consult Now, I’m not saying that reading this course is
someone who is appropriately licensed to do so. going to be like winning the lotto, but I hope
you take my point. After all, if you are reading
this, you have agreed to terms of confidentiality
This course is not general advice with me anyway. You wouldn’t go against your
This course is about educational material on how word now, would you?
to analyse the markets only. It aims to teach you
how to make your own investment decisions.
That’s right, so that you can make your own
decisions. This course teaches you the theory
on how to fish. Unfortunately, I cannot catch the
fish for you. But I can at least show you where to
look. Trust me, by the end of it I am sure you will
be able to do it.
Accuracy of contents
The contents in this course have been prepared
in good faith and may be based on information
obtained from sources believed to reliable but no
independent verification has been made, nor is its
accuracy or completeness guaranteed. Each of
the charts contained in this book have been hand
designed by my good friend Joe Caminiti. Whilst
we have attempted to re-create every line, angle,
axis and label as accurately as possible we are
only human and humans can make mistakes.
These however should not detract from the
message we are sharing with you. To the extent
permitted by law, ThirtyTen Investments Pty Ltd
does not give any warranty of reliability, accuracy
or completeness of the information contained
in this document and does not accept any
responsibility in any way (including negligence)
for errors in, or omissions from, the information
in this document. The author or ThirtyTen
Investments Pty Ltd is under no obligation to
update or correct the information in this course.
One view isn’t necessarily the right view
If there are any views or opinions expressed in
this course, these may be the views of the author
or other parties. Whilst everyone is entitled to a
Imagine knowing when
view or an opinion, it doesn’t necessarily mean the stock market or the
those views or opinions are right... price of gold is going
Just ask my wife.
to make its next major
bottom. What could that
Future Returns
do for your investment
This is not a course telling you to implement a
particular investment strategy or to invest into a
portfolio?
particular market. That is a decision for you to
make. Please bear in mind that when you are
investing. The value of any investment and the
income derived from it can go down as well as
up. Never invest more than you can afford to
lose and keep in mind the ultimate risk is that
you can lose whatever you’ve invested. Please
seek independent financial advice regarding
your particular situation. Investments in foreign
companies or foreign markets involve risk and
may not be suitable for all investors. Specifically,
changes in the rates of exchange between
currencies may cause a divergence between your
nominal gain and your currency-converted gain,
making it possible to lose money once your total
return is adjusted for currency.
Okay. Now that all of that is out of the way,
let’s begin,
T R A D I N G W I T H T H E T I M E FAC TO R 9
Before we get started
For a long time now, I have been mesmerised by
the workings on Wall Street and the tales of fame
and fortune by some of the great market legends
such as Jesse Livermore, JP Morgan and the
story of how the Hunt brothers cornered the silver
market, making and losing billions in the 1980’s.
In order to get the record straight right from the
start however, I am not a full-time trader. As
reluctant as I am to admit it, I am an investment
banker by profession (but please don’t hold that
against me!).
A couple of years after my banking career
started, I was fortunate enough to be given
the opportunity of a traineeship on the foreign
exchange trading desk at a major Australian bank
– and I am still very grateful to the person who
gave me that opportunity to this day. For me, it
was a dream job.
Although brief, I learnt many things about
professional traders and the different ways they
approached the market. I had already been a
student of the markets and Gann theory for a
number of years beforehand, but the experience
on the desk certainly added a new dimension to
the way I looked at financial markets and the way
professional traders approached them.
10
Unfortunately, the dream was short lived. My
father, who was an inspiration to me for many
things, sadly passed away unexpectedly on
New Year’s Day in 2006.
It prompted me to give up the traineeship so
I could move back home from interstate to be
closer to my family who needed me more at
the time.
Eventually, I assumed a role working in structured
finance – it allowed me to remove my law
degree from being just a paper weight at home
and actually put it to some use. The rigours and
demands of a job in investment banking however
don’t afford me the luxury of being able to
actively trade the markets day in and day out (not
to mention the restrictive compliance rules on
trading that come with such a profession).
And becoming a proud father of two young
children recently now consumes most of my
spare free time. Nonetheless, I have still found a
way to keep an active interest in the markets…
and to calculate an accurate forecast or two along
the way.
I thought it is important for me to outline this to
you from the start for a couple of reasons. Firstly,
I am sure that there will be a few critics out there
dismissing the idea that a book can be written
about trading and the techniques pioneered by
some of the market’s greats by someone who
doesn’t trade the markets full time.
T R A D I N G W I T H T H E T I M E FAC TO R
I am happy to cop such criticism – particularly if
that person has read some of my forecasts and
has a track record of being able to consistently
produce them in writing as accurately as I have.
Secondly, but more importantly, I hope to
demonstrate to you in this book that you
don’t have to be a full time trader to apply the
techniques I am about to show you. By the end of
this, it is my goal to have shown you how anyone
can observe the symmetry which repeats itself
in financial markets with only a modest level of
analysis and by keeping it simple…
In writing this book, I have to recognise the
contribution by my mate Frank “Bob” Nigro who
has been a key driver in identifying what is the
best of the best of the trading techniques I am
about to share with you. Bob does earn his living
from trading the financial markets. He has lived
and breathed the markets day after day for more
than fifteen years, and has always been his own
boss. He answers to no-one, except the market,
and sometimes, as Bob often tells me, his lovely
wife and young daughter.
He provides a wealth of knowledge which has
made its way into this course and a perspective
from a full time trader, just in case you believe
this course needed any.
How the mathematical and geometric relationships work in the market
One of the things which I agonised over when
writing this book was how to choose which
market (or markets) I was going to refer to
as working examples of how market geometry
works.
I have seen these techniques I am about to share
with you work in all types of markets – be it,
stocks, stock indices, currencies or commodities.
To demonstrate this, I was tempted to find an
example of a particular technique working in each
of those markets and to write each chapter based
on that. In doing so, however, I felt that it may not
present the full picture which I believe is required
in order to produce a successful forecast.
For that reason, I have chosen to present the
examples in this book using the United States
S&P 500 stock index as the primary basis. In my
view, this index represents the global benchmark
of equity indices, so it is a pretty reasonable place
to start.
Rather than go back too far in time and pick out
the best examples over the last one hundred
years, I have chosen to use the most recent
price action available (as of January 2014) – as
I think this is probably more relevant to most of
you. By the end of it, I hope to have shown you
how all of the Trading Tools presented are still
relevant in the market today dominated by an age
of computerised trading, just as they were one
hundred years ago before computers existed.
Although I have chosen the S&P500 as the basis
for this book, it is important to recognise that the
forecasting techniques I am about to show you
can be applied to all markets. For that reason, Each technique I am
where appropriate, I will be using some additional about to show you is an
examples from the gold and silver markets as
well as some examples of the Australian equity
indicator which works in
market, as they are basically the markets where I harmony with the others.
first cut my teeth and began to apply my learnings The most successful
and making forecasts.
forecasts therefore work
I will show you how to construct a road map when these techniques are
for the next 12 to 24 months ahead so you may
determine the likely position of the market. In
all working together.
addition, Bob has been kind enough to share
the trade entry techniques that he has refined
over the years in order to successfully trade off a
forecast top or bottom and the tips that he uses
to minimise losses and maximise profit.
Calculating a successful market forecast is a bit
like a jig saw puzzle that requires you to put all of
the pieces (or techniques) I am about to show you
together. This course tries to simplify the jigsaw
into fewer pieces.
I trust that you will find these examples as
illuminating and useful as I do.
T R A D I N G W I T H T H E T I M E FAC TO R 11
Discovering the geometry in markets
Bob and I began our journey studying the financial
markets both as university students in the late
1990’s. Our study was heavily influenced by the
work of W.D. Gann in the early days, but we soon
came to realise that there were many other tricks
which worked just as well, if not better, and more
consistently in the markets.
Having been Gann students for a number of
years, the realisation that his techniques are not
the be-all and end-all to trading helped simplify
our thinking and improve our analysis greatly.
– This book therefore isn’t all about Gann.
It is about the best of the techniques which we
have found to consistently work out there – and
a number of them are used in practice by the
professional traders in the current day!
I had been trying to convince Bob for a number
of years to help me with writing a book on the
subject. Consistently, he has been able to find
a good reason not to do it. Bob prefers to have
his privacy and to focus his time on trading, and I
respect that.
Likewise, he has been trying to convince me for
years to give up the banking game and join him
full time in the pursuit of the markets.
12
Whilst I have been very tempted at times, I have
been enjoying the challenges and rigours of the
banking world too much, particularly while I am
still young and energetic. I know that the markets
will always be there tomorrow and that once you
have mastered the techniques I am about to show
you, that they will stay with you for a lifetime.
Both of us had therefore agreed to leave the
book for another day. Becoming parents recently
however certainly has changed our perspective.
This book therefore has much to do with making
sure we have a record of our experiences in
writing for our children to follow should they one
day choose to explore the markets like we have.
The product of this book is exactly how Bob and
I would attempt to teach our 30 years of collective
experience to our own. I say that with the
upmost sincerity.
This book represents thousands of hours of
our research in state and university libraries,
hours upon hours of market analysis, and actual
trading experiences along the way. What you
are receiving are the Trading Tools which we feel
represent succinctly, and simply, what is the best
of the best for analysing the markets.
T R A D I N G W I T H T H E T I M E FAC TO R
If you thought the price tag of this book
was expensive, it might be worthwhile to point
out that it has probably cost you a lot less than
a trip to the dentist. My sincere hope is that in
reading it, it is nowhere near as painful!
And just in case I have left you wondering how
Bob got his nickname, it is a pretty simple story
really. Bob used to spend quite a considerable
amount of time at our family home as we started
out, trawling through all sorts of books and
historical charts of stocks and commodities as
we tried to figure out how this stuff all worked.
He was like an adopted brother to me and my
two younger siblings. Having the same first
name as your best mate however can have
its disadvantages.
Eventually it became a bit confusing for my two
younger brothers each time one of them tried to
attract our attention – they would often yell out
“Frank”, and naturally, both Bob and I would turn
around. Eventually, they decided to call myself
“Bill” and Bob, “Bob” so the two of us could
distinguish one from the other. The name Bob
stuck. Fortunately, Bill didn’t – so I have always
been just Frank.
Who was W.D. Gann and why is he relevant?
William Delbert Gann is legendary when it comes
to Wall Street and the impact he has had on
trading the markets. Arguably, he has contributed
more to the study of technical analysis than any
other trader past or present.
Gann developed the theory that there is a
discernible relationship in all financial markets
between time and price. He believed that the
geometric representation of price through time
would reveal important cyclical patterns within
markets that had predictive values. In other
words, future projections in the stock market
can not only be made to calculate price, but also
to forecast the dates of future market tops and
bottoms.
Gann is reputed to have taken more than $50
million from the stock markets over his career in
the first half of the 20th century – which is worth
over a quarter of a billion in today’s money. In his
published annual forecast for 1929 he figured that
‘a top must come no later than the end of August
and that a “Black Friday” would come
in September.’
He also nominated 3 September, 1929 as a key
date. History will show that the high in the Dow
Jones Industrials index which preceded the Great
Depression was reached on 3 September 1929.
What followed was the greatest ever fall in stock
prices to this day. In my opinion, that makes his
work relevant!
Many have explained in different variations the By looking at a historical chart of prices, one
premise for why Gann’s theories work. One should be able to identify the past cycles which
simple explanation which I think resonates is that have occurred, and which will inevitably repeat in
as human nature will never change, history is the future.
destined to repeat itself.
Of course, over the years, I have learnt that there
As a result, future generations will repeat the is a little bit more to it behind the theory of Gann
behaviour (or cycles) of previous generations, than what I have simplified from the quotes
thereby causing all financial markets to work in above. For our current purposes however, it is
cycles which will repeat over and over. important for you to recognise that in order to
discover the predictable geometry that is present
At the start of his book How to Trade Profits in in all financial markets, you must accept that
Commodities, Gann outlined that: market cycles have, and will, repeat. This is the
foundation for being able to successfully forecast
‘Observations and comparison of past market
future market tops and bottoms.
movements, will reveal what [markets] are
going to do in the future, because the future is
but a repetition of the past…
The average man’s memory is too short. He
only remembers what he wants to remember or
what suits his hopes or fears. He depends too
much on others and does not think for himself.
Therefore, he should keep a record, graph or
picture of past market movements to remind
him that what has happened in the past can and
will happen in the future.’
Gann believed that price charts which revealed
the past performance of stocks or commodities
held the key in order to predict the future
performance of a stock or commodity.
T R A D I N G W I T H T H E T I M E FAC TO R 13
The Ticker and Investment Digest – Volume 5, number 2 (December 1909)
If you are still not convinced by the relevance of
Gann and the trading methods he pioneered, the
following excerpts might help. In December 1909,
a publication called “The Ticker and Investment
Digest” interviewed Gann after he provided
them with a number of accurate predictions on
commodity prices using the trading methods
which he had developed.
The article started by stating:
Sometime ago the attention of this magazine
was attracted by certain long pull Stock Market
predictions which were being made by
William D Gann.
In a large number of cases Mr Gann gave us,
in advance, the exact points at which certain
stocks and commodities would sell, together
with the prices close to the then prevailing
figures which would not be touched…
14
The publication sent one of its staff to observe
Gann real-time trading and the results
he produced.
So much for what W D Gann has said and done
as evidenced by himself & others. Now as to
what demonstrations have taken place before
our representative.
During the month of October, 1909, in
twenty-five market days, W D Gann made,
in the presence of our representative, two
hundred and eighty-six transactions in various
stocks, on both the long and short side of the
market. Two hundred and sixty-four of these
transactions resulted in profits; twenty-two
in losses.
In other words, in a period which covered less
than a month, Gann made 286 trades with an
extraordinary win to loss ratio of over 92%. That
trading resulted in a return of over 1000% of his
original capital.
And just in case you thought that was a typo, it
was 1000%. In my view, this is a trading record
that I have never seen repeated by anyone…
ever! If somebody has, then they certainly aren’t
telling anyone about it.
T R A D I N G W I T H T H E T I M E FAC TO R
But what stood out to me the most from that
article in 1909, and which continues to stand
out to me each time I read it, is the following
paragraph:
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.
So there you have it. Not only do I believe Gann
is relevant, he was at times, truly astonishing.
The philosophy behind price and time

20000
Gann observed that price cannot exist outside
of time. He was able to quantify that whilst the
price of any stock, bond, commodity or currency
stops trading as the market closes, time continues
forward and is indifferent to price.

Most of you would be familiar with how a stock

chart plots the price of a stock or commodity 2000

displaying its historical price action as a function

of time.
PRICE = y AXIS
Price is depicted on the vertical y-axis of a chart,
whilst time is recorded on the horizontal x-axis.
Gann identified that there is a total regularity to
time. Each of the hours, minutes and seconds 200
of a day can be scientifically measured with
precision and measured against a predictable rispetto a
time line on a chart. At the time, this was a
TIME = x AXIS
revolutionary concept.

1902 1912 1922 1932 1942 1952 1962 1972 1982 1992 2002 2012

Price vs Time Graph Intro .01

T R A D I N G W I T H T H E T I M E FAC TO R 15
One thing which is important to realise is that
112
Gann operated in an age where computer
technology did not exist.

Accordingly, he kept a meticulous collection of

hand drawn charts. He did, for the most part,
go to painstaking effort to ensure he recorded
his data on charts which were created with 108
equal intervals in both time (as measured on the
horizontal axis) and price (as measured by the

PRICE
vertical axis). Gann employed the use of chart
paper with eight squares to the inch, with every
fourth line highlighted.

This allowed him to create a chart that was scaled 104

where one unit of price (for example, one cent
or one point on a stock index) was exactly in
proportion to one unit of time (for example, one
day, week or month).

Personally, I think the need to keep track of your

charts on grid like paper is no longer required 100
given there are so many effective trading
software programs out there today to do it for 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16
you. If however, you do intend to maintain hand
drawn charts like Gann did then I would highly TIME
recommend doing so by using the same 8 x 8
chart paper that Gann used, and keeping your
charts in the same price to time relationship. Price vs Time Graph Intro .02

This method will help you immensely in seeing the geometry unfold with your very own eyes,
and will be of considerable assistance if you do go about attempting to re-create some of Gann’s
charts or work through many of the examples he left behind in his writings, by hand.

16 T R A D I N G W I T H T H E T I M E FAC TO R
Fibonacci
There is no doubt that WD Gann has heavily
influenced my thinking and the way I approach my
analysis of the markets. But it was the discovery
of a broader, underlying geometry present in the
markets which made me realise that my analysis
had to extend far greater than his work alone.
I was aware of the Fibonacci sequence and its
application to the financial markets when I began
my traineeship as a foreign exchange trader in
a leading Australian bank. One of the up and
coming traders on the floor, who I figured had
about 5 to 10 years of experience, quizzed me
whether I had heard of Fibonacci on my first day
on the role – he was expecting me to have no
idea who Fibonacci was, and to send me off on
a research journey so that I would stay out of his
way for a little while.
Much to his surprise, I told him what I knew
about the mathematician, so he sent me off to
fetch him a coffee and a sandwich instead! To
be perfectly honest, at the time, I was more
surprised that he knew who Fibonacci was –
and surprised even further when I learnt that he
adopted the Fibonacci sequence in his trading.
I quickly learned that Fibonacci was used by
a number of the other seasoned traders on
the floor.
The Fibonacci sequence was named after
Leonard Fibonacci, the author of the book Liber
Abaci written way back in 1202.
Whilst Fibonacci is acknowledged for introducing
the sequence to Western European mathematics,
its origins are dated back much earlier into
Indian mathematics. The Fibonacci sequence
of numbers follows a distinctive pattern which
can be found throughout a number of biological
structures such as the branching in trees, the
growth pattern of a flower and the arrangement
of a pine cone, amongst others.
The sequence is depicted by a set of numbers
as follows: 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89,
144… and so on.
Each number in the sequence is simply the sum
of the two preceding numbers, allowing the
sequence to continue indefinitely. In the example
above, I have deliberately left the sequence to
end at 144 – it is a number you will become
familiar with a little later.
What is remarkable about the Fibonacci
sequence, and why it is so relevant to the
geometry of markets, is that the numerical
sequence is such that each number is
approximately 1.618 times greater than the
number preceding it.
T R A D I N G W I T H T H E T I M E FAC TO R
At this point in time, I think it is important for you
to pause and reflect on that number 1.618, as you
will see it (or a derivation of it) appear time and
time again in the markets.
The relevance of 1.618 to geometry is that
it closely reflects the mathematical “Golden
Ratio.” The Golden Ratio has fascinated
Western mathematics for close to 2,500 years.
Mathematicians from Ancient Greece first
studied the Golden Ratio because of its frequent
appearance in geometry.
Since then, some of the greatest mathematical
minds of all time, including Pythagoras, Leonardo
of Pisa and the astronomer Johannes Kepler have
spent hours analysing the Golden Ratio and its
properties. Some have said that it has inspired
thinkers of all disciplines like no other number in
the history of mathematics.
17
The Fibonacci Retracement

In trading, I believe the Fibonacci sequence (in I also like to use the ratio of 38.2% in my analysis. The 61.8% point for example would be
particular, Fibonacci Retracements) is used more This is found by dividing one number in the represented by the price $7.18 – which equals
frequently by technical traders than any other Fibonacci series by the number that is found two 61.8% x $10.00 + the low of $1.00. We will
price forecasting tool in the industry. It is very places to its right – for example, 55/144 = 0.3819. discuss Fibonacci in more detail a little later.
rare for you to switch on the financial channel
on TV and not hear one technical analyst or Many traders will often use the ratio of 23.6%,
another discuss it. Perhaps it is the mere fact which is found by dividing one number in the
that nearly every technical analyst is aware of the series by a number that is three places to its right 23.6% 38.2% 61.8%
Fibonacci Retracement is what makes it relevant. – for example, 34/144 = 0.2361.
I will show you later on, just how powerful and
In my analysis, I stick simply to 61.8% and
predictive these retracements can be.
38.2%. For now, these are the only two numbers
A Fibonacci retracement is created by selecting we need to worry about.
two points on a chart, represented by a market
The example in the next chart uses the market
top and bottom, and by dividing the vertical
top identified as point A as the starting point and
distance by the selected Fibonacci ratios. The
the following market low at point B as the end.
percentages are then used to draw horizontal
(The price action in the chart actually reflects the
lines across the chart and identify possible
movement of the Australian stock market from its
support and resistance levels.
all-time high in 2007 to the end of 2013).
The key Fibonacci level used the most is a
For the purposes of our illustration however, we
retracement of 61.8%. Again, I point you back
will assume a nominal price for our starting and
to the Golden Ratio number I referred to early.
ending points. Each Fibonacci retracement level
It can be found by dividing one number in the
is calculated using the percentages between
Fibonacci sequence by the number that follows
these two points). For example, if the top at
it – for example, 55/89 = 0.6179. Whilst the
point A occurred at a price of $11.00 and the low
mathematical result of the numbers in each of the
at point B at a price of $1.00, we have a range
sequences does not exactly equal 0.618, they are
of $10.00 which we use to calculate the
very closely approximate. The number to use in
Fibonacci retracements.
your analysis however is 61.8%.

18 T R A D I N G W I T H T H E T I M E FAC TO R
 A
Start 0%

61.8%

38.2%

23.6%

B
End 100%
2008 2009 2010 2011 2012 2013 2014

The Fibonacci Retracement Intro .03

T R A D I N G W I T H T H E T I M E FAC TO R 19
Ralph Nelson Elliott

If you have spent any time studying technical

analysis of the markets, you will probably notice 5
the name R.N. Elliott come up – a lot. Elliot
is credited with discovering his Elliott Wave
3 B
Principle, which he used to describe market price
movements occurring as a result of natural human
behaviour.

The underlying premise to Elliott theory is that

4 A
markets represent a mass of people – the crowd
– and their behaviour. Changes in the mass of
1
psychology of the crowd will therefore cause
fluctuations in markets based on the underlying
C
pessimism or optimism of the crowd prevailing at
the time.

According to Elliott, this creates specific patterns

which can be measured in the markets and will 2
often repeat themselves due to the underlying
basis that human nature over time never changes.

At the heart of Elliott Wave Theory is that each

major market movement (or dominant trend)
will unfold in a five way sequence (represented
below as 1 to 5), and each minor movement
(or corrective trend) will unfold in a three way
sequence (represented below as A to C). Elliott Wave Principle Intro .04

20 T R A D I N G W I T H T H E T I M E FAC TO R
I acknowledge that this is just an over
simplification of Elliott’s work, and I apologise
if I have offended any of the Elliott Wave
practitioners out there.
However, what I have found, particularly with
the increase of computerised trading over recent
years, is attempting to identify a more detailed
application of Elliott Wave sequence and applying
it over the markets on the smaller moves (ie the
moves that occur within the major long term
trend) can produce confusing results.
In the interest of keeping it simple, I stick to the
basic five wave and three wave sequences above.
In the next chapter you will see that this is one
thing that both Elliott and Gann had in common.
Making it simple
One of the pitfalls which I have faced when
studying the various tools used in technical
analysis is that there are so many indicators, it
The basis of this book is
can make it difficult for the inexperienced to know all about simplifying your
which ones to use and when they should be used. analysis.
Over the years, Bob and I have discovered
that there were some techniques which work
better and more consistently than others. This
is particularly the case when using Gann. For For me, too much information can
Bob in particular, this has caused him to redefine make it all a little bit unworkable.
his analysis and simplify the way he looks at With that in mind, the Trading
markets. My own ability to forecast market tops Tools I am about to share with you
and bottom also relies on a selected number of are what I truly feel represent the
indicators which I use as primary tools.
absolute best.
These are the tools we will share with you in
this course – keeping it simple.
T R A D I N G W I T H T H E T I M E FAC TO R 21
SECTION ONE Identifying the trend
The first objective for anyone looking to analyse
The simple objective the market is to be able to identify the trend and
should be to trade the make sure you are invested with it!
trend – not a perspective. This section is all about showing you how to
review the historical price movements of your
selected market and identify what the chart is
telling you. It is my opinion that the greatest
profits are made by making sure you are trading
with the major trend and not against it. Not
only can your profits be much greater, but
trading with the trend is easier and requires
much less work.
One of the things you will need to control once
you have mastered the ability to predict a market
top is the lure of the fast gains that can be made
by successfully being able to nail a high which
precedes a crash. It is often said that ‘markets
will go up by the stairs, but down by the
elevator’ – in other words, bear markets bring
fast profits.
The problem is however, that markets in general
(equity markets in particular) spend most of their
time these days going up. If you are constantly
being a perma-bear trying to call every market
top, you will often see yourself sitting on the
sidelines whilst the others are making the bull
market gains.
T R A D I N G W I T H T H E T I M E FAC TO R
A very good case in point is the bull market in
Gold from the 2001 low to the September 2011
high. Whilst there were a number of significant
corrections in between, the best money to be
made was by holding a long position in gold over
that period. Once you were able to identify that
a bull market was underway, even a passive ‘buy
and hold’ strategy would have rewarded you
handsomely.
On the other hand however, attempting to trade
each of the corrections in the bull market and
always trying to predict the top would have left
you licking your wounds from being short, or
feeling cold while you were out on the sidelines
whilst the gains were being made. Repeat that
experience if you were a perma-bear constantly
calling for a correction in US equities to occur
throughout 2012 and 2013.
The safest money in that market (and the
easiest) was made by the bulls – not by the
bears. It was afterall, a bull market.
23
Chapter One – How to know you are trading with the trend

Markets will either operate in one of three stages 1900

of activity which can be described to categorise

the direction of stock or commodity prices:
1800
1. Bull market
Where prices are going up, defined by higher tops
and higher bottoms 1700

2. Bear market
Where prices are going down, defined by lower 1600
tops and lower bottoms

3. Sideways market
1500
Where prices appear to be ‘range bound’ and are
not consistently displaying the characteristics of
either a bull or bear market
1400

Illustration of a Bull Market

1300
The following chart depicts the performance of O-12 N-12 D-12 J-13 F-13 M-13 A-13 M-13 J-13 J-13 A-13 S-13 O-13 N-13 D-13
the S&P500 market throughout the 2013 calendar
year. Notice how the market was consistently
making higher tops (in green) and higher lows
The Bull Market Illustration 1.01
(in red).

In a bull market such as this, the safest money is made trading the long side of the market by
trading with the trend. The ‘buy and hold’ theory works beautifully in these types of markets.

24 T R A D I N G W I T H T H E T I M E FAC TO R
 20000
Illustration of a Bear Market
The chart (right) depicts the performance of the
S&P500 market throughout the bear market
campaign which began off the high in October
2007 until it reached its final low in March 2009.
Notice how the market was consistently making
lower tops (in green) and lower lows (in red). 2000

Bear markets will often move faster in terms of

price over a shorter period of time than a bull
market, and can easily get ugly if you are on the
wrong side of the trend.

200

20
1902 1912 1922 1932 1942 1952 1962 1972 1982 1992 2002 2012 2022

The Bear Market Illustration 1.02

T R A D I N G W I T H T H E T I M E FAC TO R 25
 50.00 -

48.00 -

46.00 -

44.00 - market
Illustration of a sideways
The following chart depicts
42.00 the
- performance of
the precious metal market in Silver throughout
2011 and 2012. Notice 40.00
how the - market during
that period was not distinctively making either
higher tops or higher bottoms,
38.00 - but was rather
trading within a range bound by the two horizontal
blue lines. These types 36.00 -
of trading conditions
are a professional traders dream but can be a
34.00
nightmare for the beginner who- will often get
caught buying from the professionals at the top of
32.00
the range and selling back -
to them at the bottom.

As an aside: notice how30.00

that -it was not until late
2012 where the Silver market made its first lower
top and lower bottom (as28.00 -
represented by the
green and red markers) – this was your indication
26.00 -
that the trend had turned down and that a bear
market had commenced.
24.00 -

22.00 -
a
20.00 -

2011 2012 2013

The Sideways Market Illustration 1.03

26 T R A D I N G W I T H T H E T I M E FAC TO R
 The clear lesson to be gained from that piece
of advice is that identifying what the trend is, is
fundamental before one should even think about
‘You will always make the entering the market. You will produce much
most profit by following better results attempting to identify and trade a
the main trend and market bottom in the middle of a bull run than
attempting to forecast each corrective top
playing the long swing… against it.

This is the view I shared with friends and

It is much better to make 3 or 4
trades each year and make large
profits, than it is to try and make
100 to 200 trades a year and be
wrong half the time, and finally
end up with a net loss.
colleagues in late 2011 when I became convinced
that the bull market in equities was set to
continue. Had I been looking for the short side
of the trade all of the time, it would have proven
itself to be quite costly. Those who were have
missed out on some of the fastest gains in
recent memory.

Let your rule be to – Know what the trend is, and make sure you are
on the right side of it!
GO WITH THE MAIN TREND,
AND NEVER BUCK IT.

If you don’t know what the trend

is, don’t get in the market.’

Source. W.D. Gann – How to Make Profits in Commodities (Pg 55)

T R A D I N G W I T H T H E T I M E FAC TO R 27
Swing charts
One of the simplest trend following methodologies
used by Gann in his analysis was the construction
of a swing chart. Gann used the swing chart not
only as a trend indicator, but as the basis for a
mechanical method of entering and exiting trades.
In order to construct a swing chart, you will need
to know the daily high and low prices in each
time period you are using. For this reason, swing
charts can be drawn using the traditional open-
high-low-close bar chart or from
candlestick charts.
How to construct a swing chart
The construction of a swing chart results in what
Gann called a Trend Line Indicator. It can be
created using any period of time – daily, weekly,
monthly, yearly or even intra-day periods.
When using a bar chart or candlestick chart,
there are four classifications of ‘day’ types. Each
is identified with respect to the previous day or
period.
1. Up day = higher high and higher low
2. Down day = lower low and lower high
3. Outside day = higher high and lower low
4. Inside day = lower high and higher low
28
In each case above, you can substitute the word
‘day’ with your preferred period of time – for
The swing chart provides you
example, week, month, hour, or 15 minute period.
with a definable, mechanical
method for identifying a trend and
In a bull market, the Swing Chart moves to the
high of on an up day and keeps moving higher removes much of the ‘noise’ that
until a reversal day or down day is recorded. If is created when using just a daily
the market has made three up days in a row, that bar or candlestick chart.
will convert into one vertical line moving all the
way up to the high of that third day. When the swing chart is making
higher tops and higher bottoms,
For the swing chart to move down, either a ‘down
the trend is up.
day’ or an ‘outside day’ would need to occur,
causing the low of the previous bar (or ‘day’) in Likewise, if the swings are making
the upward move to be broken, therefore creating lower tops and lower bottoms, you
the swing down.
should consider the trend down.
The swing chart would then continue lower until a
new ‘up day’ or an ‘outside day’ breaks new highs
on the bar charts. To make your life a little easier,
inside days are simply ignored for the purposes of
constructing a swing chart.
When an outside day occurs, my general rule
of thumb is to follow what the intra-day price
movements were when constructing your
swing chart. For example, if we have had three
consecutive up-days followed by an outside day
that started the trading day lower, but then ended
higher, I would swing the chart down to the low
of that outside day, and then back up again –
simply following the chronological movement of
the market.
T R A D I N G W I T H T H E T I M E FAC TO R
 When an outside day occurs, my general rule of thumb is to follow what the
intra-day price movements were when constructing your swing chart. For
example, if we have had three consecutive up-days followed by an outside
day that started the trading day lower, but then ended higher, I would
swing the chart down to the low of that outside day, and then back up again
– simply following the chronological movement of the market.
Illustration 1.04
The swing chart provides you with a definable, mechanical method for
identifying
The Swing Chart  a trend and removes much of the ‘noise’ that is created
Illustration 1.04
using just a daily bar or candlestick chart. When the swing chart with
making higher tops and higher bottoms, the trend is up. Likewise, many
swings are making lower tops and lower bottoms, you should considerthere thewhich are programmed to trigger stops and
trend down.
Multi-period or multi-point swing charts
One useful adaption of the swing chart is to minimise the number of swing
movements using time or price as a constraint. For example, rather than
construct a swing chart using every bar (or day) as your time period to
T R A D I N G W I T H T H E T I M E FAC TO R
Multi-period or multi-point swing charts
One useful adaption of the swing chart is to
minimise the number of swing movements using
time or price as a constraint. For example, rather
than construct a swing chart using every bar
(or day) as your time period to follow, you may
increase the amount of time or price required to
move your swing chart up or down. For example,
Gann often worked with 3-day swing charts.
A 3-day swing chart requires there to be three ‘up
days’ to occur before the swing line is moved up.
If only 2 days up occur, the swing does not move.
You can follow this same approach by filtering the
swings through price – ie a 100 point swing chart
means you need a price move of 100 points or
more before the swing chart line will move.
You should vary the price used depending on
your market. swing di prezzo
In my experience, I will most often use a one-day
swing chart and a 2-day swing chart to confirm
my forecasting. I have found that the 2-day swing
chart in particular is useful to cut out some of
the noise which can often result with the use of
when
a daily swing chart alone. This is particularly so
is the influence of computerised trading and
if theof the algorithm driven ‘black boxes’ out
therefore create false moves if using a one-day
swing chart.
21 29
Chapter Two – Sections of the market
Earlier on we touched upon the Elliott Wave
theory and the contribution it has made to
technical analysis. One of the common things
he shared with Gann was that they both
identified that bull and bear markets often work
to a set pattern, or structure which repeats in a
predictable way.
On page 50 of his book How to Make Profit
in Commodities, Gann discusses the various
sections that a market will run in a bull or
bear campaign.
30
Sections of Market Campaigns
A Bull or Bear Campaign in wheat or other commodities runs out in 3 to 4 sections.
Bull Market
1st Section Advance after final bottom, then a secondary reaction
2nd Section Advance to higher levels, above the highs of the first advance, then a reaction
Advance to new highs for the move. In many cases this means the end of the campaign.
3rd Section But you must watch for a definite indication before deciding that the third run up means a
change in the main trend
Often four sections are run out and this 4th move or run-up is the most important to
4th Section
watch for the end of a Bull Campaign and a change in trend
Bear Market A Bear Campaign runs opposite to a Bull Campaign
There is a sharp, severe decline which changes the main trend, then a secondary
1st Section rally on which Commodities are safer short sales. That marks the end of the 1st
section.
2nd Section There is a second decline to lower prices, followed by a moderate rally.
3rd Section A third decline or move to still lower prices, which may be the end of the campaign.
There is often a 4th move, which you must watch closely for bottom. In determining
whether it is final bottom you use all of other [indicators], watching old tops and old
4th Section
bottoms and resistance levels for definite indication that the main trend is ready to
change.
T R A D I N G W I T H T H E T I M E FAC TO R
Minor Bear Campaigns of short duration,
running one year or less often run out in two
sections, especially if the 1st Section is from
a sharp top.
Therefore, always watch the action of the
market after the 2nd decline to see if it is
forming a bottom and gives indication of a
change in trend.
One of the subtle differences between the way
Elliott and Gann described the movement of a
bull or bear market was the way they referred
to the movements within. Gann describe the
market movements in “sections” whereas Elliott
referred to them as “waves” which included the
movements that were made against the trend.
For example, in Elliott’s five wave sequence,
waves 1, 3 and 5 are all with the trend, whereas
2 and 4 are against it. Gann by contrast when
referring to his three “sections” was describing
moves that were solely with the trend.
La quarta sezione è sempre più piccola
Identifying the trend – the simple way It indicates that the momentum behind the
current trend is beginning to fade and that
The ability to identify a section of the market is
the market is beginning to reposition itself –
a simple task once you have seen the patterns
generally, the fourth section is where most of the
unfold a number of times. Despite its simplicity,
professional money takes the opportunity to lock
it is such a powerful tool to be aware of, as it
in profits and change their position.
helps you to identify what part of a run you are
in within the context of a much larger and longer The following chart is a weekly chart of the
term trend. S&P500 index between 2000 and 2010. It covers
the last three completed market cycles at the
Identifying a section of the market is as easy
time of writing (as the current bull market cycle
as looking at a chart and identifying which top
from the March 2009 low is still in progress).
and bottom stands out. If you are analysing a
bull market, look for a major low and the next
proceeding major high and that will give you your
section. Using a weekly or monthly chart will
often help you in identifying these correctly for a
major bull or bear market.
It really is as simple as that – the trick is not to
overcomplicate it!
A key observation which I have witnessed from
my analysis of past sections in major market
campaigns, is that more often than not, there
will be a noticeable fourth section that is much
shorter than the previous third section in terms
of both price and duration (or time). This to me
is a red flag, warning me that the major market
campaign is over and that a significant change of
trend is about to take place.
T R A D I N G W I T H T H E T I M E FAC TO R 31
 OCT 2007 TOP
1600 – MAR 200 TOP
4 1
1 3
1500 –

2
1400 –

1300 – 2 2 3

1200 –
3 1
1100 –

1000 –
4
4
900 –

NEW BULL
800 – MARKET BEGINS

OCT 2002 LOW il max non supera il max della sezione 4

700 – della campagna orso

MAR 2009 LOW

600 –
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Sections of the market – S&P 500 index Illustration 2.01

32 T R A D I N G W I T H T H E T I M E FAC TO R
 The first of the major cycles ran from the top in
March 2000 to the low in October 2002. You will
have noticed that the market moved in 4 distinct
sections down, with significant retracements up
nel mezzo occurring in between. Importantly, each of these
successive sections was characterised by a lower
top and a lower bottom – confirming that the
trend was in fact down.
Noticeably, the fourth section down was
significantly smaller both in terms of length (price)
and width (time), indicating that the market had
completed its bear campaign and that a long
stava term bull market was about to commence. This
was confirmed when the top of section 4 was
taken out during the first phase of the new bull
campaign starting in 2002.
Following the October 2002 low you will again
see how the market moved to 4 distinct sections
during a bull campaign which ran exactly five
years. You will notice that each of the four
sections is characterised by higher tops and
higher bottoms when compared to the last,
indicating the trend is most definitely up.
Some of you may point out that there was a
significant correction within the first identified
wave – I do not consider this to be a new section,
as it did not break the previous high of the last
section down which completed the preceding
bear market.
Once again, the fourth section of this campaign
was characterised by a period of smaller price
movement up and shorter duration. The
significance of the October 2007 top and the
confluence of price signals at the top gave a very
strong indication that the bull market was over
and that a period of lower prices was to follow.
Finally, following the October 2007 top, we
commenced another bear market which lasted
a period of approximately 73 weeks.
Again, the final section of this bear campaign
was characterised by a movement that was
both shorter in terms of price and time. Final
confirmation that the bear market was over was
provided when the top of section 4 was broken to
the upside after the March 2009 low had formed.
T R A D I N G W I T H T H E T I M E FAC TO R
How to determine when the trend
is changing
Gann laid out his rules pretty simply on page 51
of How to Make Profits in Commodities under
the section headed ‘How to Determine Change
in the Main Trend by Space Movements’.
In that section he outlines that:
‘When a decline in [price] exceeds the greatest
decline of a previous reaction, it is an indication
of a change in trend.’
He also identifies that we need to watch out for
the time periods to determine when the main
trend is changing. Again on page 51, he wrote:
‘When a campaign has run only 3 or 4 sections
and the TIME period on a reaction exceeds the
greatest time of a previous reaction consider
that the main trend has changed.’
These are what Gann referred to as an overbalance
in price and an overbalance in time, respectively.
33
Overbalancing of price
There are two main things to watch out for when
it comes to an overbalance in price. The first,
is to measure each of the price moves with the
trend. When these begin to get smaller, it is
an early sign that the strength of the trend is
weakening. If for example, you have been in a
bull market that has been running up in sections
of 100 points, then the first time you see a new
section up that runs less than 100 points, this
should provide you with the early warning that a
change in trend is due. This is particularly so for
campaigns that are in their third of fourth section
in a cycle.
The second thing to keep an eye on is the
movements in price in each of the counter-moves
within a campaign. For example, assuming we
are in that same bull market that has been running
up in sections of 100 points or more, and that the
movements against the trend have been running
at 50 points. The first time you see the market
moves lower by more than 50 points, the market
is telling you that price is overbalancing and that a
potential change of trend is on.
Overbalancing of time
The very same theory described to figure out the
overbalancing of price can be applied to time. Say
for example that each section of the bull market
has been moving up in 90 day time frames. The
first time you see a new section run up in a time
period that is less than 90 days, it is the early
warning indicator that the bull market cycle time
is up and that a change in trend is due.
34
Likewise, the same works with respect to the
movements in time for sections down. If in
that bull market, the greatest period of time that
a market has moved down has been 30 days, Important note:
and the market makes a move lower that has
continued for 45 days (as an example), time has
now overbalanced and is warning you that the Always watch out for changes in
change in trend is in place. both price and time separately, but
remember that the overbalancing
The best indicators are when you have both time
of time is most important.
and price overbalancing at the same time. This
should be a major warning to you that the trend is
changing.
Overbalancing of price and time –
example S&P500
The overbalancing of price and time described by
Gann earlier, is seen by measuring the counter-
trend moves within the sections of a major bull
or bear campaign. A tool which I have found
that has worked consistently is to keep a track
of the price and time movements of the sections
that are trading with the trend, as they will also
provide you with a guide as to whether the trend
is losing its momentum and is about to change.
To provide an example of how easy these
observations are to make in the market, I have
depicted the bull market campaign in the S&P
500 index from the October 2002 low which we
used in one of our examples earlier. To make
the analysis simple, I have identified both the
price and time movements (in calendar days) for
each of the sections up, as well as the counter
trend price movements (in price) for each of the
sections down.
T R A D I N G W I T H T H E T I M E FAC TO R
 205 pts UP
1600 –
336 pts UP
1500 –

1400 –

266 pts UP
1300 –
56
days

1200 –
394 pts UP 397 days

1100 –

1000 –
633 days

900 –

800 –

700 – 511 days

103 pts 107 pts 186 pts

600 –

Oct-01 Jun-02 Feb-03 Oct-03 Jun-04 Feb-05 Oct-05 Jun-06 Feb-07 Oct-07 Jun-08 Feb-09

Overbalancing of price and time – example S&P500  Illustration 2.02

T R A D I N G W I T H T H E T I M E FAC TO R 35
Table 2.01
Overbalancing of time and price – example S&P 500

Time Price Oberservations

Section One 511 days – up 394 points – up Nil.

Counter-Trend Reaction 103 points – down Nil.

Time expanding.
Section Two 633 days – up 266 points – up
Current 633 day move is greater than the 511 day move before it.

Counter-Trend Reaction 107 points – down Price reaction the same as first reaction.

Section Three 397 days – up 336 points – up Time decrease, but price expanding.

Price reaction significantly greater than previous reaction.

Counter-Trend Reaction 186 points – down
Early warning indicator to watch for a change in trend.

Significant decrease in time and price range up.

Section Four 56 days – up 205 points – up
Indication that a change in trend is forming.

The example above shows that by the time the third and fourth sections in the bull market had completed, the momentum behind the market was beginning
to wane. In particular, the fourth section of the market saw both the movements in time and price being significantly smaller than the previous moves in the
sections up. The counter-trend moves (ie the moves down) in price were also beginning to overbalance, indicating that bull market had completed its cycle
and the change in trend was about to take place.

36 T R A D I N G W I T H T H E T I M E FAC TO R
Chapter Three – The trend measuring techniques used by the professionals

The basic trend line is used as a starting point for

identifying the trend by almost all conventional
technical analysts. To construct a trend line, you
simply need to connect two points (either a low
to a low, or a high to a high) in a historical price
chart with a straight line, and continue to extend DOWNTREND
that line out into the future.

In the case of a bull market, trend

lines are recorded by linking a low
to a low, and as long as the market
continues to trade above that line,
the trend is considered up. The
reverse is true in the case of a
UPTREND
bear market.

Using the trend line Illustration 3.01

T R A D I N G W I T H T H E T I M E FAC TO R 37
Using the trend line
Trend lines can be used in one of two primary
ways.
1. Firstly, it is assumed that the market will
continue in the direction of the trend until the
trend line is broken. Once a trend line is broken,
it is an indication that the trend has changed,
and prices will continue heading in the broken
direction. For example, if an upward sloping trend
line is broken, it could be interpreted as a signal
to sell - either to liquidate a long position or to
instigate a fresh short position.
2. Secondly, trend lines are often used as places
to present buying or selling opportunities. When
market prices move back to the trend line and
then ‘test and hold’ against the trend line, it is a
signal to buy or sell off that point. In the case of
a bull market, for example, this would occur if the
price has moved down to the trend line, touched
it and then rallied higher.
A trend line is considered to be a ‘working’ trend
line when it has been ‘tested and held’ by the
market on multiple occasions. The greater the
number of times a trend line has tested and held,
the more significant it is when it is ultimately
broken.
38
Trend channels
Another of the most commonly used technical
tools by professional traders and hedge fund Important note:
managers is the use of the trend channel. To
construct a trend channel, you need to begin
with a basic trend line as your reference point. A Trend lines (in particular working
parallel line is then drawn on the other side of the
trend lines) always need to be
price bars connecting a significant top or bottom,
watched as they are used by
so that the price action is within the channel.
almost every technical analyst in
In the case of an up-trend channel, the high side the market.
of the channel is drawn across starting from a
significant top, while in the case of a down trend
channel the low side of the channel is drawn
across the bottoms. The following chart is the
weekly price action of the S&P 500 index across
2004 and 2007. Notice how the market traded
within a downward trend channel for almost a
year, before breaking out of the trend channel
and trading higher. Once it had broken up, it then
began trading within a new upward trend channel
for almost a further two years, before a break out
caused it to move to much higher prices.
T R A D I N G W I T H T H E T I M E FAC TO R
1560 –

1460 –

BREAK-OUT
1360 –
RETEST
INE
HAN NEL L
END C
EL TR
1260 – P ARALL

BREAK-OUT

1160 –

1060 –

S N 2004 M M J S N 2005 M M J S N 2006 M M J S N 2007 M M J S N

Trend Channels – S&P 500 Example Illustration 3.02

T R A D I N G W I T H T H E T I M E FAC TO R 39
Parallel trend channel lines
I have observed quite regularly that secondary
parallel lines can be drawn to create additional
support and resistance trend lines within a
working trend channel. In the same way that
the regular trend channel is created by linking
significant tops and bottoms, the secondary
parallel lines can also be drawn in using other
turns within the broader trend.
In the previous example, I have created a
secondary trend line (marked by the dotted line)
within the upward channel by linking a significant
bottom and extending an exact parallel line
across. This secondary line provided support and
resistance within the larger trend channel on a
number of occasions.
Break-outs and re-tests
You will find the occurrence of trend channels
happening frequently in the markets, particularly
in strongly trending markets where the price
action will move within the trend channel for
an extended period of time. You should also
pay close attention for break-outs of the trend
channels to occur. There are two types of break-
outs to look for.
40
1. Break-out against the trend – which often
signals a change of trend has occured (this
can be seen in the first break out in the chart
earlier)
2. Break-out with the trend – which occurs
when prices move out of an existing trend
channel, but in the same direction as the trend
(this can be seen in the second break-out on
the chart earlier)
You need to be mindful that the market will often
make false break-outs by trading slightly above
or below the working trend lines. This behaviour
occurs typically as the professional traders and
‘black box’ computer systems attempt to take out
stops that a number of people place right above
or below the working trend lines.
A break out therefore should only be considered
valid when there has been a strong move out
of the trend channel and the market has made
consecutive closes above or below the trend line.
Lastly, it is also worth noting that once a trend
line or trend channel is broken, the market will
often trade strongly out of it, but then make a
move back to ‘re-test’ the same trend line. In the
earlier example, you can see clearly that when the
S&P500 broke out of the upward trend channel,
it made a subsequent retest which produced a
terrific buying opportunity.
T R A D I N G W I T H T H E T I M E FAC TO R
I am always on the look-out for these to occur
when a working trend line has been broken and
I have missed the initial break-out. It is one of
the very few times when the market gives you
another opportunity to get set with the
new trend.
Moving averages
This is probably the most widely used and most
popular technical analysis indicator of all. Moving
averages can vary depending on whether you
are using a simple or exponential method of
calculation. The simple moving average however
is the most common. It is calculated by adding
the closing price of the chosen market over a
number of time periods, and then dividing this
total by the number of time periods. For example,
a 10 day moving average will add the last 10 days
of closing prices and then divide the sum total
by 10.
As a general rule, the shorter the time period
used in calculating the moving average, the
greater the use it has in identifying the short
term trend. In my view, the 10 and 20 day
moving averages are the most commonly used
by professional traders and hedge funds for
short term trend analysis, whilst the 50 day, 100
day and 200 day moving averages are the most
commonly used for longer term trend analysis.
The way in which the professionals use a moving
average is to apply it as an indicator to guide
them on the overall direction of the trend. If
market prices keep trading above the moving
average, the trend is generally viewed as up.
Likewise, the trend is considered down if prices
are trading below the key moving average.
A secondary way in which the professionals
commonly use a moving average is to use it
as a buying or selling indicator. If a market
has been trending above the moving average
for a considerable amount of time, then many
professional hedge fund traders will watch the
market to see if it moves back to touch the
moving average, before resuming the trend.
The point of touch will represent the buying (or
selling) opportunity.
I have noticed that a 200 day simple moving
average in particular is a pretty decent indicator
to identify when longer term trends are beginning
to break down. The next chart of the S&P 500
index shows how the 200 day moving average
essentially held the bull market intact throughout
1995 to early 2000.
Once there was a sustained breakdown of this
longer term moving average, the trend turned
lower for an extended period of time. Similar
break out patterns occurred when the bear
markets in 2002 and 2009 ended, as well as
when the bull market in 2007 was over following
the major high.
Throughout 2012 and 2013, the market has been
trading well above its 200 day moving average,
supporting the view that the trend is still up.
This moving average line therefore becomes
important to watch to determine if prices can find
support at the moving average, or whether they
will undergo a sustained break-down of the 200
day trend line, which will be an indicator to watch
out for a change in trend.
T R A D I N G W I T H T H E T I M E FAC TO R
A number of trading systems out
there will often employ the use of
multiple moving averages which
generate buy and sell signals when
certain moving averages “cross”
with one another. Personally, I
have found the use of these types
of systems to provide little to no
assistance in my analysis, so I do
not consider them when analysing
the markets.
In my analysis, I try and observe
the 50, 100 and 200 day moving
averages, and will use them
primarily as indicators to help tell
me what the rest of the crowd may
be looking at.
41
 1800 –

1600 –

BREAK = TREND DOWN BREAK = TREND DOWN

1400 –

1200 –

1000 –

800 – BREAK = TREND UP

BREAK = TREND UP

600 –

400 –
1995 1997 1999 2001 2003 2005 2007 2009 2011 2013

200 Day Moving Image – S&P 500 Example  Illustration 3.03

42 T R A D I N G W I T H T H E T I M E FAC TO R
T R A D I N G W I T H T H E T I M E FAC TO R 43
 TRADING TOOL BOX ONE HOW TO TRADE WITH THE TREND
1. Trend Identification
• Identify the characteristic that the
market is trading in. Is it in a bull,
bear or a sideways market?
• Use your weekly swing chart to
help you determine whether the
market is making higher tops and
higher bottoms (bull market) or
lower tops and lower bottoms
(bear market).
44
2. Sections of the market 3. Overbalancing of price
and time
• Identify what section of the • Keep a count of the price and time
market cycle you are trading in. movements in each section to
determine if the market is
• Are you in the first, second, third
beginning a change in trend.
or fourth section of a major bull or
bear market? • Look out for overbalances in time
and price which might suggest
that the momentum behind the
current trend is changing.
T R A D I N G W I T H T H E T I M E FAC TO R
4. Trend lines
• Are there any valid trend lines to
determine whether the market is
in a definable, consistent trading
pattern?
• In a bull market, buying
opportunities can be found when
the market tests the bottom of a
trend channel.
(vice versa for a bear market)
• Look to hedge your position or
take profits at the top of a trend
channel. The opposite is true in a
bear market.
5. Moving averages
“Always trade with
the trend – the
• Is the market trading above or
objective should be to
below the 50, 100 and 200 day
moving averages? Medium term identify opportunities
trends will be referenced by the 50 to trade in the same
and 100 day moving averages and direction as each
longer term trends by the 200 day.
section of the market.”
• Keep an eye out to see if the
market moves back to touch a
major moving average line for
future price support or resistance
- nearly all the professional
traders do!
T R A D I N G W I T H T H E T I M E FAC TO R 45
46 T R A D I N G W I T H T H E T I M E FAC TO R
SECTION TWO How to forecast price

Many traders and investors will probably know

This section of the course the feeling of what it is like to sell out of a stock
is all about demonstrating too soon or buying into it too late. It can certainly
be a frustrating experience selling a stock and
to you the geometric seeing it continue to rise another fifteen or
relationship that exists twenty percent.
between past movements This section of the book is all about
of price and how these demonstrating to you the geometric relationship
can be used to forecast that exists between past movements of price
and how these can be used to forecast future
future movements of price. movements of price.

Once you have mastered the ability to identify

how past movements in price affect future
movements, you will then be able to translate
these into calculating future price support and
resistance levels on any market – not only can
this be useful in forecasting future tops and
bottoms, more importantly, it will significantly
improve your entry and exit points into your
chosen stock or commodity.

T R A D I N G W I T H T H E T I M E FAC TO R 47
Chapter Four – Price retracements
I think it is without doubt that one of the most
commonly used technical analysis techniques is
the price retracement. Nearly all on-line trading
platforms contain a function allowing you to
calculate pre-defined price resistance levels with
the simple click of a button.
I have found price retracements on defined levels
to be one of the most reliable indicators available.
Retracements in price on key levels occur time
and time again, no matter what the time frame is
that you are looking at.
Gann covered this topic in quite some detail
in chapter II of his book How to Make Profits
in Commodities. There are probably two key
sections in that book to turn your attention
to. The first is on page 34 under the heading
‘Range of Fluctuations’ where Gann describes
how to calculate price retracements using the
previous range of price. The basic rule is to
take a significant high or low of a price move
and subtract the high from the low to get the
range. You then divide the range using your price
retracement levels to determine your support or
resistance points.
On page 34, Gann describes a number of
percentages to use when determining price
retracements. These are divisions of 12.5%,
25.0% and 33.3%.
48
According to Gann, you should therefore watch
for support and resistance at the 12.5%, 25.0%,
33.3%, 37.5%, 50.0%, 62.5%, 66.6%, 75% and
87.5% levels. Personally, I think the use of so
many levels in your analysis is overkill, particularly
in fast moving markets such as stock indices
or currencies.
In Gann’s defence, he was writing about
commodities (as the title of his book points out),
and those divisions of price can be relevant in
markets that trade at low prices. With that said,
to simplify my analysis, I will filter many of these
divisions out, and I therefore rarely ever use the
12.5% or 33.3% divisions in any of my analysis.
The point I am trying to make, is that when you
use every possible division of a range, you come
up with too many price objectives and this will
confuse your trading decisions.
I have found that the use of the following price
retracement points are all you need to know
in order to produce a successful forecast and
identify key buying and selling points:
38.2% 50.0% 61.8%
Strangely enough, these are often the default
percentage levels used by most on-line trading
platforms. Maybe it is the reason why they
seem to work so often as everyone is looking
out for them.
T R A D I N G W I T H T H E T I M E FAC TO R
You will have noticed that two of my price
retracement points 38.2% and 61.8% come from
the Fibonacci sequence of numbers. The other
level however, is what I consider to be the most
consistent and powerful of them all – the 50.0%
point.
Gann describes this on page 36 of How to Make
Profits in Commodities under the heading ‘The
50% or half-way point.’ In that section he says:
‘Always remember that the 50% reaction or
half-way point of the range… is a point for
support on the downside or for meeting selling
and Resistance on the way up. This is the
balancing point because it divides the range of
fluctuation into two equal parts.’
Later on, he goes on to say:
‘You can make a fortune by following this one
rule alone. A careful study and review of past
movements in any Commodity will prove to you
beyond doubt that this rule works and that you
can make profits following it.’
I have found that the 50% rule has an application
in markets no matter what the time frame being
used. I use it predominantly on daily chart
analysis to help me identify intermediate buying
and selling points to provide an entry point that is
with the trend. I know that Bob uses it heavily on
his intra-day chart analysis, to help him with his
initial trade entries.
What I find truly astounding however is that a
number of significant turning points in the market
will often coincide with a 50% retracement. This
is particularly so when a market turns on a fifty
percent level between a yearly top and yearly
bottom. As Gann outlined in his book – ‘The
wider the range and the longer the time period,
the more important is this half-way point when
it is reached.’ In a later chapter, I will walk you
through an example of the 1929 Great Depression
high and the final low in 1932 for the Dow Jones.
The significance of the 50% level between
those two points was immense – it was only
until that point was crossed (in 1952 nearly 20
years later) that a new major bull market in US
equities started. This highlights the importance
of identifying the level that balances price in
a market.
Major, minor and intermediate Minor price ranges will use a much shorter
price ranges period of time, typically over a number of days.
Retracements within a minor price range will
In all of your analysis, there will be a major, a
often allow you to determine other minor tops and
minor and an intermediate range of price or time
bottoms within a move, but will provide you with
period of significance. In general terms, the
very useful targets for trade entry and exit points.
longer the price range (as measured by the period
of time in between the high and low points) the I regularly use minor price retracements in
more significant is the range. conjunction with my ‘trading to Time’ Tool in order
to establish tradeable turns within a market. I will
A major price range is determined by taking
also show you an example of intermediate and
the yearly (or cyclical) high and low of a major
minor price ranges working in the market shortly.
bull or bear market and calculating the distance
the market has travelled in price. A major price Finally, intra-day movements can be used to
range will therefore be significant for calling other determine micro price ranges. Just as a major,
significant market tops and bottoms (such as a minor or intermediate price range is calculated,
yearly high or low). I will show you an example of micro ranges can be determined using intra-day
a major price range at work, shortly. charts (such as an hourly, 15 minute or even a 4
minute chart). Micro ranges can be especially
An intermediate price range is determined by
useful to zoom in when you are looking to take
taking a significant high and low within a major
a trade by providing you with very close entry
cycle and calculating the distance between those
points. As an example, if my time calculations
two prices. Intermediate ranges will sometimes
are indicating a top due on say 16 September,
call significant (yearly) tops and bottoms, but will
I will often zoom in and use the 50% or 61.8%
often determine turning points within a section of
retracement of an intra-day chart to help me
the market. Additionally, the price retracement
determine a trade entry point.
of an intermediate range will help you determine
the strength of a market, and whether the next
section of the market is likely to exceed the
previous one.
T R A D I N G W I T H T H E T I M E FAC TO R 49
Determining major ranges – Start- 1576
S&P 500 (using yearly lows)
The following chart is a weekly bar chart of
the S&P500 illustrating the importance of
our three key price retracement levels using
the major range that was made between the
October 2007 bull market high at 1576 and
the March 2009 bear market low at 667.

Notice how the market retraced and found

resistance almost exactly at the 61.8%
Fibonacci level to form a significant top. It 61.8% - 1229
then found future support and resistance on
our two other key price retracement lines,
further illustrating the significance of these 50.0% - 1121
major price retracement levels in the market.

38.2% - 1014
Determining minor ranges –
S&P 500 (daily chart)
The same application of calculating price
retracements using ranges can be made
using a shorter time frame and by using
minor tops and bottoms within a section of
the market.

In the next chart, I have again used price

End - 667
action in the S&P 500 off the October 2011
low, and have used the minor tops and
bottoms that subsequently occurred to OCT 2007 MAR 2009 OCT 2011
calculate future price support points over
a shorter time frame
Determining major ranges – S&P 500 Illustration 4.01

50 T R A D I N G W I T H T H E T I M E FAC TO R
 You will notice that the market found support at on one of our three key price retracement levels at every single turning point during the bull
market campaign from 2011 to 2013. This provided five distinct buying opportunities that would have kept you long and with the main trend
using this single technique alone!
1800 –

1800 –

E
1700 –
E
50.0%
1600 –
38.2% S

1500 –
E
E
1400 –

61.8% S
1300 – END
61.8% S

1200 –

61.8% S
1100 –
START

1000 –
Jul 2011 Dec 2011 May 2012 Oct 2012 Mar 2013 Aug 2013

Determining minor ranges – S&P 500 Illustration 4.02

T R A D I N G W I T H T H E T I M E FAC TO R 51
Gauging the strength of a market using
price retracement points
Earlier, I highlighted that the 50% level acts as a
significant level to watch within all markets. The
half-way point acts as a balancing level for price,
often giving you an indication of the underlying
strength of a trend. You should always watch
to see how deep the corrective retracement (or
counter-trend price move) is within a market to
determine the overall strength of the
main trend.
When the market is able to find support or
resistance before the 50% level is reached, you
can normally expect it to continue to new highs
(or lows) when the market resumes its trend.
The opposite is generally true when a market
retraces more than 50%. This is a potential sign
of trend weakness. If the 50% level is broken,
I will then pay particular attention to the 61.8%
level within a price retracement. I have found that
if the market cannot find support at the 61.8%
level it is an indication that the previous trend is
weakening and running out of puff.
52
To illustrate how the 50% level can be used as
a gauge of strength, the following chart depicts
the weekly price action of the S&P500 off the
March 2009 low and the subsequent major high Important note:
that it made in late April 2010 (an intermediate
price range). As we established in section one
earlier, once it became clear that the March 2009 As a general rule, a market is more
low was in and the trend was up, the primary likely to continue moving with the
objective would be to ensure you are trading
current trend if it is able to find
with it and identifying buying opportunities along
support or resistance before the
the way.
50% level is reached.
It can be seen from the following chart that the
market moved almost exactly to our first key
intermediate price retracement level at 38.2%.
Once this point held as support, using our general
rule we figure that the new bull market underway
has strength, and that the April 2010 high should
ultimately be taken out. The following chart
reveals how the future price movement unfolded
in exactly that way.
T R A D I N G W I T H T H E T I M E FAC TO R
1800 –

Once the 38.2% price level held, we knew the bull market underway had
strength and that the April 2010 high should ultimately be taken out.

1600 –

1400 –

APRIL 2010 HIGH

1200 –

1000 – 38.2% < 50% (STRENGTH)

50.0% = 50% (BALANCED MARKET)

61.8% > 50% (WEAKNESS)

800 –

MARCH 2009 LOW

600 –
Jan-08 Aug-08 Mar-09 Oct-09 May-10 Dec-10 Jul-11 Feb-12 Sep-12 Apr-13 Nov-13

Gauging the strength of a market – S&P 500 Example Illustration 4.03

T R A D I N G W I T H T H E T I M E FAC TO R 53
Chapter Five – How to use previous tops and bottoms to forecast future prices
One thing which has consistently stood out to
both myself and Bob during our years of analysing
and trading the markets, is the way in which the
price of a future top or bottom has, in some way,
a direct mathematical proportion to a previous top
or bottom.
Gann described this in some detail in both
Chapter IV of his book How to Make Profits
in Commodities and in Chapter IV of his book
45 Years in Wall Street. I think both of these
chapters are worthy of further study and
attention. On page 30 of his book 45 Years
in Wall Street, he outlines:
‘One of the greatest discoveries I ever made
was how to figure the percentage of high and
low prices on the averages and individual
stocks. The percentages of extreme high and
low levels indicate future resistance levels.
There is a relation between every low price to
some future high price, and a percentage of the
low price indicates what levels to expect the
next high price.
54
There are only nine pages contained in chapter
IV of 45 Years in Wall Street, but these are nine
pages well worth the read. I think reading this
chapter with a historical price chart of the Dow
Jones in front of you is the best way to truly get
a proper appreciation of what Gann is trying to
tell you. When doing so, you should perform the
calculations yourself and identify the tops and
bottoms he is referring to.
Dow Jones index 1921 to 1953
(45 Years in Wall Street)
To speed up the process for you, illustration 5.01
outlines a number of the significant turning points
in the lead up to the Great Depression high in
1929 and the subsequent low which followed in
1932. In 45 Years in Wall Street, Gann refers to
a number of other significant tops and bottoms
when arriving at his calculations. The price points
I am about to show you below however illustrate
the power of this Trading Tool using only one
major low as a reference point.
The monthly bar chart starts using the extreme
low in the Dow Jones Industrials index which
occurred at 63.9 on 24 August 1921. (As an aside,
please remember that date of 24 August for the
time being – you will see it popping up again a
little later). Gann often referred to extreme lows
or highs as the points which ended or began
multi-year long bull or bear markets.
T R A D I N G W I T H T H E T I M E FAC TO R
In his book, Gann described the 1921 extreme
low as 64 points exactly. We will use 63.9 in our
calculations, as that was the actual price of the
low according to my data.
We use that low and then calculate repeating
ranges of that price to give us future price targets
to act as support or resistance in the market.
A 100% repeat of the low gives us 127.8 (or 2 x
63.9) as a future resistance level to watch. The
cycle low for the year in 1943 came in at 128.9.
Whilst it doesn’t look like a huge turning point on
the following chart, it did see the end of a pretty
significant run down off the 1943 high which ran
for a period of 138 days – so it is certainly not a
point to be sneezed at.
Next we figure that 300% of our 1921 low
(or 3 times 63.9) gives us a price objective of
191.7. You will notice that a very major cyclical
top formed in 1937 around that resistance level
at 195.6.
Moving on to our next price next target using that
that low, we calculate 400% of 63.9 which equals
255.6. Notice how the yearly low in 1953 came
in at a price almost within one exact point of
this price.
At this point in time, I would like to take you
back to our chapter earlier on price retracements.
The Fibonacci level of 61.8% between the 3
September 1929 top and the 8 July 1932 low is
254.1. So our 1953 low was also within a single
point of that! In other words, our calculations
are telling us that the 254 to 255 price region is a
significant place to look for key turning points in
the future.
Remember, we are using calculations which
called a low in 1953 from a price that occurred 30
years earlier, using techniques from a book that
was published in 1949!
The next percentage level off our 1921 low is
500% which gives us a price target of 319.5 to
watch. If by now, you are beginning to expect
this tool to call market turning points every single
time, I can understand why, but I think that might
be expecting a little bit too much. In any event,
this price did not produce anything of major
significance, so I have left it off the charts.
Finally, we go to our next major percentage level
at 600% of the 1921 low which gives us a price
target of 383.4 to look out for. In his book, Gann
Remember, we are using
calculates other price resistance levels using
other previous tops and bottoms to give him the calculations which called
additional price targets of 384.75 and 388.50. a low in 1953 from a price
Averaging out the three of those prices together
that occurred 30 years
give us a forecast price of 385.55.
earlier, using techniques
The highest point at which the Dow Jones sold
from a book that was
to, marking the top of what I consider to be the
greatest stock market high of all time, was 386.10 published in 1949!
– so our calculations are less than one point out!
T R A D I N G W I T H T H E T I M E FAC TO R 55
 500 –

450 –

3 SEP 1929
TOP = 386.1
400 –
600%

350 –

300 –

250 – 400% 1946

TOP = 213.4
10 MAR 1937
TOP = 195.6 15 SEP 1953
LOW = 254.4
200 –
300%

150 –

200%

100 –

50 –
8 JUL 1932
24 AUG 1921 LOW = 40.6
LOW = 63.9

1920 1922 1924 1926 1928 1930 1932 1934 1936 1938 1940 1942 1944 1946 1948 1950 1952 1954

Using previous highs and lows to forecast price – Dow Jones Index example
example Illustration 5.01

56 T R A D I N G W I T H T H E T I M E FAC TO R
Before we go any further, there is something
important which I would like to point out from
chapter IV of 45 Years in Wall Street which I apply
to my own analysis of the markets. In his book,
Gann outlined that:
i. The most important resistance level is
50% of any high or low price. 1
ii. Second in importance is 100% on the
lowest selling price on the averages or
individual stocks. 2
iii. You must also use 200%, 300%, 400%,
500%, 600% or more depending upon
the price and the Time Periods from
High and Low.
1
‘For example 50% x 386.1 High = 193.05’
(Which called the 1937 top)
2
‘For example 2 x 63.9 Low = 127.8’
(Which called the 1944 low)
In the examples earlier, we used exact multiples
only of a significant market low to define future
market support or resistance points. In his book
however, Gann also referred to the using the
divisions of 25%, 12.5% and even 6.25% from
major highs and lows as third, fourth and fifth in
importance.
A problem which both Bob and I have found
in using so many percentages is that you
end up with too many support or resistance
points on your chart. In our experience, this
overcomplicates the exercise and can cause
confusion, making it difficult to know which
price targets to actually trade from.
If, for example, you are calculating each 25%
division, you will end up with 4 series of price
targets before you get to the next multiple.
If you are using two or three major lows to
calculate your price objectives, then you will
double or triple the amount of price targets…
and so on.
As a basic rule, I stick mainly to exact multiples
of previous highs and lows, and will occasionally
use 150%, and 250% multiples (and so on) if my
analysis can handle it.
T R A D I N G W I T H T H E T I M E FAC TO R
Using the 50% rule to project the
price of a future top or bottom
Before we get on to a present day example
using the S&P500 index, I would like to revisit
a point I made earlier about using the 50%
division of a high or low price. One way to apply
this technique is simply to take the price of a
major market high and divide it by two in order
to calculate the future prices of potential tops or
bottoms. Using the 1929 high as an example,
50% of 386.1 equals 193.0 – which is within
three points of the 1937 high of 195.6.
Using 50% of a major price range is another
level that should be watched for future price
support and resistance to occur. For example,
following the 1929 high of 386.1, the Dow Jones
made its final Great Depression low in 1932 at
a price of 40.6 – this gives us a very important
price range of 345.5 to calculate future support
and resistance.
The 50% price retracement point using this
range is 213.3 – within a fraction of the yearly
high in 1946 at 213.4.
57
The significance of these 50% points in the 500 –

market after such a major period is immense.

450 –
Following the significant losses made during the 3 SEP 1929
Great Depression, the Dow Jones took over 14 TOP = 386.1
400 –
years to make back half of what was lost, when START
it reached its high in 1937 at a price of 195.6. 350 –

It was almost 20 years until prices were able to

make a clear break of the 50% balancing point 300 –

between the 1929 high and 1932 low, when the

US stock market was finally able to break into a 1946
250 –
TOP = 213.4
new bull market and past the prices reached
50%
in 1929. 200 –

In the case of the Dow Jones, the 50% price 150 –

held for almost 20 years and it was only until
prices were able to make a clear break of that 100 –
balancing point, that the US stock market 8 JUL 1932
eventually went on to break through the high LOW = 40.6
50 –
that was made in 1929. END

0–
1922 1924 1926 1928 1930 1932 1934 1936 1938 1940 1942 1944 1946 1948 1950 1952 1954 1956

The 50% Rule – Down Jones Index Illustration 5.02

58 T R A D I N G W I T H T H E T I M E FAC TO R
Worked example – S&P 500 index
(1978 low and the 1987 top)
I now want to demonstrate to you how the
principles described to you earlier continue to
work in today’s markets.
History will go down as showing that the top of the S&P500 before the 1987 crash came in
at 338 – within a fraction of our forecast resistance points. Incidentally, the date of the high
in the S&P500 occurred on 25 August 1987. I hope that date sounds familiar!

The first chart starts with the yearly low in the 400
S&P500 index made on 1 March 1978 at a price
of 86 points. The next multiple of 86 (or 200%
25 AUG 1987
of it) gives us a price target of 172. The yearly TOP = 338
high in October 1983 came in at a price of 173.
Moving on another 86 points gives us a future 86 x 400% = 344
price target of 258. The yearly high in 1986
came in at a price of 254 on 27 August 1986. 300
27 AUG 1986
If you recall, I asked you to remember the date TOP = 254
of the 1921 low we used in the Dow Jones
86 x 300% = 258
example earlier which occurred on 24 August.
This is a very significant time for the Dow Jones,
with many significant turning points in the market
occurring on or around that date – this is a time 10 OCT 1983
200 TOP = 173
you should always watch on the Dow Jones
index. (But more on that later). 86 x 200% = 172

Next we calculate 4 times the low of 86 to give

us a price point of 344. An exact repeat of the
October 1983 high of 173 also gives us a price
target of 346 (173 x 2). By these calculations, 100
we should figure that the area of 344 to 346 1 MAR 1978
LOW = 86
will be met with heavy resistance.

1978 1980 1982 1984 1986 1988 1990

S&P 500 index (1977to 1990)  Illustration 5.03

T R A D I N G W I T H T H E T I M E FAC TO R 59
How to forecast future prices using
previous highs and lows – S&P 500
index (2000 to 2009)
I now want to fast forward a bit in time and look
at some of the most recent market price action in
the S&P500 to demonstrate that the approach of
using previous prices to forecast future tops and
bottoms is still relevant today.
The following chart of the S&P500 covers the
price action between 2000 and 2013. We start
by taking a look at the tech-bubble high reached
on 24 March 2000 at a price of 1553. In the
earlier example, we were using the first three
multiples of the 1978 low in the S&P 500 to
calculate the yearly highs in 1983, 1986 and
1987. Contiuning the sequence higher, we
would then calculate that 18 x 86 = 1548.
1978 low
x 18
1987 high
x9
average of two forecasts
March 2000 (tech-bubble high)
60
Alternatively, you could use the October 1983
high of 173 (which is derived from the 1978 low)
and multiply that by 9, which will you a target
price of 1557. In any event, the average of those
two prices gives us 1553. The price of the tech-
bubble high for the S&P500 reached in March
2000 was 1553 – exactly.
Following the high in March 2000, US equities
moved into a signficant bear market. Earlier,
I highlighted that Gann noted that the most
important price level to watch out for is 50% of
any high or low, so following those principles, we
would now be looking to see if our 50% price
point can provide any support to the falling
stock prices. Calculating that 50% of the 1553
high gives us a price of 776.5, we would be wise
to watch and see what prices do at this point.
= 86.0
= 1548 (price forecast one)
= 173.0
= 1557 (price forecast two)
= 1553 (average price forecast)
= 1553 (actual)
T R A D I N G W I T H T H E T I M E FAC TO R
The following chart highlights a series of three
lows (or triple bottoms) which occurred following
the tech-wreck bubble in 2000. The first of
those significant lows occurred in July 2002 at a
price of 776 –an exact 50% division of the high
which the low was coming from.
The extreme low price in October 2002 occurred
at 769, whilst a subsequent low occurred in
March 2003 at 789. The average of these three
prices was 778. We would then figure that the
the price average of 778 becomes an important
price to work with. A repeat of this range (or
2 x 778) provides us with a target of 1556.
The market made a significant high on 16 July
2007 right on 1556 and sold off heavily, before
recovering to rally to its final high in October
2007 at a price of 1576.
Projecting these numbers for one more
cycle gives us a future price of 2328
(or 3 x 778) to look out for.
Whenever you see numbers working to provide
future levels of price support and resistance, it
always pays to keep a close eye on them in the
future. Not only will you notice those numbers
working to produce future prices, but you will
also see those same numbers appearing as
significant calendar day time counts in
your analysis.
 789 low x 200% = 1578

1600 – OCT 2007

MAR 2000 JUL 2007 TOP=1576
TOP = 1553 TOP=1556
773 pts DOWN

1400 –

1200 –

1000 –

800 – JUL 2OO2 MAR 2003

LOW=776 LOW=789

OCT 2002
LOW=769

600 – Average of 3 bottoms = 778 MAR 2009

200% x 778 = 1556 LOW=667

400 –
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

S&P 500 (1998 to 2010) Illustration 5.04

T R A D I N G W I T H T H E T I M E FAC TO R 61
 In my view, the brilliance
of the discovery by
Gann that the future
prices of tops and
bottoms are directly
related to previous tops
and bottoms lies in its
simplicity.

There is no need for

a Nobel Prize award
winning mathematical
algorithm to forecast the
price– all it needs is the
use of a simple calculator.

62 T R A D I N G W I T H T H E T I M E FAC TO R
Chapter Six – Price projections
Fibonacci extensions
In the same way, that we use the levels
inspired by Fibonacci in our price retracements,
his sequence can be applied to project future
movements of price to identify where the next
section of the market is likely to end up.
A Fibonacci extension is simply created by
using a range as a reference point (for example
using the range created by a low to a high), and
then projecting that same range off the next
major turning point (in this case, the next low).
The same levels used in your Fibonacci price
retracement sequence are then applied to
the extension.
The key levels I use in my Fibonacci extension
analysis are as follows: 38.2%, 50.0%, 61.8%,
100%, and 138.2%, 150% and 161.8%
I do however believe there is validity in exploring
the 23.6% and 123.6% extensions in your
analysis if you believe your trading can handle
the additional price levels.
In the next example, our reference range starts Sections of the market and repeating
with the 10 October 2002 low in the S&P500 Fibonacci extensions of price
index, marked “A”, to the following cycle high
I continue to be amazed by the frequency with
on 11 October 2007 which is marked “B”. We
which future movements in price are either an
then calculate our Fibonacci extensions using
exact repeat of a previous movement of price
the next major low which occurred on 6 March
(or very close to it). In his works, R.N. Elliott
2009 marked “C” – or in other words, “start”,
observed that it will often be the case that two
“end”, “extend”.
out of the three waves with the trend will be
equal in either time or price. I have certainly
As with Fibonacci retracements, extensions of
found this to be true a number of times.
price can be used to work with major, minor
and intermediate price ranges. The greater the
Watching for repeating price movements applies
price range, the more significant is the Fibonacci
equally to major ranges which occur over a
extension in calling future support and resistance
number of years as well as intra-day movements
points in price. When I see Fibonacci extensions
which occur over a matter of minutes or hours.
reacting off a 100% level, I will watch these
I have seen markets move with such precision,
closely to produce a change in trend. This
that sometimes I expect (unreasonably) that each
provides me with not only a place to look for
and every move must unfold with such repetition.
market turns, but an excellent opportunity to
There is certainly a level of restraint required to
hedge an existing position.
ensure you don’t hold out for those extra couple
of points to achieve perfection.
Pay close attention to the 100% extension
level which is the most important – this is
where the previous price range (or cycle) will
have repeated itself
T R A D I N G W I T H T H E T I M E FAC TO R 63
 When price ranges repeat in conjunction with our other price
2000
indicators (particularly with a key retracement level), it is a good 161.8%
sign that the price move is over and there will be a change in trend.
150%

138.2%
END
1600
B
100%

1200
61.8%
50.0%

38.2%

800
A
START C EXTEND

400
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

6.01 Fibonacci Extensions Illustration 6.01

64 T R A D I N G W I T H T H E T I M E FAC TO R
Australian SPI futures and repeating Following the 22 September low, the market ran
Fibonacci extensions to a yearly high of 3414 on 7 November 2000.
This completed a larger overall move from a major
The following is an example of the Australian
low which occurred on 22 March 2000 at a price
equities market futures contract known as the
of 2957. The price range between these two
Share Price Index contract, or SPI, for short.
market turns (3414 minus 2957) equalled 457
The reason why I am using this as my first
points – exactly two times the 228 point move
example is because this was my first serious
down which occurred just before it and a repeat of
real time experience observing prices repeating
the all-time low price for the SPI futures market.
in this market.
From the 3414 high, we would then figure that
Illustrations 6.02 and 6.03 represent the daily
the market might have another 228 points of
price action in the SPI over the period between
downside in it. This would give us a target
2000 and 2001. During that time, prices
of 3186 to look out for. Not only would this
essentially traded in a sideways for an extended
represent a repeat in price, but it would also mean
period. I have highlighted three key sections to
the market is finding resistance at the 50% level
demonstrate the price symmetry in each of the
of the range between the 3414 high and the
major moves that occurred in the market over
2957 low.
that period.

The first price movement was the one which saw

a run down from the top of 3398 on 24 August
2000 to the low of 3170 on 22 September 2000 –
a price move of 228 points. The price range 228
was already significant to watch in this market, as
it represented one half of the all-time low that the
SPI futures contract ever traded, which was the
low on 1 March 1983 at a price of 458.

T R A D I N G W I T H T H E T I M E FAC TO R 65
 Start – 7 Nov 2000 high at 3414
Previous major range down = 228 points
Price target calculation: 3414 minus
228pts
Price forecast (one) = 3186
The actual price of the 21 December 2000 low was 3186 – exactly!
After the 3186 low, the market continued its
sideways action and reached a double top in
February and March of 2001 at a price of 3371.
Once the double tops had confirmed, we would
calculate (yes, you guessed it) that the market
could move down another 228 points. This
would give us a price target of 3143. The range
marked as section “C” highlights this price action
and that a low was made on 22 March 2001 at
exactly 3143. This low was further supported by
a double bottom on 29 March at 3144.
I can recall very distinctly watching this unfold
as it did. Not only was price working in exact
proportions, but so too was time.
66
Start 7 Nov 2000 high at 3414
I can recall very distinctly
Previous major low on 22 March
watching this unfold
2000 at 2957
as it did. Not only was
price working in exact
Price range = 457 points
proportions, but so too
was time.
50% price retracement
Price forecast (two) = 3185.5
(I will show you why in a later chapter where I To finish this analysis of the 2000 and 2001
will demonstrate how easy it was to forecast markets, I think it is also important to highlight
the dates to watch for the changes in trend). that following the 3143 low, the next major price
move in the market was a range of 345 points
The set-ups in this sequence of price up to the 2001 yearly high of 3491 on 29 June.
movements were simply just too good to be true. Interestingly, the range up of 345 points is almost
I remember Bob being so confident that the exactly a 150% repeat of our previous working
market would reach 3143 that he put a call into range of 228.
his broker to place a buy order at exactly 3143
more than a week before it happened.
At the time, the market was trading about 3300
and I remember Bob telling me that he was
laughed at on the other end of the line when he
placed the call.
T R A D I N G W I T H T H E T I M E FAC TO R
3600

3500
7 NOV 2000
24 AUG 2000 TOP = 3414
TOP = 3398 1 FEB & 8 MAR 2001
3400 DBL. TOP = 3371

3300

3200

3100
22 SEP 2000 21 DEC 2000 23 MAR 2001
LOW = 3170 LOW = 3186 LOW = 3143

3000 228 pts 228 pts 228 pts

DOWN DOWN DOWN

2900 17 APR 2000 A B C

LOW = 2957

2800
Jan-00 Mar-00 May-00 Jul-00 Sep-00 Nov-00 Jan-01 Mar-01 May-01 Jul-01 Sep-01 Nov-01

Repeating Price – ASX SPI 200 Futures Illustration 6.02

T R A D I N G W I T H T H E T I M E FAC TO R 67
 3600

228 x 150% =342 29 JUN 2001

TOP=3491
3500
7 NOV 2000
228 x 200% =456
TOP=3414

3400

3300

3200
345 pts UP

3100 23 MAR 2001

LOW=3143

3000
457 pts UP

2900 17 APR 2000

LOW=2957

2800
Jan-00 Mar-00 May-00 Jul-00 Sep-00 Nov-00 Jan-01 Mar-01 May-01 Jul-01 Sep-01 Nov-01

ASX SPI 200 FUTURES Illustration 6.03

68 T R A D I N G W I T H T H E T I M E FAC TO R
How I forecast the S&P500 top in September 2012 – To the exact point
In late 2011, following the birth of my first child,
I spent a considerable amount of time analysing
the markets whilst taking some time off work. As
the newborn was keeping both my wife and I up
for most of the night, I would often find myself
awake late, giving me time to analyse the market
in between the changing of nappies and feeding.
It was at this stage that I was asked by a close
friend of mine to provide a forecast for the S&P
500 index. I hadn’t provided a written forecast for
a number of years, but both Bob and I were still
making accurate calls during that time – we just
weren’t going to the effort of putting these calls
in writing.
I had been watching the price action in the
Australian market very closely, which had traded
nowhere near as strongly as US equities had
over the last two and a half years. I had already
figured with Bob that the major bear market low
was in. Certainly this was the feeling by the
majority over in the United States, but in Australia,
our investor base was still very sceptical. Bob
in particular was looking out for the next buying
opportunity in the Australian market for a while
now, and had pencilled in October to November
2011 as the key time to watch.
The following chart, which compares the relative
price performance of the S&P500 with the S&P
ASX 200 illustrates why so many Australian
investors were still nervous about buying equities.
Both the US and Australian markets had
experienced sharp sell-offs from the highs they
had reached earlier in the year following the
European debt crisis. This simply added to the
existing investor nervousness here in Australia.
Whilst US equities were sitting on gains of over
60%, Australian equities were trading at just a
touch over 20% off their March 2009 low. To
put all of that into perspective, the all-time high in
the Australian benchmark index before the global
financial crisis started, occurred at a price around
6850. In October 2011, we were trading back at
levels close to 3850, so investors who bought at
the top were still nursing losses of almost 50%
four years on.
Both the cycle analysis that Bob and I had done
had convinced us that October 2011 was the time
to buy. Such was my confidence in this that I
researched and wrote an article on behalf of the
investment bank I was working for presenting
some fundamental reasons why now was a
good time to consider investing in Australian
equities again.
T R A D I N G W I T H T H E T I M E FAC TO R
As the area of the bank that I was working in did
not provide stock specific advice, the piece was
sent out to a number of financial advisers as a
‘Thought Leadership’ article. The basis of the
analysis was that the premium available from
the dividend yields on the ‘big-four’ Australian
banking stocks and our two leading mining
shares, when compared to cash, were near
historic highs.
My research had shown that whenever this
premium was greater than 500 basis points for
banking stocks and 200 basis points in the mining
shares, anyone who invested in those stocks
and held for a period of twelve months or more,
would have seen large gains with a 98% to 100%
historical probability of profit.
69
220 Since I wrote that article (up until the end of
2013), the average return on the big-four banking
stocks (including dividends) has been enormous.
Interestingly, the date of the actual market low in
200
2011 was 4 October and my Thought Leadership
S&P 500 article was published only two weeks later on
19 October – maybe it was just lucky timing!
180
Getting back to the main point, following the
birth of my daughter, I began studying where the
S&P500 was likely to be headed next. I had seen
160
that the market had moved up 807.5 points in its
previous run from the 10 October 2002 low to the
ASX 200 11 October 2007 high so I began by using that as
my starting point.
140
The next obvious port of call would then be to
take that major five year range and add it to the
most recent bear market low in March 2009
120 (or in other words, using a Fibonacci extension
OCT 2011 LOWS
of 100%). This gives us a price target of 666.8
+ 807.5 = 1474.3. I had nominated this exact
price to friends and colleagues as an area that I
100
felt the S&P500 was going to reach, well before
Nov 2009 Nov 2010 Nov 2011 Nov 2012
the event. As the following chart will show, on
14 September 2012, the S&P500 market made
a significant high at 1474.5 before a six percent
Why October 2011 was the TIME to buy Illustration 6.04 pull-back.

70 T R A D I N G W I T H T H E T I M E FAC TO R
2000

In my email, I wrote:
1800

11 OCT 2007
TOP = 1576.1
1600 14 SEP 2012 “Now that we are at the 1474
TOP = 1474.5 level], it might be a good time
807.5 pts UP
to take out some put option
807.7 pts UP
1400 protection at these levels given
volatility is cheap to protect the
portfolio from a possible decline”
1200

1000

Although the market had hit my price target

of 1474 exactly, my strength indicators at the
800
time were telling me that it would eventually
10 OCT 2002 6 MAR 2009 trade at higher prices. In the next chapter, I
LOW = 768.6 LOW = 666.8 will show you how I was able to determine
600
this and why I was confident higher prices
2001 2003 2005 2007 2009 2011 2013
would follow. In actual fact, I had outlined
this in an email to friends and colleagues only
two trading days following the 1474 high.
Repeating Price – S&P 500 Example one Illustration 6.05

T R A D I N G W I T H T H E T I M E FAC TO R 71
In that same email, I also wrote that:
“[Whilst] I have had an overall
short bias on the market for a
little while since the S&P500 hit
my 1474 target exactly, I think
it is important to realise that
when positioning yourself, I am
not expecting the world to cave
in (although it could happen), but
rather I am just waiting for the
market to present a good buy
opportunity which will allow many
people to take a long term buy
and hold position and ride things
higher into 2013.
In other words, I am not a buyer at
these levels (at 1474), but I think
people will be rewarded if they
have the patience to wait for a pull
back... The market has made some
strong gains, and this further
supports the case that we could
be ready for another bull run.”
72
The Fibonacci extension at 100% rightfully In the example earlier, I showed you how I had
proved to be the opportune price to hedge, calculated 1474 as a significant resistance point.
before a six percent fall provided the buying In actual fact, I had initially been looking for the
opportunity I was looking out for. Later on in resistance in the market to occur between 1440
this course, I will walk you through the series of and 1474 when I first made that forecast in
forecasts that I had written at the time, which late 2011, more than a year in advance. When
identified the opportunity to sell at the 1474 top, I saw the price ranges of 108 and 218 points
and the buying opportunity and price targets emerging however, I took the liberty of revising
which soon followed. that forecast to between 1474 and 1485. I had
figured that the third range leading up to the 14
September 2012 high could end on another price
S&P500 off the 4 Oct 2011 low – minor move up of 218 points, which would take us
price range Fibonacci extensions to 1485. The actual high as we know however
came in right on 1474, repeating the major price
A final example I would like to share with you to
range of 807 to the exact point.
demonstrate how price can move in both major
and minor moves again uses the S&P500 index.
The series of smaller price ranges starts by using
the same 4 October 2011 low and the 1474 top
we just described earlier which ended on a major
repeating price range of 807 points.
In the following chart, I have highlighted the
equal price movements which produced ranges
between 107 and 110 points. Separately,
you will see that I have also highlighted three
larger ranges of 218 points, 220 points and 208
points. Just in the case the significance of these
numbers is lost to anyone, 50% of 220 equals
110. So the smaller price ranges and the larger
price ranges are geometrically connected within
the same bull market cycle.
T R A D I N G W I T H T H E T I M E FAC TO R
 1500 14 SEP 2012
208 pts

220 pts

1400 108 pts

1300 218 pts

108 pts

110 pts

1200 107 pts

1100

4 OCT 2011

1000
Jun 11 Aug 11 Oct 11 Dec 11 Feb 12 Apr 12 Jun 12 Aug 12 Oct 12 Dec 12

Repeating Price – S&P 500 Example two Illustration 6.06

T R A D I N G W I T H T H E T I M E FAC TO R 73
Repeating ranges in percentage terms
It would be remiss of me to not to mention that
repeats in price can occur not only in terms of
the number of points moved up or down, but also
by the percentage change in price off a high or a
low. I have found that repeats in terms of points
(or ticks) are more common in stocks, stock
indices and commodities, so I tend not to focus
on repeating percentages when conducting my
analysis on those markets.
One observation that both Bob and I have found
however over the years, is that some markets
tend to favour repeating ranges in percentage
terms more so than they do in points. A prime
example of this is the Australian to US dollar
foreign exchange market, where I have seldom
seen repeating price moves when measured
in points.
74
S&P500 repeats in price range
percentage
Notwithstanding the above, to keep things
consistent, the example below illustrates how
repeating percentage ranges have occurred in
the S&P500 market. The following chart reflects
the price movements in the bear market from
the March 2000 tech-bubble top to the following
October 2002 low. I have identified three
significant counter-trend rallies in this analysis.
The first rally culminated in a move of 235 points,
which was repeated in price by the second
counter rally of 232 points. The third range up
however is repeated in terms of percentages,
with an almost exact counter-trend rally between
the second and third moves of 24.6% and 24.4%,
respectively.
Relating this analysis back to our earlier
discussion on overbalancing price, once we saw
the market rallying off the October 2002 low by
more than 24.6%, it was a sign that the trend
had changed and the bear market was over.
T R A D I N G W I T H T H E T I M E FAC TO R
1600 MAR 2000

1500

21.7% or
1400 235 pts

1300
24.6% or
232 pts
1200

1100
24.4% or
189 pts
1000

900

800

OCT 2002
700

600
Nov-99 Apr-00 Sep-00 Feb-01 Jul-01 Dec-01 May-02 Oct-02

Repeating Price (Percentages) – S&P 500 Illustration 6.07

T R A D I N G W I T H T H E T I M E FAC TO R 75
Chapter Seven – how to determine the strength of a move
In chapter six when we discussed how to use
price retracements in our analysis, we discussed
the concept of using the 50% level as a balancing
point to determine the underlying strength behind
the market and whether one could expect a
resumption of the trend to continue.
In the previous chapter, we discussed how the
use of Fibonacci price extensions in your analysis
could allow you to not only project future market
tops and bottom, but more importantly to use
those levels as an area to take out profits or
hedge your position.
In this chapter, I will share with you the simple
tools I have adapted to determine whether a
repeat of a previous range is likely or unlikely.
76
Boxing a price move and the use
of pitch lines
One of the techniques which I rely on quite Important note:
frequently in my analysis is to compare the
current move in the direction of the market to the
one which just preceded it. To do this, I simply
create a box over the most recently completed
move, and duplicate it onto the start of the next Knowing whether a move is going
move so that I can watch it unfold. be larger or smaller than the
one before it can certainly add
In the following example, I am using the first
some value to your trading and
major section of the market that was completed
investment decisions.
off the October 2002 low of 769 (marked as
point A) which ran to the March 2004 top of 1163
(marked as point B). The actual move between
the high and the low was 394 points in 512 days.
This allows you to create a box over this price
movement with a diagonal line across.
To measure the next section of the market, we
simply duplicate the original box using the next
significant low which occurred in August 2004 at
1061 (which is our starting point, marked as point
C). In other words, we simply create another box
that measures 512 days across and 394 points up
in price off our new starting base.
T R A D I N G W I T H T H E T I M E FAC TO R
 1500
394 pts

1400 Pitch Line

1300

END
1200
394 pts 5 MAR 2004 B

1100 “fall away”

C 512 days
1000
13 AUG 2004
START
NEW BOX
900

800

10 OCT 2002
START A 512 days
700
Jun-02 Nov-02 Apr-03 Sep-03 Feb-04 Jul-04 Dec-04 May-05 Oct-05

Determining the strength of a move –S&P 500 Example one Illustration 7.01

T R A D I N G W I T H T H E T I M E FAC TO R 77
When constructing the new box as illustrated in
the previous example, I also measure the diagonal
line across within the box. This is represented by
the thick dark blue lines. This is what I refer to as
the “pitch line”. The pitch line is very useful, as
it tells you the velocity in which the first section
of the market ran (in this case it ran at 0.77 points
per day = 394 pts / 512 days). I will nearly always
compare what the next move is doing against the
same pitch line in the new box.
If the market is trading at or above the pitch line
in the next box, it is indicating that it has enough
momentum behind it to repeat the price range
of the original move and within the same original
time frame (in this case 512 days). If the market
is having difficulty trending consistently above
the pitch line (as it was in the previous example),
it suggests that a repeat in the previous range of
394 points is unlikely to be achieved within the
512 day time from off the point C low.
I also like to pay close attention to identify any
“fall away” moves when conducting my box
analysis.
78
When I see a fall away beginning to occur, it is
an early warning sign that the 100% Fibonacci
extension level is not likely to be achieved, and a
reason to revise your trading strategy and profit Important note:
targets.
The same fall away pattern occurred again in the A “fall away” move like the one in
S&P 500 in 2010. Whilst the following chart looks the example earlier, occurs when
very similar to the one preceding it, I can assure a move is running at or above
you that they represent two completely different
the original pitch line early on
periods of time in the market.
in the box, but then trades for
a number of consecutive days
below the pitch line, before losing
momentum altogether and fading
below it.
T R A D I N G W I T H T H E T I M E FAC TO R
1600
553 pts

1500
Pitch Line

1400

1300 END
26 APR 2010 TOP = 1220
553 pts
1200
“fall away”

1100
416 days

1000
1 JUL 2010 LOW = 1011
START
900 NEW BOX

800

700 416 days

START 6 MAR 2009 LOW = 667

600
Jan-09 Jun-09 Nov-09 Apr-10 Sep-10 Feb-11 Jul-11 Dec-11

Determining the strength of a move –S&P 500 Example two Illustration 7.02

T R A D I N G W I T H T H E T I M E FAC TO R 79
The Barillaro Angle
One of my own adaptations of market boxes is
to use them to determine overbought or oversold
situations. In the examples above, I referred to
the Pitch Line as the diagonal line between the
start and end of the box. In the case of the first
example, the Pitch Line running from the October
2002 low ran at 0.77 points per day.
In my experience, I have found that creating a
line to follow twice the angle of the Pitch Line
(or what Bob began to refer to as the “Barillaro
Angle”) has been a very useful tool. We have
both found that it is a useful tool which can
allow you on a regular basis to determine the
following things:
80
1. Firstly, if a market is consistently trending
at or above the Barillaro Angle, it is
suggesting that it will ultimately complete
more than 100% of the previous range
in price within the original time frame
(in a number of cases, much sooner)
2. Secondly, I often find that the Barillaro
Angle will be a useful angle to call a
significant top or bottom within the move.
I am therefore always on the lookout for
the market making a turning point on
this angle in conjunction with one of my
other indicators.
T R A D I N G W I T H T H E T I M E FAC TO R
The following example uses sections of the
market which occurred during the bull market
between October 2002 and October 2007. It
uses the 13 August 2004 low to the 8 May 2006
top as the reference point to create the box, and
then duplicates it from the 14 June 2006 low.
You will see that the market spent a considerable
amount of time trading above the Barillaro Angle
early on in the movement, suggesting that it
was going to achieve more than 100% of the
previous range.
This it most certainly did, achieving that price
within a much shorter period of time than it took
to complete the first reference range. Note also,
how the Barillaro Angle also called the significant
top which occurred on 16 July 2007, before a
sharp retracement. This is just one of many
examples, where I have seen the market behave
in this manner.
 BARILLARO ANGLE
1600
forecasted the Jul 2007 TOP

Price above the BARILLARO ANGLE early in the move

indicates move likely to exceed 100% of previous range

1500

1400
END
8 MAY 2006 TOP = 1327

1300

1200
14 JUN 2006
START
NEW BOX

1100

START 13 AUG 2004 LOW = 1061

1000
Jan-04 Jun-04 Nov-04 Apr-05 Sep-05 Feb-06 Jul-06 Dec-06 May-07 Oct-07 Mar-08

The Barillaro Angle Illustration 7.03

T R A D I N G W I T H T H E T I M E FAC TO R 81
The Barillaro Box –
My own trend tracking indicator
Over the years, both Bob and I have
experimented with various forms of repeating
boxes (or squares) over the market. The
objective, was to find something which we felt
worked consistently but was also simple to apply.
In the end, we found that using a simple ‘crossed
box’ in conjunction with the Barillaro Angles,
created a fairly reliable method to measure the
strength of a market and identify zones for taking
profit (or identifying overbought situations). As
neither of us are the creative type, we started
referring to these as Barillaro Boxes.
To construct a Barillaro Box, I simply repeat a
previous box (or square) in the same manner
which I described earlier. Once your new box is
in, I then create a diagonal line running from the
top left hand side of the box to the bottom right,
which, when drawn in conjunction with the Pitch
Line, leaves you with a ‘crossed box’. There is a
degree of simplicity when using a crossed box,
as the very mid-point of the cross gives you the
exact point where both time and price in the Box
are at their 50% level, or balancing point. In this
case it really is a matter of ‘X marks the spot’.
I think it is a useful habit to get into to always
check where the market is at this 50% point – if
the market is trading above this point, you can
expect it to go further. If the market is at or about
this point, it is in balance and the second half of
the box needs to be watched. If the market is
trading well below this point, it is indicating that a
repeat of the previous range within the box time
frame is unlikely.
82
Once I have crossed the box, you are left with As the March 2009 was well and truly by then,
four distinct sections in the box formation. I have a major reference point, it therefore became
labelled these in the following chart to illustrate the low to use in order to re-create the box of
the point. From there, I then like to draw in my 807.5 points in 1827 days. You can see how the
Barillaro Angle as my future guide to watch out Barillaro Angle again called a significant market
for an overbought situation. This should then top which occurred at 1371 – almost to the
create two new zones – one above the Barillaro exact point.
Angle, which I refer to as the “Profit Zone” and
The previous chart also shows why it was
one below it, which I refer to as the “Fall Away
apparent to me in 2011 that the market looked like
Zone”. This can be seen in the following
it was eventually going to exceed the bull market
chart illustration.
range of 807.5 points (made in 2002 to 2007)
I will always check the market when it begins and move towards much higher prices. The fact
trading into the Profit Zone to look for an area to that it had spent almost the entire time trading
hedge a position or lock in some profits on an above the original Pitch Line indicated that it was
existing position. What the Profit Zone is telling going to run more than the 807 point range which
you, is that the market is running at more than preceded it.
twice the speed of its previous move and within
The power of the Barillaro Box can also be seen
less than half the time period. The Profit Zone
by creating one over the current market. Using
therefore gives you a ready-made tool which
the March 2009 low and the May 2011 high as
can identify areas to take some quick profits off
the reference point, you should go and create a
the table. It also pays to keep close attention
Barillaro Box using the October 2011 low. As at
once the market crosses over from the Profit
the time of writing (January 2014), the S&P500
Zone into the Fall Away Zone. Once price moves
has incredibly spent most of its current move
into the Fall Away Zone, you should stay on guard
trading right along the Barillaro Angle in this
and look out for a counter-trend reaction.
new box, almost as if the angle was acting as a
When I analysed the US equity markets in 2011, predictive flight path for the current market.
one of the very first things I did was create a
Barillaro Box to compare the October 2002 and
the March 2009 lows.
I used the S&P500 October 2002 low as my
starting point, and boxed the move to the October
2007 high. Earlier, we described how this market
moved upward to complete a major range of
807.5 points over 1827 calendar days.
T R A D I N G W I T H T H E T I M E FAC TO R
2000

significant tops and bottoms forecast by the BARILLARO BOX

1800

OCT 2007
1600
BARILLARO
Pitch Line
ANGLE

1400 2 “PROFIT ZONE”

1200
1 3 “fall away zone”

1000
4

800

OCT 2002
MAR 2009
600
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

The Barillaro Angle – S&P Example  Illustration 7.04

T R A D I N G W I T H T H E T I M E FAC TO R 83
Chapter Eight – Time and price angles
Up until now, the previous sections of this
course have focussed on how to incorporate
price into your market analysis. In this chapter,
we begin our first introduction to the use of
time in your analysis. We discuss the many
other powerful uses of time in Volume 2 of
this course.
One of the tools which Gann is most famous
for is the discovery of his “Gann Angles” or
what many refer to as “Gann Fans”. I prefer to
describe this tool as Time and Price Angles, as
that is exactly what they are.
Gann had discovered that the use of fixed angles
could be projected into the future at a pre-defined
rate. The use of these angles allows you to
identify significant points in the market where
both price and time are in a direct geometric
relationship. However, what is truly powerful
about the discovery of this tool, is that unlike
trend lines or Pitch Lines which require two
points in the market to calculate the angle, Time
and Price Angles can be calculated to determine
future points of support and resistance as soon
as a significant top or bottom has been formed.
84
How to construct a Time and Price Angle
A Time and Price Angle is simply created by
drawing a line up or down from a major top or
bottom using a defined movement in price for
each individual time period. For example, a 1x1
Time and Price Angle would represent one unit of
price (eg a point, cent or tick) for one unit of time.
A series of angles can be created by varying the
price and/or time movement. A 2x1 angle for
example would represent two units of price for
each unit in time. Likewise, a 1x2 angle would
represent one unit in price for two units in time.
Generally, I use the following price unit ratios
for different markets when constructing my
Time and Price Angles:
Stock indices 1 full index point = 1 unit
Stocks 1 cent = 1 unit
Currencies 1 pip = 1 unit
T R A D I N G W I T H T H E T I M E FAC TO R
 2x1
How to construct Time and Price Angles 1x1
112
- Example
In the graphic below, the solid line represents
a 1x1 angle moving 12 units up in price over
a period of 12 units in time. Notice how this
creates a horizontal angle which is in exact
proportion across the chart, making it an exact
45 degrees. In his writing, Gann often referred to
108
this angle as the “45 degree angle” – it was just
his way of describing a 1x1 line. The line above
the 45 degree angle represents a 2x1 Time and

PRICE
Price angle as it has moved up 12 units in price 1x2
over only 6 units in time. Similarly, the line below
the 45 degree line is a 1x2 angle, moving only 6
units in price over 12 units in time. Each unit in
time can represent either a trading day, a calendar 104
day, a week, a month, an hour or even a minute if
you are planning to do intra-day analysis.

100

1 2 3 4 5 6 7 8 9 10 11 12

TIME

Time & Price angles Illustration 8.01

T R A D I N G W I T H T H E T I M E FAC TO R 85
How to know which high or low to start 2000

the angle from

In my opinion, there is a very basic rule to
1800
determine which point to start your angle from.

The more significant the high or low, the

more significant is the angle that it creates. 1600
Cycle High
I like to use the major cyclical highs and lows
which occur at the start and end of a bull or bear
1400
campaign as my Price and Time Angle starting
points. Next I like to work off any significant tops
which occurred immediately before the final high,
1200
or any significant bottom which occurred before
an extreme low was reached. Thirdly, I will
always keep an eye out on other significant tops
and bottoms within a major cycle and look to see 1000

if the market is working to a particular

Time & Price angle off those reference points. Significant highs and lows
800
Top before the Cycle High

Bottom before the Cycle Low

Cycle Low
600
Dec-05 Oct-06 Aug-07 Jun-08 Apr-09 Feb-10 Dec-10 Oct-11 Aug-12 Jun-13

Where to start your Time & Price Angles – S&P500 (2006 to 2013) Illustration 8.02

86 T R A D I N G W I T H T H E T I M E FAC TO R
How to know which type of angle to use 2000

The next important factor to determine is which

angle out of the multiple combinations of time
and price to use. As I like to keep my analysis 1800

simple, I stick predominantly to the 1x1 angles,

which means that each unit in price is in equal 1x1 calendar days 1x1 trading days
proportion to time. My general rule is therefore: 1600

Start your analysis using the 1x1 angles –

this represents a 100% geometric relationship 1400
between price and time which is the most
important.
1200
In some situations, the use of a 1x1 angle might
be impractical, particularly if it moves too quickly
for the market you are analysing. This has been
my experience in the S&P500 index, where the 1000
1x2 trading days
use of a 1x1 angle will often move too quickly
for prices to keep up. In these situations, I use 1x2 calendar days
the next most significant angle which is the 1x2 800

as this represents a 50% geometric relationship

between time and price.
600
A further point which you will need to determine Dec-05 Oct-06 Aug-07 Jun-08 Apr-09 Feb-10 Dec-10 Oct-11 Aug-12 Jun-13
is whether to use a calendar day count or a
trading day count. A calendar day count means
that the Time & Price Angle will move one unit
Time and Price Angles – trading day v calendar day angles (S&P500 index) Illustration 8.03
in price for each calendar day, so it will continue
to rise even on weekends. A trading day Time
& Price Angle on the other hand will only move
up in price whenever the market trades on a
particular day, so they will move slower than a
calendar day angle. The following example of the
most recent market action in the S&P500 index
will show this.

T R A D I N G W I T H T H E T I M E FAC TO R 87
Time & Price Angles – working 1800
examples S&P500 (2006 to 2013)
In an earlier illustration, I provided you with a
series of points which are useful starting points 1600
to run your Time and Price Angle analysis.

The following chart should demonstrate to

1400
you how powerful Time & Price Angles can be
in forecasting future points where prices will
meet support and resistance. I have used both
calendar day angles (represented by the solid 1200
lines) and trading day angles (represented by
the dotted lines).
1000
Notice how in a number of situations, a Time
and Price Angle off one of our starting points Market Turning Point
provided support or resistance to call a future
1x1 Calendar Days
market top or bottom. Additionally, in a number 800
1x1 Trading Days
of cases, both the trading day angle and the
calendar day angle produced results. 1x2 Calendar Days
600 1x2 Trading Days

Dec-05 Oct-06 Aug-07 Jun-08 Apr-09 Feb-10 Dec-10 Oct-11 Aug-12 Jun-13

Time & Price Angles – working examples S&P500 (2006 to 2013) Illustration 8.04

Always run your Time and Price Angles off major yearly tops and bottoms and continue to
watch these angles years into the future to provide future support and resistance.

88 T R A D I N G W I T H T H E T I M E FAC TO R
Active angles 2000

An active angle is what I refer to when a Time &

Price angle has worked to produce a significant
top or bottom. Whenever you see an active 1800
angle working, it is worthwhile to keep running
this angle into the future. Often you will find that
a series of turning points will occur at different 1600
points on these active angles. I will rarely look to
use angles outside the 1x1, 1x2 or 2x1 in a market
unless I have identified an active angle working
1400
in some other geometric relationship
(eg 1x4 or 4x1).

1200

Active angles in the S&P500 market

between 2009 and 2013 – example
1000
The following chart is a 1x1 trading day angle OCT 2011 LOW
illustration, highlighting how intermediate turning
points within a market can be used to run Time
& Price Angles that will determine future support 800

and resistance and other minor tops and bottoms.

I have simply chosen this time frame as it is 1x1 trading days
MAR 2009 LOW
the most recent and reflects the movement in 600
the market up to the time of writing. There are Dec-05 Oct-06 Aug-07 Jun-08 Apr-09 Feb-10 Dec-10 Oct-11 Aug-12 Jun-13
countless examples from a number of different
markets which I could have used to demonstrate
the power of this tool. Notice that there are a Active angles in the S&P500 market between 2009 and 2013 – example  Illustration 8.05
number of active angles within the bull market run
off the March 2009 low and the next major low
within that cycle in October 2011. These active
angles should therefore continue to be watched
into the future.

T R A D I N G W I T H T H E T I M E FAC TO R 89
Master Square Calculators
Before completing this section on Time and Price
Angles, I want to provide a brief overview on the
Gann Master Square Calculators. I am aware
that Gann used these Master Squares in his own
analysis and that a number of Gann traders use
them as a primary tool in their trading decisions.
Both Bob and I have spent considerable amounts
of time studying these Master Squares. We have
seen them work in the markets therefore neither
of us would deny they are a valid tool. Personally
however, neither Bob nor I explicitly use these
Master Squares when constructing a forecast.
There are a few reasons why I make that
statement and why I have qualified it with the
word ‘explicitly’.
Firstly, there is no denying that Gann did in fact
use these Master Squares extensively in his
analysis. This is one of the primary reasons I
believe they get so much ‘air time’ in many of the
current books written about Gann theory. At this
point, I think it is worthwhile remembering that
when Gann operated in the markets, he did so
without the aid of computers and this was a key
reason why he was so meticulous about keeping
his charts to the same time and price scale.
Gann created templates of these Master Squares
on transparent pieces of paper so that he could
apply them over all of his charts. By drawing
these Master Squares on a transparent sheet,
Gann had a ready-made tool that he could simply
re-use over and over in his analysis – hence, why
he referred to them as Master “Calculators.”
90
These Calculators would have saved Gann an You can use any range of price or period of time
enormous amount of time back in his day, and it to construct the Square calculator. Gann often
is one of the reasons why I believe he discussed referred to the Master Squares of 52, 90 and 144
them so often - simply because he would have – as these can be applied to any market. Equally
used them so frequently. however, you can create a Master Square using
the price of a major high or low for a particular
The second point I wish to make is this. Each market. For example, the March 2009 low of
of the Master Calculators are constructed to 667 could be used to create a Master Square
geometric proportions of time and price reflecting measuring 667 days across and 667 points up.
the way Gann looked at the markets and the
many tools he used.
The Master Calculators actually analyse a market
using Gann Angles, divisionsof time and price,
repeating time frames, repeating price ranges,
and even Gann’s fourth dimension – all in the
one box! Although Bob and I won’t actually use
a Master Square overlay in our analysis, we are
in fact using many of the tools embedded within
them to perform our forecasting.
To illustrate the point, the following chart is the
Master Square of 52 which Gann commonly used
on his weekly charts. This Square allowed Gann
to divide up the year into the key geometrical
proportions that he thought were the most
important – in particularly divisions by halves and
quarters. Each week represented one unit of
time in the Square of 52 – and naturally, as there
are 52 weeks in one year, this Square was how
Gann divided up the year.
A Master Square is simply constructed by moving
up one unit of price and across one unit in time
and connecting the dots to create a Square.
T R A D I N G W I T H T H E T I M E FAC TO R
How to create a Master Square

52
The following diagram highlights the construction

51
50
of a Square of 52 and how it moves up 52 units

49
48
in price (on the y-axis) and 52 units across in

47
46
time (on the x-axis). Gann then created diagonal

45
44
lines to create the Calculator within by linking up

43
key points within the Square that had significant

42
41
geometric proportion. Essentially, these were

39 40
3
done by drawing horizontal lines linking: 4

38
37
36
i. The zero point (or start) of the square

35
34
to the end points in the Square – these

33
32
create the thick horizontal red lines

31
30
(or “cross”) within the Square

29
28
26 27
1
2
ii. Each half-way point to its next half

25
way point – these are seen by the thick

24
23
horizontal blue lines in Calculator,

22
21
creating a “square” within the Square

20
19
(or divisions of price and time in

18
17
quarters); and
1 16
15
13 14
4
iii. Each half-way point to an end point in
12

the Square – these are seen by the black

11
10

horizontal lines, creating “triangles”

9
8

within the Square (or divisions in thirds).

7
6
5
4
3
2
1

0 52
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51

1 1 3
4 2 4

The Master Square of 52. Illustration 8.06

T R A D I N G W I T H T H E T I M E FAC TO R 91
How to use the Master Squares
Gann would normally overlay these Master
Squares by placing the “zero” point over a major
Important note:
top or bottom. In the case of a low, this would
be by placing the bottom left hand corner of the
Square over the low price, and in the case of a
top, by placing the top left hand corner over the A full and proper appreciation
price of a top. The Square would then give you of all of the Gann tools will help
the key Gann Time & Price Angles and divisions you enormously if you wish to
of time and price to look out for. Once you have incorporate Master Squares in
come to the end of the Square (for example, your analysis.
52 weeks across), you simply duplicate a new
square starting from the point where it ends, and Once you have completed the
repeating this into the future. remaining chapters of this course,
square 52 WEEKLY you may then wish to revisit this
The Square of 52 was made for a weekly chart, square 90 MONTHLY section on Master Squares – I am
and this is where it works best. The Square of square 144 DAILY sure by then you will be able to
90 is good to use for forecasting longer term
cycles via monthly chart, and the Square of 144 look at these Master Calculators
for shorter time periods (for example, on a in a much different light!
daily chart).

92 T R A D I N G W I T H T H E T I M E FAC TO R
T R A D I N G W I T H T H E T I M E FAC TO R 93
 TRADING TOOL BOX TWO
1. Price retracements
• Always calculate your price
retracements using the major,
minor and intermediate price
ranges
– Major price ranges – use the
sono imax /min
assoluti
cyclical or yearly highs and lows
(from a weekly chart)
– Minor price ranges – use the
minor tops and bottoms that
occur within an overall section of
the market (from a daily chart)
• Simplify your analysis. Use the
38.2%, 50.0% and 61.8% as the
three key levels to determine your
price retracement points.
94
HOW TO FORECAST PRICE
2. Using a previous high or a
low to forecast price
• The price of a previous major
market top and bottom will often
calculate support and resistance
levels for future tops and bottoms.
• Use exact multiples of a previous
low to calculate future prices –
100%, 200%, 300% and so on.
• Calculate 50% of the price of a
previous major top to determine
levels of support for market
bottoms on the way down.
T R A D I N G W I T H T H E T I M E FAC TO R
3. Price projections
• Price extensions are calculated by
using a previous price range as a
reference point and repeating that
price range from the following
market top or bottom...
Start. End. Extend.
•➢ The 100% Fibonaccci extension
(or a repeat of the price range) is
the most important.
•➢ Often watch for a change in trend
to take place once 100% of the
previous range has been reached.
This is particularly important if it
coincides with a major price
retracement level.
Keep the analysis simple. Use the major divisions of price – 50% and 100% are the most
important. Fewer tools will simplify your analysis and give you a higher probability of
determining a change in trend when you see them working together.
4. Strength indicators
• Always watch the 50.0% price
retracement level as a guide of
strength in the market.
• Retracements that are less than
50.0% indicate the trend is strong.
•➢ Retracements of more than
61.8% suggest the main trend
is weakening.
• Use your Pitch Lines to determine
the likelihood of a market
exceeding 100% of the previous
range.
•➢ Markets trading above the Pitch
Line are more likely to exceed
100% of the previous moves than
those which don’t.
5. The Barillaro Box
• Use the Barillaro Box and
establish the Barillaro Angle.
If a market is consistently trending
above the Barillaro Angle, it is
likely to exceed 100% of the
previous range and within a
shorter time frame.
• Keep an eye on the Barillaro
Angle in a fast moving market.
It will sometimes create an
angle for significant market tops
or bottoms to form.
•➢ Identify your Profit Zone and Fall
Away Zones. The Profit Zone is
a good place to take early profits
or hedge your position.
T R A D I N G W I T H T H E T I M E FAC TO R
6. Time & Price angles
• Begin your Time & Price angles
off significant market tops and
bottoms – the extreme high and
low are the best places to start.
• The more significant the top or
bottom, the more significant is the
Time & Price angle.
• Start your analysis using 1x1
angles only. These represent
a 100% geometric relationship
between time and price which is
the most important
➢• Always watch your Active Angles
as they will often call other future
tops and bottoms
95
SEC TION THREE
In my view, making fewer
but longer term trades
is the easiest and most
profitable way to trade the
markets. – It also requires
far less work!
The best rules for trading
In this section of the course I will share with
you some mechanical points of entry and exit
to make your trading decisions more clinical, as
well as five simple rules for trade psychology
and risk management.
Up until now, we have focussed on how to put
together a very accurate forecast using price
techniques. This should, by now, have armed
you with the tools to identify “where” is the
best price to buy or sell. Putting together a
price forecast however, is only one part of the
equation. How you go about trading it is a
completely different story!
In my view, making fewer but longer term trades
is the easiest and the most profitable way to
trade the markets. It also requires far less
work. Trading the markets however is a skill
that requires you to master the techniques of
trade entry and exit, as well as the psychology
associated with each of those steps and
everything else that happens in between.
T R A D I N G W I T H T H E T I M E FAC TO R 97
Chapter Nine – Trading psychology and risk management

I am confident, that with practice, the techniques
I have shown you in this course can make you a
much better trader. But make no mistake, there
is no single system or no single trader who has
a fool proof system for trading. The reason for
this is that markets are essentially made up by
an aggregate of human emotion. When people
are feeling good about things, the markets will
generally trade up. When things are not looking
so optimistic, human emotion will tend to see
markets trade down.
Human emotion however is the one element
that not even the most sophisticated computer
algorithms or ‘black box’ market systems have
been able to predict. This is particularly so near
market tops and bottoms where human emotion
is at its greatest, whether it be the irrational
exuberance at a market top or the fear and panic
that often ensues at a market low.
Whilst winning trades will provide you with a
huge adrenalin rush, it is important too to realise
that losing trades are also inevitable. And it is
the losing trades that will test your mettle. If you
do however find yourself on the end of a losing
streak, then my advice would be to come back
and visit this section of the course first before
any of the others. I can almost guarantee that
the five rules I am about to describe below will
take on a whole, new meaning.
Five simple rules for risk management
Most of the trading books and courses which I
have read (the good ones at least, that is) include
a section on trading psychology and how human
emotion has such a large impact on actual trading
decisions. Make no mistake, this is certainly
true. Putting your own money at risk will affect
your trading decisions in a way that you simply
cannot simulate through paper trading a market.
I have found however, that to properly learn
how to control your emotions in your trading
and investment decision-making, you need to
experience the process first of making an actual
trade. You will never fully prepare yourself for the
rollercoaster ride of emotions that go with trading
no matter how many trading psychology books
you read.
Please do not interpret that as me dismissing
the need to have the right trading psychology
to beat the markets. It is absolutely necessary.
In my view however, the subject matter of
psychology is something best left
to be explained by an expert in psychology.
Don’t worry, there are plenty of books out
there on the subject.
In addition, each individual person has their own
temperament, their own risk appetite and their
own differing desires for profit. And whilst I
am more than happy to share my own personal
experiences with anyone who asks, just because
that was my experience, it does not necessarily
mean it will be the same as yours. At the end of
the day, the objective in trading should be getting
yourself profitable.
To do this, you need to make sure you have more
winning trades than losers, and that your winners
are bigger than your losing ones. Having said
all of that, there are a few simple rules that you
should know which I do think are absolutely
necessary to control your trade decisions and
keep your investment capital intact.
The greatest lesson
you will ever get about
trading psychology will
come from your own
experience in trading
the market.

98 T R A D I N G W I T H T H E T I M E FAC TO R
Rule 1:
Never enter a trade without placing a
STOP LOSS order
Entering a trade without a stop loss is the
cardinal sin in trading. ALWAYS identify your
stop loss position before you enter a trade and
stick to that price level religiously. Your stop loss
is not only there to quarantine your risk, but it
represents the point where the market is telling
you that you are wrong. As the saying goes,
‘don’t leave home without it’!
Rule 2:
Hope is for dopes
If you are uncertain about a trade and begin to
“hope” that you are right, reassess your position
as it is probably a good indicator that it is time
to get out. This is particularly so if you are still
holding on to a position even though your Stop
Loss indicator has been reached.
T R A D I N G W I T H T H E T I M E FAC TO R
Rule 3:
Don’t be greedy when it is time to
take profits
Identify where you want to take your profits at
the beginning of the trade and do not change
your mind unless the market is giving you a very
good reason to do so. The trick here is to avoid
getting emotionally attached to a winning trade.
Not wanting a good feeling to end when you
should in fact be taking your money and banking
it is a common trap. Avoid the expectation that
you need to get every last cent out of a move
– even though your forecasting will at times pin
point turning points to the exact price – as trying
to squeeze out the last cent will often be the
most costly.
Rule 4:
Minimise your risk wherever possible
The market will often give you an opportunity to
take some profit off the table and reduce your
exposure. One of the lessons Bob learned in
his trading was to take profits at points where
it either covered his position or significantly
minimised his risk. Not only will this help you
sleep better at night, but it will allow you to
execute your trade decisions in a much more
clinical manner and with less emotion. It also
has the added benefit of significantly improving
your strike rate between your winning trades and
losing ones.
99
For example, assume that you are looking to
trade a recent low in your favourite stock after it
reached your price target of $20.00. Your price
forecast is now suggesting that the stock may
make a move up to $22.50 per share. Let’s then
say that you entered your trade by purchasing
2000 shares of stock at $20.40 after your signals
confirmed that a potential low was in place. Your
identified stop loss should now be underneath
that low of $20.00 – for this example, let’s call it
$19.90. That gives your trade a risk of $0.50 per
share if you are wrong, or a total risk exposure on
your 2000 shares of $1000. (Note, we will cover
trade entry and exit points, as well as stop loss
positions in the next chapter).
If the stock then makes a move to $20.90, you
would be sitting on a paper profit of 50 cents per
share, or $1000. By using this price level as an
opportunity to take profits on half your position
(ie by selling 1000 shares), you can book the 50
cent gain (or a $500 profit) and keep a remaining
1000 shares long position in the stock. At this
point, even if the stock trades back down and
triggers your original stop loss position at $19.90
(or creating a $500 loss), you have put yourself
in a position where overall, you will not lose on
the trade (putting aside for the moment any
brokerage or trade commissions).
Sounds simple, right!?
100
The effect of this strategy on your trading For example, if you made 5 winning trades where
decisions can be enormous, as it can completely the average profit was $2.10 per share (or $10.50
change your trading psychology. By booking in total profits) and you made 5 losing trades
profits on half your position, you are minimising where the average loss was $0.50 per share
your potential for loss, and putting yourself in (or $2.50 in total losses), on an overall basis, from
a position to hold on to your trade for further your 10 trades you will have made an $8.00 gain.
upside with significantly reduced risk. In the
example above, if the stock ultimately does move Now that might sound to you like it is absurdly
higher to hit your price target of $22.50, it would simple, but that’s because it actually is!
mean that you would stand to make a $2.10 per
share profit on the remaining 1000 shares long
position you hold (or $2100 gain) in addition to
the $500 profit you booked earlier. Not only have
you made a healthy profit, but you have done so
by minimising your risk.
The other significant advantage of this type of
strategy is that it can significantly reduce your
number of losing trades, thereby improving your
overall win to loss ratio. In the next chapter, we
will discuss how to identify price entry and exit
levels that allow you to identify trades where
your potential for profits is greater than your
potential risk. The benefit of this approach is
that by taking trades where your average profits
are greater than your average losses, even if you
have a win to loss ratio of 50:50, on an overall
basis you will still be profitable.
T R A D I N G W I T H T H E T I M E FAC TO R
Rule 5:
Keep your trade sizes consistent
Another one of the easiest mistakes to make is
to increase the amount of capital you are putting
at risk on a single trade. Whilst this might sound
obvious, breaking this rule is actually easy to do,
particularly when you have all of your Trading
Tools confirming your market top or bottom
and you have convinced yourself that there is
no other possible outcome other than for your
forecast to be right!
There is no worse feeling than to have made
four or five profits in a row, and then doubling or
tripling up your bets only to have all those profits
wiped out by the next trade. Equally, you will
need to avoid this temptation if you have been
on a bit of a losing streak and you are looking to
make up all those previous losses on the next
trade. A word of advice – Don’t try it.
Only once you have built up some considerable
profits, would I suggest that you start thinking
about increasing your contract sizes. For
example, if you are starting with a trading Important note:
account of $10,000 and are taking trade sizes of
10 contracts for each trade, maintain those trade
sizes until your trading account hits a milestone
Keep your trade sizes consistent
of (say) $20,000. At that point, you could look
to increase your trade sizes to 15 or 20 contracts and avoid the temptation from
as this would be proportionate to your account over trading. Once you have built
balance. The worst thing to do is to take a 20 up considerable profits, then start
contract position if your account has gone from thinking about increasing the size
$10,000 to $5,000 as that is just amplifying of your trades.
your risk.

Taking on trade positions that are too large and

that will end up causing you to be hurting badly
(emotionally) if you take a loss is something that
you should avoid at all costs. Trading is a tough
enough game emotionally and psychologically
as it is. There is no need to give yourself added
pressure on a single trade by over committing
yourself to one particular trade or position.
My advice – AVOID THE TEMPTATION FROM
OVERTRADING.

T R A D I N G W I T H T H E T I M E FAC TO R 101
Chapter Ten – The best trading entry and exit points

Earlier I mentioned, that in my view, making Rules for trading with the trend
fewer but longer term trades is the easiest and The following levels should be used as a guide to
most profitable way to trade the markets. I determine your points of exit and entry when you
simply cannot emphasise the relevance of that are taking trades that are in the same direction
statement, and this is certainly what Gann meant as the main trend. The percentage levels below
when he described trading the “long swings” as refer to the expected price range for each section
the most profitable way to trade. of the market you are trying to trade using our
Fibonacci Extensions discussed in an earlier
In an earlier section of this course, we
chapter. The same principles can be applied to
discussed how to identify the definable waves
make shorter term trades over a smaller time
or sections of a market that all major bull or
frame, including intra-day trades.
bear campaigns move to. Whilst it may have
appeared unassuming at the time, that chapter of
the book is actually one of the most important.
When trading, your primary objective should
be to ensure you are trading with the trend and
capturing as much of the move in each of those
sections as possible. Put simply, if the market is
in a major bull campaign, you should be looking
for one or two buying opportunities to trade each
section using your Trading Tools – this is where
you will make the most profit with fewer trades
and the least amount of work.

The Trading Tools however are also useful

indicators to identify counter-trend trades within
a major bull or bear market. As highlighted in
earlier chapters, you can also use your Trading
Tools to determine points in price and time where
you can either hedge your longer term position
with the trend, or for the more aggressive trader,
to actually take an against the trend position.
In this chapter, we describe how to do both.

102 T R A D I N G W I T H T H E T I M E FAC TO R
Rule 1: When to enter
• 0% to 38.2% Is the place where you
should look to initially enter your trade
• Consider placing your stops 2.0%
above / below the market top/bottom you
are trading.
Trades entered within this point will give you a
profit to risk ratio of approximately 2 to 1. For
example, if we are looking to trade a price range
of 100 points, then we ideally want to have
entered before the 38.2 point mark is reached. If
the price move hits our profit target of 100, then
we have made a 61.8 point profit on a risk of only
38.2. In an ideal situation, trades entered into
before the 23.6% Fibonacci level provide the best
set-ups as they come with a much lower level of
risk and a higher profit to risk ratio of more than
3 to 1.
Rule 2: Reduce your position Rule 3: Risk management
(the ‘break-even’ rule) • At 61.8% consider moving your stops
• At ‘break-even’ consider reducing your higher/lower to 38.2%
position to minimise risk
Once the trade has crossed and reached the
61.8% mark, you typically do not like to see it
Traders who have a lower risk appetite may look
to use this area as a place to reduce their position moving back below the first of our key Fibonacci
or cover their trade to avoid a loss. For example, levels. By moving your stops to 38.2% (which
is the place at which you should have entered
if the range you are seeking to trade is 100
your trade), you should no longer be in a losing
points, and you entered at the 23% point in the
position. Not only will this help improve your
range, then you would have a total risk position of
winning average, but it should help you mentally
25 points (including 2 points for your stop).
to stick with the trend and ride the winning
Once the market reaches the 50% level, by
trades.
reducing half your position, you will have taken
profit of 25 points on half your trade, whilst
maintaining a risk exposure of 25 points on the
remaining position. At this point, your overall
position is at a ‘break-even’. For those who
have a lower tolerance for risk, the break-even
point will mean you should end up having more
winning trades. The flip side to this is that you
may see yourself taking profit off the table too
early and missing out on some further gains.
Using the break-even rule therefore will depend
on each individual trader and their own desired
level of risk appetite.
T R A D I N G W I T H T H E T I M E FAC TO R 103
Rule 4: Profit taking levels
• At 100% consider taking profits or hedge
your position
The 100% level marks our trade objective, and
is where we should look to thank the market
and take profits off the table. The exception to
this rule is if your indicators are telling you that a
move beyond 100% is likely (see rule five).
If this is the case, you can then use the 100%
level as a place to hedge your position – for
example through a put option strategy or writing
some covered calls if you are long the market.
104
Rule 5: Additional profit taking levels
• At 123.6%, 138.2%, 150.0% and 161.8%
consider these as areas for taking profits,
if the indicators are telling you a move of
more than 100% is likely
Markets will often give you clear signals when a
new move is more likely to exceed the previous
move in terms of price. In situations like this
when a market is trending strongly, you will leave
some considerable upside profit on the table
by exiting completely at the 100% level. You
should refer to the Barillaro Box and the Price
Retracement trading tools as your gauges of
strength to determine if such a move is likely.
In these situations you can use a trailing stop
strategy under each Fibonacci level to lock in
profits. This will allow to continue riding the
market for further gains until your trailing stop
is hit.
T R A D I N G W I T H T H E T I M E FAC TO R
2000
WITH THE TREND TRADE (LONG POSITION)

Risk (38.2%) = 975 Minus 667 (or 208pts)

Reward (100%) = 1474 minus 975 (or 499pts)
Reward to risk ratio: 2.4x
1750
OCT 2007
TOP = 1576

1500

100% = 1474
(PROFIT TARGET)
PROFIT RANGE

1250

61.8% = 1166
(MOVE STOPS)

1000
38.2% = 975
(ENTER TRADE BY HERE)

750
TRADE ENTRY RANGE
OCT 2002 MAR 2009
0.0% = 667
LOW = 768 LOW (INITIAL STOP LOSS)

500
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

The best trade and exit points (trading with the trend) Illustration 10.01

T R A D I N G W I T H T H E T I M E FAC TO R 105
Rules for trading against the trend
(counter-trend trades)
A more cautious approach should be adopted
when attempting to take a trade against the
main direction of the trend – after all, in these
situations you really are attempting to swim
against the tide. A counter-trend trade occurs
when you are looking to trade short off a top
in the middle of a bull market or go long off a
bottom in a bear run. The latter in particular can
be a hair-raising experience – particularly in a fast
moving bear market, as you don’t want to be
caught out trying to catch the falling knife.
I therefore adopt a slightly different approach
when determining rules to follow for against the
trend exit and entry points than those used for
‘with the trend’ trades. The price levels below
refer to moves using Fibonacci Retracement
levels of the previous ‘with the trend’ range.
Rule 1: When to enter
• 0% to 23.6% is where you should look
to initially enter your trade
• You can place your stops 2.0% above/below
the market top/bottom you are trading.
Notice how the entry point for a counter-trend
trade is tighter than that of a with the trend trade.
This is purely designed to minimise your risk from
the outset.
106
Rule 2: Covering risk A final word
• At ‘break-even’ reduce your position
The trade entry and exit techniques described
and use the ‘break-even’ rule where above are designed to make your trade decisions
possible. more clinical and to develop areas that allow you
an opportunity to ensure that your gains from
The half-way point of any price retracement is
winning trades are greater than the losses on
the most important area where price support
your losing ones.
or resistance will occur. This level should
therefore be used as an area of caution and This will mean that even if you have a 50:50
monitored closely to either cover risk or reduce it. win ratio, you should still end up being a
profitable trader!
Rule 3: Risk management
• At 61.8% retracement or 100% of the
previous counter trend move
• Aim to take profits at these levels where
possible.
When taking a counter-trend trade, I will often
look at the 61.8% price retracement level as an
area to take profit or exit the trade. Equally, I will
use 100% of the previous counter-trend move as
an area to set exit targets.
For example, if I am trading short in a bull market,
and the previous price reaction down was 50
points, I will also look to see a repeat of that
move off the current top I am trying to trade as a
potential exit level. I will pay particular attention
to this level when it also converges with either a
50% or 61.8% retracement.
T R A D I N G W I T H T H E T I M E FAC TO R
1550
COUNTER-TREND TRADE (SHORT POSITION)
Risk (23.6%) =1474 Minus 1425 (or 49pts)
1500 Reward (61.8%) = 1425 Minus 1346 (or 79pts) END = 1474

0.0%
(INITIAL STOPS)
1450 TRADE ENTRY RANGE
23.6% = 1425
PROFIT RANGE (TRADE ENTRY)
1400

50.0% = 1371

1350
61.8% =1346
(PROFIT TARGET)

1300

1250
START = 1267

1200

1150

TRADE ENTRY RANGE

1100

1050
Apr-11 Jun-11 Aug-11 Oct-11 Dec-11 Feb-12 Apr-12 Jun-12 Aug-12 Oct-12 Dec-12

The best trade entry and exit points (counter-trend trading) Illustration 10.02

T R A D I N G W I T H T H E T I M E FAC TO R 107
CONCLUSION
If you’ve made it this far, you
have now been privy to the
most consistent and reliable
price forecasting techniques
that I have discovered
working in financial markets.
Congratulations, you’ve made it!
I am genuinely thrilled to have shared this
journey with you and I hope that you have had
a bit of fun along the way.
Whilst the Trading with the Time Factor course
comes in two parts, each part is designed to
standalone from the other. If volume one of this
course has been of interest, then I can assure
you that volume two will absolutely blow your
mind. Whilst our focus up until now has been
about price, volume two continues our journey
into time, and teaches you the techniques that
will help you identify “when”
is the best place to buy and sell the markets.
In volume two, I reveal some of the most
practical, but powerful techniques for
forecasting the exact date and time of future
market tops and bottoms. I hope you decide to
continue on the journey with me. It will, without
doubt, change the way you look at financial
markets.
Until next time.
T R A D I N G W I T H T H E T I M E FAC TO R 109
110 T R A D I N G W I T H T H E T I M E FAC TO R