How I Identify Powerful Setups Using Symmetry
I am often
asked what I mean by the term “symmetry”
in my work. I can attempt to define with words what it means to me in
the market but the following charts (visuals)
will probably illustrate the concept more accurately. Symmetry
is essentially similarity and sometimes equality
in the market. Actually, I just used the thesaurus and came up with Balance,
Equilibrium and Proportion as
synonyms.
Let’s
start with an example of “symmetry” in both price and time! The
first example is on a 15-minute Nasdaq
futures chart below. (I had a ball with this one with my subscribers as it
started to unfold.) The overall trend on this chart at the time of this “potential
trade setup” was bullish. If this trend was going to remain
intact, we wanted to consider entering the buy side after a corrective decline
terminated. What helps us determine when a corrective decline might terminate? SYMMETRY!
In this particular case,
I saw the decline that was playing out in Nasdaq futures
(
NDM1 |
Quote |
Chart |
News |
PowerRating) approaching
the 100% price projection of the prior
decline into the 1770 swing low. This prior
decline lasted 87 points. If you projected
the measurement of this decline and subtracted from the 1918
high, you came up with 1831 for this
projection and potential support level. The June contract ended up making a new
low for the move from the 1918 swing high at
1831 which was exactly
87 points down from that high. Besides this, just eye-balling the
chart, I saw symmetry in time. As I checked the “time
count” of the corrections, I found that this low made at EXACTLY
100% in price of the prior decline, was also made at 100%
in TIME of the same prior decline (22 bars & 22 bars). This is
definitely an argument against RANDOM market
theory!!
At this point, I had to
call this a pivotal low. If we saw price hold above here, we wanted to consider
the buy side against it. Although I was not extremely confident that this low
would hold, due to the bearish price action going into this low, I watched it
carefully. The result was a continued hold above the 1831
low and a initial rally that took this contract to 1992!Â
In the next chart, we are
looking at the 5-minute June S&P contract
(
SPM1 |
Quote |
Chart |
News |
PowerRating). Notice the similarity
in both the price and time of the corrective declines shown marked with the red
lines. They are not EXACTLY the same, but
are very similar in both price and time! I
constantly watch for similar corrective moves in a market to potentially enter
with an “edge” in the direction of
the main trend. In this case, the trend is defined on a 5-minute basis! Ideally,
we want to see the higher degree time frame trend, agree with the lower. (For
example, we want to see the daily, 60-minute and 5-minute agree, all showing
higher highs and higher lows.)
When projecting my key
price cluster zones, I will lean towards trading against a zone that INCLUDES
a 100% projection of a prior decline. Why? Because of the
“symmetry.” This projection along with a healthy confluence
of other Fibonacci projections, tells me to
focus on those price clusters that include symmetry. In this case, I saw the
100% projection of the prior corrective decline came in at 1906.
Coincidentally, a beautiful cluster of Fib retracements
and extensions overlapped this key 100% projection, and gave us a key
price zone to consider a trade against (1902-1909***).
In this particular case, a low was made at 1909. The rally in Nasdaq futures
resumed almost immediately after testing this zone, that included “symmetry.”
How about the Nasdaq cash
index
(
NDX.X |
Quote |
Chart |
News |
PowerRating)? Note that a very important price projection I will
be watching for “potential” resistance and/or termination of the rally
from the April 4, 2001 low in this market,
includes the 100% projection of the prior
corrective rally into the Jan. 24 high.
What does symmetry mean
to us when we are looking at it as an indication of trend? It can be very
helpful in indicating a change in trend, therefore in tell us when to exit a
trade and/or initiate a trade in the opposite direction. For example: In the
60-minute Nasdaq futures
(
NDM1 |
Quote |
Chart |
News |
PowerRating) chart below, when we
“violated” the bearish symmetry (we rallied
more in time and price than the prior four corrective rallies) it
signaled the potential termination of the decline we were experiencing from the
1777 swing high. In this case, after this “symmetry” was violated,
buying a pullback to the last low was a “winning
strategy.” I see this happen over and over again in all
markets.
Although using
“symmetry” is a wonderful addition to our “technical
tool bag,” I feel compelled to show you an example of a
“break in symmetry” that did NOT result in a trend
change. This is just to remind you, that although these methods work extremely
well and produce positive results more often than not, when a market does
not start the play out as expected, your discipline should be to stop yourself
out of the trade in question in order to preserve capital!!
If you begin to study the
markets with these concepts discussed above in mind, you have the potential to
greatly improve your bottom line in trading.
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