The Missing Link, Part 2 by Mircea Dologa
A Golden Approach
In this second part of a two-part series, you see the time & price
relationship develop in real time on a chart of gold futures.
Last month in part 1, I discussed how I examine the time
& price relationship in the market by focusing on the
fourth wave, W(4). I used a combination of Elliott wave
analysis, Gann methodology, and mapping multiple
time frames, all of which I consider before making any final
trade determinations. Once this analysis has been performed,
the next step, which is a detailed study of the particular market
you are trading, comes naturally. Here, Iíll use the gold
continuous futures contract as an example.
The price of gold futures tends to exhibit a complex development,
which is why I chose to use it as an example to
discuss the relationship between time & price. Understanding this relationship can help you identify the optimal time frame
setup for your market.
The development of W(4) wave is fundamental in revealing
where the current impulsive pattern, or main direction of the
trend, terminates. Here, I will present some arguments that
expose the future potential of W(4) and W(5) waves, with W(5)
terminating the current parabolic impulsive pattern.
Indirect and direct
If you closely observe the monthly chart of the gold continuous
futures contract in Figure 1, you can see that the time &
price elements efficiently predict the development of W(4)
wave and W(5) wave.
Indirect impact: The indirect impact of the price & time
relationship of W(2) wave on the development of W(3) is
relevant. The long duration of W(2) implied a strong buildup
of the marketís kinetic energy, which, as a consequence, had a strong W(3) wave momentum, responsible for its parabolic
shape. Price-wise, the size of W(3) wave was 2.146 times the size
of W(1), climbing all the way up to the 1923.7 key level, thus
halting the market flow at exactly this Fibonacci key level.
The high-steamed momentum of W(3) wave implies a deeper
than classic retracement (38.2%) of W(4) wave. On the other
hand, you could say that this retracement is still in progress due
to its current position in the OSC (5,35) indicator on the subchart
in Figure 1 ó outside the 0.90Ė1.40 W(4) zone. In addition, this
tremendous parabolic trajectory occurred in 144 bars, a legendary
Gann number period ó the square of 12 (12 x 12 = 144
bars). This number will help define the future time retracement
degree of W(4) wave. Hence, it becomes necessary to be aware
of the following numbers of bars when it comes to observing
time: 18, 36, 54, 72, 90, 108, 126, 144, and so on ó numbers
that represent Gann ratios (eighths, quarters, and halves).
Before continuing, I think itís necessary to mention something
about the validity of this type of labeling for the entire
impulsive pattern. The W(2) duration of 236 bars may appear
to be confusing, but this W(3) wave labeling (Figure 1) is one
of the most probable due to multiple confirming factors: