Forecasting High Probability Target Zones: The Perfect Storm
Using technical analysis is an exercise of probabilities. Similar to fundamental analysis, the future is forecasted based on previous data.
Different tools have been developed over time to attempt to ?organize? the data we see on the chart in various ways with the goal of providing better forecasting reliability.
In most cases these tools can help identify likely areas the market will move to. Within channels for example, we have some expectations of the supports and resistances holding and the market moving between them. We don?t know for sure if the channel support or resistance will hold every time they are met, nor do we know for sure if the market will then move to the next channel boundary. However, until it all falls apart, there is some expectation and probability that the market will continue within the channel.
Channels were used in the example above. However there are countless more methods available, and in their own manner, each technical tool gives you an idea of the likely pattern and outcome should the market stay on course.
By adding multiple tools together, layering their analysis and likely expectations, areas in the market start to appear where the tools and their expectations overlap. When multiple tools point in the same direction or area of the chart, expectations, or probabilities, increase for the market to actually move to that location.
An example that is commonly practiced would be the marrying of Elliott Wave and Fibonacci. While each have their own merits as an analytical tool, combined they output another element altogether.
Similarly, continuing to layer more tools yields perspectives that would not otherwise be seen.
Moving on with the channels example above, when Bollinger Bands are overlaid they can help to give specific targets on the channels themselves. Both methods are measuring the up/down of the market at its extremes, and when these overlap, or cross, you have a likely target to consider.
If our Elliott Wave and Fibonacci analysis also give the same area as one of the likely targets (channel & Bollinger cross), then there is another consideration as well.
Should a longer term Fibonacci retracement or extension from a larger previous wave also have a level in the same area, it again adds to the perspective.
As this is an example to demonstrate a point, lets also say there are several moving averages all converging on this same point too, it lines up with a Gann level, and the overall larger pattern support/resistance corresponds, all in the same area.
While this has been the ?perfect storm? of aligning technical tools, and there are no certainties, the likelihood that the market will be moving to this location may be greater than others.
If you practice technical analysis, and you do so because you believe there is some merit to its forecasting, then what I have just outlined above should make perfect sense. It?s really nothing more than taking the properties of your basic trend support/resistance line to the nth degree.
This may sound a little too simple or obvious to have any merit.
As a general method it couldn?t be any more straight forward.
The methodology we employ using the High Probability Target Zones in our daily updates has had over a 90% accuracy rate. This is a matter of published record going back to July 2012. At the time of this article, our methodology has made 226 High Probability Target forecasts, over seven different markets, of which only 16 have completely missed.
We would encourage you to explore this more yourself. Take a few of the methods you are familiar with and see what they tell you when overlapped and aligned.
Unfortunately it?s not quite as simple as slapping down a bunch of tools and seeing where they point. We have spent years selecting the tools we use and fine tuning their settings. What we are doing here at TRIGGER$ however is not the only way it could be done. It is what we have found that works, but that doesn?t mean that there aren?t more. Just don?t expect to come across it overnight.
Through the daily updates I try to also explain the rational, not just give the target area. Following along you must have noticed (a) target zones are frequently areas of technical congestion; and (b) the market does move to these areas.
Knowing where the market will go when it moves up or down can add to your confidence and trading success, especially when the odds are showing that 90%+ of the time the market will move to the target.
Look for yourself those areas of congestion or for a place where all the tools seem to be pointing. Start layering your own methods and see how they fair. The technical methods that we use are simple, even Gann and Elliott Wave are practiced only with their basic concepts in mind.
For those that wish it, one of TRIGGER$ goals is to assist others In achieving high accuracy target zones for themselves. Keep checking back each month for further discussion.
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The following are examples of High Probability Target Zones and the markets moving to them. Both of these examples come from our published updates and represent a fraction of the success we have had to date.
S&P 500
The 1st chart was published on Tuesday September 18th, 2012. We were looking for a drop of the market to the green highlighted area labeled ?X?. At X, you can see several significant technical tools coming together in one area. Multiple trend and channel supports / resistances can be seen, as well as moving averages and Bollinger Bands coming in line. It also represented a potential Gann target.
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The second chart of the S&P was published on Thursday September 27th, almost 2 full trading weeks later. We can see that the market moved down and directly in to our target area X after remaining in a sideways consolidation for most of the time since the forecast was made.
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US$
Our second example given is of the US$. In the first chart we can see the High Probability Target Zones J & L. This was first published on Friday Sept. 7th. 2012.
HPTZ J has crossing trend supports / resistances, a Fibonacci level, and lower Bollinger Bands.
HPTZ L has several crossing trend and channels s/r?s. The lower back dashed is actually from the larger trend channel.
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Our first example showed us a direct move to the HPTZ. The second chart of our second example shows the HPTZ being reached, however not as directly. This was chart was published on Sept. 26th, three weeks after the original forecast.
We can see the market makes a dramatic drop down over several days. Target J is moved through and then the market breaks the long-term channel support. Continuing to fall off, the target level of L is reached earlier than is suggested by the technicals. Had you been trading to this price level from our original forecast date, this would have been a nice surprise.
What is interesting to note, and why we choose this example, even though the market increased in volatility and moved outside of long-term supports, it did bounce to the expected target L after finding support on the blue trend s/r.
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GoldenPhi
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