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RT,
You may remember my musical analogy
post in regard to Fibonacci and other pivot points?
Let's now think of the market as an instrument,
such as a violin, with no specifics pre-ordained notes. One can only play
the notes designated by a piano's keys whearas on a violin anything within its
range is possible. The violin model teaches us that when one hits a note that is
within the parameters of a given musical key we may have music, but this is only
one minimum requirement. In contrast, one can also play in areas that is
not harmonically in line with what we think of as music and this is usually
thought of as noise. The critics of Fibonacci and other pivot points argue that
when continually looking for these harmonic points, they are often not
found. I counter that the market is not always playing "music".
Fibonacci represents a specific musical key. What I would call market music is
what Elliott Wavers usually call an impulse wave. Elliott wavers also call
non-impluse waves corrective waves and and some of these can probably be
classfied as market noise. Noise occurs when there is a lack of order and a
total disregard for order and harmonics. When I notice the market disregarding
projected important Fib levels, it will often see saw back and forth across
these harmoics levels, thumbing its nose at the key levels, and then I know
there is a good probability that the market is in a noisey mode and that a major
trend is not likely. This last point gives valuable trading information
that can save a traders thousands of dollars. Under these conditions, forget
about being a trend trader or trying to use stops for specific levels. Chances
are that you will be stopped out only to then see the market move in the
direction you anticipated. Remember, this is noise and during the noise
phase, if you wait long enough, the market will probably play your
"note"..
Now in contrast to the noise mode, take a
moment to think of a famous piece of music and in your head only play the first
few notes and stop, such as Beethovan's 5th Symphony.
Da da da .......... I bet you can
forecast the next note. Such is music and such is what market
analysis and forecasting aspires to achieve.
Musically,
Norman
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