Square of Nine 7.2 Squaring Current Price with Time from a Prior Change in Trend

Squaring Current Price with Time from a Prior Change in Trend

In this chapter, we want to look at today’s price to see if it “squares” with the number of trading days (bars) or calendar days that have elapsed since a prior change in trend. If you’re working with daily bars, you will usually use the closing price although if the closing price calculation is inconclusive, it’s often worthwhile to also check results with the daily high if the prior change in trend (CIT) was a low, or the daily low if the prior CIT was a high.

This is a recent example of the application of this technique in the DJX cash, which made a low of 74.17 on March 12 after changing trend to down a few months earlier on January 13, ’03. You needed four pieces of information on March 12 to check for a squaring:

• the closing price (75.52),
• the low price (74.17),
• the number of trading days (38), and
• the number of calendar days (58) from January 13, 2002.

It was worthwhile checking for a squaring on March 12 because the market had put in a bullish reversal bar after making a new swing low and had closed at the high of the day. The daily bar was a bullish Hammer in candlestick parlance. Chart 5 is what a plain chart of the DJX looked like on March 12, 2003.

The conversion of time to degrees is simple enough from the Static Degrees conversion table (or the online Square of Nine Calculator).

38 TD = 165 degrees
58 CD = 66 degrees

For the price side of things, the first to check is the close on March 12. 75.52 = 259 degrees, 349 degrees, 79 degrees, 169 degrees (0, +90, +180, +270). 38 TD = 165 degrees. The close is within 4 degrees of square with the trading day count at a 90 degree offset.

Let’s also check for squaring with the low price on March 12. 74.17 = 245 degrees, 335 degrees, 65 degrees, 155 degrees (0, +90, +180, +270). 58 CD = 66 degrees. The low is within 1 degree of square with the calendar day count at a 90 degree offset. You could reasonably conclude that the DJX squared price and time on March 12. Please notice that we did not convert the DJX to three digits before doing the calculation because we were working with a base price and not a price range.

For another example, let’s do the NYSE High Beta Index (NHB) at the October 10, 2002 low. The NHB is a cash-only index. You cannot trade the index itself, and there are no derivatives. Nevertheless, it’s a great index to follow because the high beta stocks tend to lead the market. NHB Elliott Wave counts are often cleaner and always ignored at your peril.

For this example we’re going to determine a squaring with the low price on October 10, 2002 with elapsed time from the swing that ended on August 22, 2002.

34 TD = 105 degrees
49 CD = 315 degrees

There was no three digit conversion so the low price at 1248.55 = 15.26 degrees, 105.26, 195.26, 285.26. (0, +90, +180, +270). 34 TD = 105 degrees. The NHB low on October 10, 2002 squared with the 34 trading days elapsed since the prior change in trend on August 22, 2002.

This is a short chapter but we have covered, in all necessary detail, the critical information you need to square the current price with time from a prior change in trend. For raw data, you need the number of bars that have elapsed from the prior trend. If you’re working with daily data, you should also determine the number of calendar days that have elapsed since the prior change in trend. Price is the closing price or the bar high or bar low price. Sometimes, you may want to do the calculations for both the high and the low price to determine if a squaring occurred somewhere within the bar, even if it was not at one of the bar extremes or at the close.

We did not convert the DJX or the NHB natural price to three digits because we were working with fixed prices, not price ranges. All this extra discussion is probably making the procedure seem more difficult than it really is. Once you’ve worked with a few particular tickers, you will get a feel for what’s required from the nuances to get consistent and reliable results.