Unraveling the Mystery: Five Ways that Price Squares with Time in Market Analysis
If you want to learn how to use the Square of Nine method to analyze the financial markets, you need to understand the concept of squaring price and time. Here are some of the main points and benefits of this article:
- Squaring price and time means that price (or a price range) in degrees equals time units in degrees or that price is 180 degrees or 90 degrees opposed to time on the Square of Nine chart.
- Five ways to square price and time are presented, each with a different perspective and application. You can use these methods to identify potential turning points, trend changes, and price targets in the markets.
- Examples and formulas are provided to help you understand and apply the squaring methods. You can also use the online Square of Nine Calculator to perform the calculations easily.
- Tips and variations are offered to help you customize and optimize the squaring methods for your own trading style and preferences. You can experiment with different price ranges, time frames, and angles to find what works best for you.
This article is a comprehensive and informative guide to the Square of Nine method. It will help you gain a deeper insight into the mathematical and geometric relationships between price and time in the markets. If you want to learn more, continue reading the article.
The Devil is in the Details
The threshold question is: what does the term squaring price and time mean? For all the applications in this book, it means that price (or a price range) in degrees equals time units in degrees or that price is 180 degrees or 90 degrees opposed to time. For example, a price range of 49 points squares with 81 time units because both price and time are on the 315-degree angle of the Square of Nine.
Suppose you have a situation where you have a base price of 935.05, and you want to determine if that price squares with 37 time units. Use the formula to calculate that 935.05 = 239 degrees. (We have a handy online Square of Nine Calculator).
Find the 180 and 90-degree oppositions to 239 degrees:
239 – 180 = 59 degrees (this is the same as 239 + 180 = 419 – 360 = 59)
239 – 90 = 149 degrees
239 + 90 = 329 degrees
Use the formula to calculate that 37 = 150 degrees
The base price of 935.05 squares with 37 time units at a 90 degree offset on the Square of Nine
The 90-degree angle and its multiples at 180, 270, 360 are considered the most “important” angles for the financial markets and should always be considered when analyzing daily charts and longer time frames for squaring incidents. 45-degree oppositions also square price and time. We mentioned in a previous section that some bond traders look for 60 degree offsets in addition to the offsets that are multiples of 90 degrees.
You can be as creative as you want to spend the time in determining what squaring angles are most important for the tickers you trade most frequently or even how you can otherwise manipulate the numbers in ways other than the ways we show here. Day traders, in particular, seem to come up with the most creative variations which they claim to be effective for the time periods and markets they trade. There are no hard rules, and you are limited only by your own imagination and the laws of mathematics
Five Ways that Price Squares with Time
There are five primary ways that price squares with time:
- Current price squares with time elapsed from a prior change in trend.
- Time in a prior trend squares with the price range of the current trend.
- Price range in a prior trend squares with time in the current trend.
- Price ending prior trend squares with time in the current trend.
- Price range in the current trend squares with time in the current trend.
This list begs a response to a few questions.
What does “Price” really mean?
What does price mean? If you’re working with daily bars, you can usually work with the closing price, although it’s often worthwhile to check results with the daily high if the prior change in trend (CIT) was from a low, or the daily low if the prior CIT was from a high.
The price range of a swing can mean the measurement from close-to-close, from high-to-low, or low-to-high, or close-to-high, or close-to-low. Our custom software displays price data by close-only line charts or by regular high-low bars and measures swings by either bar high or bar low price or by the closing price. Nothing unusual here except to say that it’s OK to construct Roadmap charts where the channels are drawn from a bar high or low based on price levels computed from the close.
So far as we’re concerned, all these price range methods are equally valid. Maybe a little visualization will help. Gann hinted that stock and commodity prices were like units of energy that were constantly changing levels and direction, but that only got measured at arbitrary and artificial moments in time: a minute, a day, a year. A daily bar represents a very long time for something in constant motion at an immeasurable speed. Who’s to say what precise moment during a trading session on that bar should be used to confirm a key change in energy or direction?
Here’s another curveball. We work most frequently with the DJX, and although we usually do a three-digit conversion when working with price range calculations in the DJX, we often do not convert the natural two-digit price to three digits when working with a base price squaring. Unfortunately, we are not aware of any precise rule to follow to achieve consistent results, so the three-digit controversy continues to dog us.
What does “Time” really mean?
Time is the number of bars or trading days, or the number of calendar days from a previous bar. This is the only way we calculate time, but there are means to turn the obvious into the complex for those so inclined. Some people convert days to the number of hours or minutes their market trades in a normal day. Others convert minutes to the number of degrees of earth rotation (1 degree = 4 minutes) from a certain event.
What does “Trend” really mean?
A Trend is more elusive to define because a meaningful definition to you depends greatly on the time frame in which you operate, and the way you handle risk tolerance and money management. The Roadmap charts may provide a more objective definition. A long-term trend ends when price
breaks cleanly beyond the upper or lower outer channel boundary, and a short-term trend ends when the same thing happens on the hourly Roadmap chart. We use the terms trend and swing interchangeably throughout this book.
Most trends end where the market has squared price and time, but not every squaring of price and time will end a trend. You can usually expect a reaction of some kind to occur at every squaring although it could be a hesitation, a major but temporary pullback, or even an acceleration in the
same direction. Not every method of squaring price and time will apply in every situation; most times, only one or two methods will show the square. Sometimes despite every combination there is no apparent square to be found.
Gann said that every high and low was related mathematically to at least one other high or low and probably several. Then again, Gann used 100-year charts in his work. Not many computer traders will have the patience to do that kind of backbreaking research.
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