A Fable of three carpenters, er market timers….
Once upon a time in a land not so far away, there where three very distantly related cousins: Tim "tooltime" Fibonnacci, Norm Gann, and Sigmund Elliot (there's always one behavioralist in every family).
These three cousins for reasons still unclear gathered one day to build a vacation home.
The following story bears no relationship to the real world. All names have been changed to protect the innocent. Any relationship to known persons is purely coincidental.
Since this is a beginners' thread, no power tools will be used to build the house.
All apprentice carpenters should gather the following tools: 2 pencils, a piece of paper, and a piece of string.
Fibonacci (hence referred to as Notch by his friends):
The first thing that we want to do is to draw a circle, So grab the string, wrap it around one pencil and then pull it taught with the second pencil to create a protractor.
Draw the circle on your paper (any size will do).
Then draw a square within the circle so that the square touches the circle in 4 points:
90 degree, 180, 270, and 360.
Norm: Norm intones, sorry to disrupt the discussion, But I mean a circle around the house!! This isn't the middle ages; we don't build moats around our castles any more!!
Notch: There is an order to all things and you may see in future fables that the circle does
Intertwine with circles of its own kind as well as a larger order, but for grand plans like that we will need to enlist the aide of a master planner such as Thomas Jefferson.
Today our task is small, so we'll skip the big stuff for now.
Sig opines: Notch when I drew the circle and I put the square on the circle, one of the sides of the house disappeared. Why did that happen?
Notch: Frequently, the real world has to make allowances for unfulfilled wishes, wants and desires but you're the behavioralist, so why am I telling you that?
Yes, in many instances the house will only touch the circle in three spots, for example:
90 degree, 180 degree, 270 degree
Many net stocks will work nicely here for an example: 90degree to the left, the stock was near zero, 180 degree, the stock was substantially higher, 270 degree, the stock was back near zero.
But these circles also work on any time frame: monthly, weekly, daily, or intraday.
The circle will help to define a time frame for building the house.
Sig questions: So Notch, you 're telling me that the circle will help to tell me how high we should build the house to keep it in proportion, and it will help to project how long the house will stay standing.
Notch: Yup, hey, I don't want to take the credit for the idea, I created some general mathematical relationships but the quiet one of this group developed these relationships into a finely tuned structure. You may have heard of Norm's square of nine.
Sig: Squaring Time?
Norm: Well yes, it will square time, but what Notch actually said was "square of nine"
Before I got this gig on OPB I had lot's of free time so I would doodle with squares and circles, and I began to see some very profound relationships between price and time.
The two are interconnected and it is near impossible to have one without the other.
Tim: So it's kind of like a fart. You hear it and you start to raise your awareness that there
May be an olfactory sensation that may be less than pleasant.
Norm: Well, the analogy stinks, but yes, you seem to understand the concept very well.
Notch: Norm, why don't you explain that square of nine deally.
Norm: Basically I built upon the mathematical relationships that you created back in the
Medieval times. Some numbers work very well with others
1 X 1 = 1
0.236 X 4.236 = 1
0.382 X 2.618 =1
0.5 X 2 = 1
0.618 X 1.618 = 1
0.764 X 1.301 = 1
0.618 + 0.382 = 1
0.618 X 1.618 =1
0.382 X 2.618 =1
Notch started a series of numbers: 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89 etc etc etc
Being a carpenter by trade I like all things that are square. So I really found an appreciation for cardinal numbers:
1 X 1 = 1
2 X 2 =2
3 X 3 = 9
4 X 4 =16 extend odd nausium
The part that I will contribute to the house is the structure. I will layout all the relationships between the various rooms. Although I like squares we can build many different unique shapes to end up with the square. So with our string we can measure
High to high and compare that backward and forward in time for possible turning points;
Several of the other common combos are: low to low, high to low, low to high, and high to high. Often time's minor differences will make the difference between a masterpiece and garbage. But Sig, this is really your area of expertise: share with the group your theories on the madness of crowd behavior.
Sig: Crowds do have tendencies that repeat. One of the most common is called an impulse pattern, which has a series of five waves, three in the dominant direction and two retracement waves.
Tim: aren't those called pullbackments?
Sig: well I have heard of the term, but lets try to stick with the basic theory for the moment. Let's see if we can try to pull this all together. Let's take for example a Net stock, which quite possibly exhibited the impulse pattern. Wave 1 was up; wave 2 was down, wave 3 up, wave 4 down and wave 5 up.
The reason that we all got together today is that our individual contributions no matter how valuable they may seem are nothing compared to the value created from the three approaches combined. Ya see, the waves will exhibit the exact same mathematical relationships that Notch and Norm developed
Tim: This is one of the few times that I want to get serious. So what you are saying is that with a piece of string and two pencils you can do most of the fancy dancy calculations done by these high falooten stock programs.
Norm: Tim, the programs may be considerably faster…..especially in your case because
You seem to avoid actually work at all cost but yes you really can do most of this stuff by hand and you may even get a better understanding of the price and time relationship with a little manual labor.
Tim: well you know you won't see me anywhere, near manual labor. Speaking of which, I'm really glad that we didn't do any home construction. |
