USER’S GUIDE FOR THE MARKET SCOPE UPDATE

Primary Objective

Our primary objective in the “Market Scope Update” is to provide an advance alert of dynamic turning points where the probabilities favor a significant leg either up or down in favor of the trend. In the case of an uptrend, these legs can occur at one of two points.

• After a final bear market low after a basing pattern is complete
• After corrections prior to a resumption of the uptrend.

In the case of a downtrend, these legs also occur at one of two points.

• After a final bull market top after distribution is complete
• After corrections prior to a resumption of the downtrend.

To participate in the most profitable moves while minimizing risk, one must trade in favor of the trend.

Corrections More Predictable than Impulse Legs

Let’s assume the trend is up. What we know from history is that corrections tend to be a lot more uniform in both price and time than the impulse legs in favor of the trend. This makes sense because corrections are primarily due to profit taking. As a result, there is a limit to how far they will decline.

Impulse legs in favor of the trend on the other hand are much more variable. This is because the trend is moving in favor of the bullish fundamentals. Fresh buying can come into the marketplace based upon supply and demand changes. Therefore dramatic changes in the fundamentals can result in dramatic changes in price in favor of the trend. This is why it is much more difficult to project where an impulse leg will culminate than a correction. The implication is that our projections for the completion of corrections are more accurate than our projections for the completion of an impulse leg.

In looking at the price moves in the markets, they are in varying stages of their market cycle. They can be at a turning point or in the midst of a correction or impulse leg. What we are focused on are the turning points because these are where a trade action can be taken. In the case of corrections, this is where we want to enter positions. In the case of impulse legs in favor of the trend our projections determine where to take profits if we are holding positions. Since the impulse legs are much more variable than the corrections, it makes sense to take profits based upon a minimum, average and extreme projection.

In other words if you are trading 3 contracts:

• You would take profits on the 1st contract once the minimum objective is reached.
• The 2nd contract would be exited at the intermediate objective.
• And the 3rd contract would be exited based upon a projection for an extreme move.
  

Obviously the individual circumstances in a market impact the decision making process. For example, at times aggressively holding a greater portion of positions can be the right decision.

How We Do It

If we are looking to buy into a correction, we would look at every correction in history based upon both price and time to determine two things.

1. Do the majority tend to fall into a certain average range based upon price and time (statistically a bell shaped curve)?
   
2. What qualifies as an extreme based upon both price and time?

We then make the assumption our market has the potential to experience an average or extreme correction similar to the one’s which have taken place historically. On the basis of this assumption, a projected or perhaps more appropriately “desired” range of turning point dates are projected. It is a desired turning point because the market must accommodate our wishes in order for that turning point to be reached. In other words, we are not projecting something must happen. Only that if it does occur, the probability for an important turning point being established will increase significantly. This in turn would provide an ideal time frame for entering positions. Once this time frame is reached, we are on the alert for a potential price pattern (trading signal) which will allow for a market entry if entering the market or exit if taking profits.

Law of Action & Reaction

We utilize all of our research methodologies in determining the probable turning points. However, based upon the law of action and reaction, the most profitable set-ups are those in which a market moves to a mature overbought or oversold condition based upon price and time.

This law tells us the greater the prevailing move (in length of time and percentage price move), the greater can be the prospective move which follows. As a result, in the case of market corrections, our mindset is one which “hopes” for dramatic moves which parallel other dramatic corrections in history. When these occur, they are typically followed by major impulse legs to the upside or downside which provide the greatest risk/reward opportunities which the markets make available.

Sideways Markets

By definition there are periods of time when a market is in a position where no significant leg up or down is expected. These are typically periods of accumulation or distribution. When a market is in this configuration a projection can call for a "trading range" or "sideways movement." In these situations significant opportunities are not present on the long or short side. However, an option writing strategy can be very profitable. There are times in our projections when we can know with a fairly high degree of accuracy that a trading range is going to take place.

Turning Points

The initial turning point dates we publish are often comprised of a date range based upon the historic average for a correction. (Master time factor cycles and seasonal patterns may also dictate the turning point dates.) However, there are times when we expect the time period to mature and move to an extreme.

For example, let’s assume a market has established a swing high (SH) on March 1st and is in the midst of a correction. We might find that 80% all corrections in history have been at least 2 months. On this basis, we would start looking for a potential turning point two months from the high or as of May 1st. However, as would typically be the case, a certain percentage of corrections may last as long as 3 or 4 months. These would fall into the category of being extreme. In circumstances like these we are not trying to pick the exact turning point date. What we are looking for is the live area during which a price pattern can develop which gives a trading signal.

Assuming our forecast is correct, once we enter the date range, with each passing day the probability for a turning point increases. The potential for a significant move also increases due to the move becoming more extended in both price and time.

Ideal Situation

The ideal situation is when we have isolated a closest fit precedent in history. This would be based upon the time periods, percentage price move, percentage retracement, master time factor cycles, seasonal tendencies and a host of other indicators. When we know our market is a sister market to another market in history, we can trade with much greater confidence.

PRIORITY MARKETS SUMMARY SHEET: COLUMN HEADINGS EXPLAINED

Priority Markets to Watch

A thorough update for each individual market is performed weekly if necessary. Since important changes can take place in a market which place them at a point of taking action, the first page of each report updates subscribers when important information is necessary in any of the markets. Markets are considered a priority when an important turning point is imminent - the point at which to take profits or enter positions for a move in the opposite direction). The rest of the time a price formation or leg is considered to be in a position of "maturing."

Urgency (Classification)

In order to alert you to opportunities, we categorize how imminent we believe the turning point is on the basis of three classifications: Maturing, alert, urgent (Column B). "Maturing" means the pattern still needs some time to develop. "Alert" means we are close to a culmination point and it is time to start watching the market very closely for a price pattern to take action. "Urgent" means the probabilities favor a turning point occurring at any moment. In these instances, all buy and sell signals must be taken.

Trend

Column C shows the projected trend of the market either up, down, topping or bottoming. Remember, we always want to trade with the trend.

Type of Turning Point

In Table 1 of the MSU, I show the designations which coincide with the “type of turning point” which is being projected (Column D). A historic buying low (HBL) and swing low (SL) are the points at which long positions can be initiated. A historic buying low (HBL) refers to the point at which a strong uptrend can begin after a final bear market low is in place. A swing low (SL) is the bottom of a correction.

A swing high (SH) and historic high (HH) are the points at which long positions can be exited. A swing high (SH) is the top of an impulse leg and is the point at which to take profits prior to a correction. A historic high (HH) is a culminating high in an overall bull market and is likewise the point at which to take profits.

Therefore when you see HBL and SL you know we believe the market is posturing itself for a potential buying opportunity. We are attempting to buy on weakness (buy low).

The reverse is true during a downtrend. When you see HSH (historic selling high) and IH (intermediate high) you know we believe the market is posturing itself for a potential major selling opportunity. When you see IL (intermediate low) and HL (historic low) you know these are the points at which we could be looking to take profits.

Data Series

We have found that we can have differing projections depending upon the data series we are analyzing. There are three series we look at:

• Cash
• Nearest Futures
• Actual contract moves in history

In Column D “type of turning point” “[C]” means cash price, “[NF]” means nearest futures and “[CNT]” means contract.

Projected Turning Point

Under the heading “turning point” in columns E & F a projection is given of where and when the turning point will occur. Column G gives the probability of this turning point occurring.

As discussed previously turning points are given as a date range. Picking an exact turning point date is not something we generally attempt to do although we can get very close at times. What we want to do is to direct you into a live area when the probabilities of a turning point increase significantly. From there, a trade action would be taken on the basis of whatever trading rules the subscriber uses to enter and exit a market. In other words once a live area is entered one would look for a buy or sell signal to go long or short or to take profits.

Once we enter the date range for the turning point, the probability of a turning point increases with each passing day. This is so because the move is becoming more mature (overbought or oversold). There are fewer days within which a turning point can occur. The same is true for a price turning point as the market moves through the projected range.

Leg to Follow

Under the heading "leg to follow" in columns H & I a projection is given of the leg which can follow the turning point. Column J gives the probability of this turning point occurring.

The relative importance of the turning points is easily grasped by comparing these last three columns. Keep in mind, these last three columns relate to the potential moves which would follow the turning point. For example, the S&P 500 and soybean oil may have projected price moves of 16% and 40% and time period projections of 3 months, 15 days and 4 months, 17 days, respectively. The probabilities for the moves might be 80% versus 75%, respectively. In this instance the likelihood of an impulse leg in the S&P 500 carries a slightly higher probability than an impulse leg in the soybean oil. However, the projected move in the S&P 500 is significantly less than in the soybean oil. Based upon these projections, the soybean oil carries with it a higher probability of success and therefore a higher reward. As a result, it is a higher priority trade and as such may deserve greater initial risk.

Additional Insights

A projected time turning point carries with it a greater weight than a projected price turning point. As W.D. Gann often said “time is more important than price”. It is easier to project a time turning point than to project a price turning point.

A market can have two projections at the same time. Since a decline in a bull market can turn out to be either a correction or a 1st leg down in a bear market, it is possible either scenario may play out. If it is a correction, the probability might be 60% for it being complete based upon the turning point projection. If it is a 1st leg down, the probability might be 60% for the 1st leg down being complete based upon the turning point projection. We may have a simultaneous possibility for either a 1st leg down or correction occurring. This can be a very advantageous situation because regardless what happens the odds favor a move in a specific direction whether looking at it from the bull side of the equation or the bear side of the equation.

No Forecast

There are times when we do not know what a market is going to do. In situations like this we can be conspicuously silent. However, it is just a matter of time before a market will move into our crosshairs.

The futures board is broken into three clusters of markets which we update Monday, Wednesday and Friday.

The Market Scope Update is published 48 of 52 weeks a year.

Information Updated

Information in the Tables may or may not be updated from one report to the next. If any material is new or has been changed in any way, it is preceded by an asterisk. This is to avoid subscribers unnecessarily spending time pouring over the same information. However, contextually it is good to periodically read all of the information. This is especially true if a trade is being placed.

The Market Scope Update is also part of the Complete Forecasting Package -- this includes all three of our services, Past Present Futures monthly newlsletter, The High Content Report, and The Market Scope Update.

Essential Course

Available to subscribers and GGF Alliance members is our in-depth 8-chapter tutorial, The Essential Course. This course focuses on the methods of W.D. Gann and gives you insight as to which methods he used in his research, as well as insight into how we put these same methods into practice using history and technology. You will need to login to view this tutuorial. Click here to go to the tutorial now.

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Copyright 2006 by Gann Global Financial. All rights reserved. This document may not be copied in part or full without express written permission from the publisher. All violations will be prosecuted to the fullest extent of the law.