THE REIF SWING CHART METHOD By David C. Reif Copyright © 1993, All Rights Reserved INTRODUCTION ‘The purpose of cis paperis to provide the analyse with a precisely defined method for ploting a swing chart. This method plots the 5 minute hourly, daily, weekly, monthly quarterly, and yearly time frames in exacly the same way without exceptions. The author will show how any price action is plotted, so that all che key highs and lows are identi- fied. Iewill be show how the plots of various time periods are related to each other using the “wheel concept” of cyclical analysis, Iewill be shown thet one of the most useful observations is the scudy of price behavior after the various swing charts wzn up or down, BACKGROUND W. D. Gann was one of the frst market analysts to develop various types of swing charts. In his book, How to Make Profits In Commodities, Gann described the use of a2 day, 3 day, and a 7 calendar day chart. In his Stock Market Course, he developed an entire trading method on a swing chart approach called the Overnight Chart. In addition, in his books 45 Years on Wall Street and New Stock Trend Indicator, he described two types of 3 day charts: a trading day version and a calendar day version. The author has found it very difficult to use all ofthese charts, because chere are times when the action isso volatile that it becomes quite difficult to know how to plot it. Moreover, Gann did not provide us with the method he usd to the anlyis ofl these charts togethers thea consensus reas could be made ‘There have been other methods that provide the analyst with precisely defined pivot points. Arthur Merrill, in Filtered Waves, described an excellent method to measure swings in the market, He used a percentage reversal that would filter out any reversal less than the percentage selected. For example, if the analyst only wanted to sce swings greater than 10%, the chart would remain up until a 10% or more decline, from the highest high reached up to that point, occurred. Once a decline of 10% occurred, the lst high was defined. The next low would not be defined until the market moved up 10% from the lowest point reached. In 1979, Merrill published M & W Patterns, which provided excellent research on the probabilities of any given 5 point wave (M or W) to project future price action. The author has had trouble with this approach wondering if a 9.7% correction was not significant, while a 10.1% correction was significant. Despite this concern, I have found this approach to be quite helpful in defining key pivots in market action, Jetty Favors, of fory Favors Analysis is probably the modern day expert on the Gann swing charts. In his presentation before the Market Technicians Association monthly meeting in November, 1990, he described an Inside 5, a Daily ‘Trendline, and a Three Day Chart. Favors keeps numerous swing charts, exch having its own rules for plotting and analysis, Another approach was developed by John R. Hill in his book, Stack and Commodity Market Trend Trading by Advanced Technical Analysis, Hill describes a method to determine a pivot point with a swing being the movement from one pivot point to the next. In his book, a top pivot point is defined as the highest point reached in a swing prior to the penetra- tion of the low of the top day. A bottom pivor point is the lowest point reached in a swing prior to the penetration of the high of the low day: The main problem I have found with this approach is determining what to do when a long bar period presents itself in the price structure. In 1986, afier studying all of the above methods in great detail, the author decided to try and develop a single plotting ‘method that was precisely defined and that could be used on any time frame, be ita 5 minute chart or a yearly chart. In addition, I wanted the chart to show the periods that were not plotted, including “inside periods” and “multiple plot” periods. I also wanted to be able to study a daily, weekly, monthly and quarterly chare of a stock or commodity and compare each charts picture at key historical rurning points. This effore led co the following plotting rules.THE REIF SWING CHART DEFINED ‘The following instructions apply ro any time period, and to any stock, commodity, o index. The following describes how the daily swing chart is plotted. Ler us assume that we have the following daily price information on Pork Bellies: DATE OPEN HIGH Low CLOSE CHANGE 10/2 6510 6605 6510 6550 +30, 10/3 6575 6650 6560 6560 455 10/4 6610 66754] 6540) 6545 -60 10/5 * 6650 6e30) 6550 6575 +30 10/6 6540 6675T — [os10 J] 6645 +70 10/9 6675 67507] 66504 6705 +60 10/10 6700 6745L 6630 6630 75 To plot the swing char of the above price action, you need a starting point. In this example, the data for 10/2 is the starting point. On 10/3 we have a higher high and a higher low (ifyou use a red and green fine line pen, itis easier to follow and visualize). Puts the arrows on the data series, and for 10/3 place a green up arrow beside 6650 and 6560. If the low had been equal to the 10/2 low, the arrow would still be pointed up as che chare stays up until a lower low than_ the prior period's low is made. On 10/4 the price action is higher than 10/3 at the opening but later in the day the price ‘trades lower than 10/3's low. This action turns the chart down and there are two plots placed that day. Firs, take the chart up to the high made on 10/4 and then take the chart down to the low price reached on 10/4, Place a green square ‘on the high price reached on 10/4, and mark the high price reached on the chart. The 10/4 high is called a confirmed high (see Chart #1). Note: The closing price is not plotted on a swing chart, only the highs and the lows are plotted. Another piece of important information is recorded on the plot after the close on 10/4, The price that had to be pen- cxrated to turn the chart down was 6550. prior low A tick mark is placed on the plot at that exact price as shown in Chart #1 at A. On 10/5, with the last plot being down, there is a higher low and a lower high. This day is not plotted bucis noted on the chare with the date as in the plotted example (Chart #1). This is down inside day. On 10/6 the price opens down and goes lower than 10/4 and then turns up exceeding the price of the 10/5 high. Place a square around the low of 6510 (which is now confirmed low) with a ted pen along with the red down arrow. The plot is then taken up to the high of 10/6, and this is another two plot day. Again place a tick mark on the plot at 6630. prev high On 10/9 the high and the low are higher so the chat is plotted up to the high of thae day, along with che green up arrows. On 10/10 there isa lower high and a lower low, and the moment the prior day's low of 6650 is penetrated we place a square around the highest high reached in green and take the chart down to the low reached. This action created confirmed high of 6750 on 10/9. We knew that the chare turned down the moment that a low lower than 6650 was made. Jewas not until afier the close that we know how far down to take the plot. The same action is taken when the prior day’s high is penetrated and we know that the chart is up, bue we don't know how far to plot it undl the market closes. Below in Chart #1 is shown the plot of the above action. Note: The prices of the highs and the lows have a square around them on the data records and the prices are noted on the chart, Note the reversal days of 10/4 and 10/6 and how the arrows show the price action, and also that the date of the inside day is shown although there is no plot for the day 10/5, Use arrows on the chart to show the reversals on 10/4 and 10/6. 10/5 is written between the spaces in red to denote che inside day. An asterisk is placed next to the price action in the data to show this day was an inside day. ‘There are times when you use the open and close to ascertain whether the high or the low came frst on a day Its also possible to havea 3 or more plot day. In these cass it might require a source of hourly data or a call to your broker to ‘get the swing highs or lows during the day. Assume that we have trading day 10/11 as follows: DATE OPEN HIGH LOW CLOSE CHANGE toni [66050] [67757] 6430) 6430 -200 This day presents a problem for us. We had taken the chart down after the close on the 10/10 to 6630. On 10/11 the price opened lower so we know that we have to take the chart down to atleast 6605, yet during the day, the prior day's high of 6745 was exceeded on the upside thereby turning the chart up. Obviously later duting the day the market re- versed and took out the low. of 6605, a confirmed low made the same day, and closed down limit. In a case such 25 this 2T 6775 wt e7e0 ue? bee srrex fares [ARE bSoo PLACHD AT ‘tt Ponty THe srurng UP of btoo tt ri t bt t Ghee 1 T + CS ee CC Chart 1 - Daily Swing Chart on Porkbellies You have to assume the initial low was the open, take the chart down to 6605, a confirmed low, then up to the high of 6775, a confirmed high, and then down to the low of 6430. This is a3 plot day which is very rare, but it does happen. Had we known the low made after the open with a source of hourly data chis low would have been the first low plotted on 10/11 ‘These plotting rules are designed so thar there can be no misunderstanding of what to do with any price action, Below are examples of situations that occur quite frequently and how they should be handled. A series of bar charts days are shown in a row and then how the swing chart would be plotted. In Example #1 the swing is plotted higher each day until day #4, which isan ‘inside’ day (the high is less o équal to dlay 3 and the low is higher than or equal to day 3) consequently day 4 is an ‘inside’ day and is noted on your chart as a ‘no plor day as described above. Now comes the tricky part. On day 5, you have a price action chat has higher high than day 4 and the high is lower than or equal to day 3. Day 5 also has a lower low than day 4, but the low is equal to ot higher than the low of day 3. In other words, you have an ‘outside’ day of day 4, but ‘inside of day 3. In ths example you must bring the swing chart down from the day 3 high to the day 5 low because the high on day 5 occurred frst. (This is mos likely since the day 5 opening was higher chan the day 4 close and since che chart was already plotted up to clay 3% high, and day 5's high was less than or equal to day 3, the chart could not be taken up ot plotted higher; howev- 6 the moment day 4’ low was penetrated the chart turned down and a square was placed around the high of day 3 onyour datafile in greén and posted to your chartas a confirmed high. You did not know how low to take the chare down until after the close. EXAMPLE #1 BAR CHART SWING CHART Price } f 1 { TIME 123545 Example #1 Now what would the swing chart look like if day 5 action showed a lower opening price and a higher closing? In this case the low probably occurred frst and the high second. If this happened, you would bring the chare down first to the low of day 5 since the day 4 low was penetrated, turning che chart down, and then take ic up o the high price of day 5 and thereby plot day 5° pfice action twice. The bar chart and the swing chart ofthis example are shown below in Example #2. This action creates a confirmed high on day 3 and a confirmed low on day 5. Example #2 BAR CHART ae ul on 12345 Example #2 ‘The same type of logic is used for a down trend. Tivo examples with associated plots are shown below.Example #3 BAR CHART SWING CHART Price Price 12345 Example #3 ‘Note: The open and close on day 5 indicate that the low occurred frst. Since the swing chart was already down you could not plot lower. When the high of day 4 was exceeded, the chart turned up creating a confirmed low on day 3. You donit know how high to plot until the close of day 5. The low of the plot is established the moment that day 4’s high was penetrated, Example #4 BAR CHART 12345 Example #4 In this case the high occurred first on day 5 as shown by observing the opening price, and day 5 is plotted ewice. This action creates a confirmed low on day 3 and a confirmed high on day 5. There will be times that the only way ro determine what happened first, che high or the low, is by the observation of the dlay’s opening price and the prior day's close or via a source of hourly data. Ics important to have this informacion when, you are actually trading the market and now doing historical work. Ie is quite easy to instruct your broker to give you the sequence of events. For example, you know that the day following an inside day is very important. You would ask your broker to watch this market and tell you if the high or low penetration occurred first. ‘The best way to learn how to plot a swing chart is to practice. At the end of each day you must ask yourself “what can happen tomorrow that will change my plow?” Let's look at another example using weekly data on the D-Mark. DATE OPEN HIGH LOW CLOSE voy 5510 5560 5460 5550 5650 5700 wid 5555 5650 S510 5640 510 wai 5625 57007] [5405)] 5420 560! 5405 Price Price 28 +9545 S75, SSP 5625 | Y 2005 * 5610 5650) 5420) 5475 Pod i 2N2 * 5495 5595) 54954 5555 wna iat 2N19 5540 S650p 5450) 5625In the above example, the week of 1/21 was a reversal week with two plots. The swing chart was taken to the high of '5700 and then the moment that the prior week’ low of 3510 was penetrated you placed a square around the high and ‘turned the plot down. This action created a confirmed high at 5700. You knew that it was down, but until the close on Friday you did not know how love to take the plot. Ir urned out that you plotted it down to 5405 after Friday's close on 1/21. Since the plotting rules state that the only way you can take the chart back up is by penetrating the prior time period's high you could not take it up for some time. You can see chat there were lower ighs in the weeks of 1/28, 2/05, dnd 2/12. Consequently, you could not rake the swing chart up during that period, nor could you take ir down because i did not trade lower than the swing low plot at 5405. Therefore, all three weeks are no plot weeks, and dates noted on. your chart but not plotted. Ie was only when the high of 5595 was penetrated during the week of 2/19 that you tured the chart up. The mnoment that 5595 was penetrated you knew that the chart had turned up and a square was placed around the 5405 low on your data record. This action created a confirmed low at 5405. You did not know how high to take the plot until the close Friday. [A good rule ro follow once the swing chart turns up or down isto ask the following question the moment that it changes direction: What is the action required to turn ic back in the other direction? Since you know what the prior time period’s low price (or last confirmed low) was prior co the turn-up, you can easily make a note to remind you of the reversal price to turn the plot back down. Iris my hope that this example will keep you from getting confused. Practice will be che only way to learn this thoroughly and correctly. An insert has been provided chat summarizes the rules and definitions. ‘The above instructions are designed to teach anyone to plot price action by hand. In 1990, the author, working with an experienced programmer, Ed Kasanjian, was able to develop a proprietary program that plots swing charts. (1) This pro- {gram uses color coding ro describe the price action. For example, the plot is green until the down reversal price is hit, at ‘which point the plot turns red. Inside periods show up asa side-ways yellow line. Two or 3 plot periods show the action jn white. The charts presented in the remainder ofthis paper will use the charts ftom this program, although the color features will not be visible. This program allows shifting from a daily, weekly, monthly, quarterly or yearly bar chart to ies equivalent swing chart in seconds, THE PLOT ADVANTAGES During 1991 after viewing hundreds of charts in various time frames using my new program, it become apparent that the yellow bass (inside periods) were very important precursors of future price action, particularly, in the monthly, quar- terly and yearly charts. I have a daily fle on the DJIA that starts in September, 1928, and continues up to the present day. [twas also apparent that 2 and 3 plot periods were key to future price behavior. When working with Ed Kasanjian fon the best way ro plot the swing chare with a computer, I decided that the best way to view the swing highs and lows fon the sereen was t0 use a zero balance plot. Larry Williams was one of the first analysts to use the zero balance concept and it has been used for many years by Curtis Hesler of Professional Timing Service. The method varies depending upon how you select your pivot points. The theory of zero-balance is best understood by a thorough study of reference 7. For the purposes of this paper, I will provide the formula needed to compute it. The first requirement to compute this indicator is a method to define key highs and lows in the market. In my opinion, my swing chart plotting rules provide tn excellent method to define pivot points. Once 6 pivot points have been established, you can compute two points out into the furure using the following formula. P8=P6 +P5-P3 For example, when the swing chare tums down, it creates a high pivot which immediately becomes a new point 6. Counting back from that point provides the values for points 5 and 3. In this way, as prices move from high to low and back to high, you develop a corresponding zero-balance plot of the price action that is two steps out in front of the ac tual price action, Consequently, when I call up a swing chart of stock or index on the computer screen, the last cleven swings are shown on the upper left ofthe screen with the zero balance points computed next to the corresponding pivot point, In addition, the next two zero balance points are computed out into the future. Once the swing chart turns up oF down, a plus or minus sign is added tothe last confirmed high ot ow, therein telling you immediacely ifthe price action is comparatively weak or strong relative to the zero balance points. The three step rule and last ditch setup, described in Reference 7 also work very well on the swing charts as will be shown later in this paper.SWING CHART EXAMPLES: THE YEARLY DJIA 1929-1992 Chart #2 is the yearly swing chart of the DJIA from 1929 to 1992. The chart is much more impressive if viewed in col- ot, however, I have noted the key set ups and yellow bars (inside years). The key multiple plot yeats are also noted. Note that there are only four down inside periods in the last 63 years. The 1938 low of 97.50 was not broken until April 1942, and then the new low was only 4.9% lower than 92.7. The years 1939, 1940 and 1941 were no plot years sig- nifying a lengthy trading range. When the yearly chart turned up on January 4, 1943, it created the frst higher low on this chart since July, 1932. The chart continued to make higher highs and higher lows until 1946 when another lengthy consolidation began. The years 1947 and 1948 were up inside (no plot) years. The two plot back up in 1949 signified the resumption of the bull market. There were down inside years in 1967, 1975 and 1979. All ofthese were followed by cur up in the chart. Consequently, you can see that of the four down inside pesiods, 3-curned up afterwards while one sade a slightly lower low before beginning the uptrend. This is one ofthe key behaviors I have discovered using swing charts. Down inside periods are a major clue when looking for a rend reversal, Interestingly enough, the up inside plots ‘on the yearly proved to be consolidations, before a continued up move in the market. The years 1947, 1948, 1984 and 1988 were of this type, and only the back to back plot years of 1947 and 1948 led to a turn down in the chart. ine movenent across the seeesn glves you the cclttcal Information on pelcy actlon Br arses Love. 49 HL ae Fp Si alec obs ater 88 x ee aes |— tast oitch ralluce due ae A834:885 eco nue she oo. en — nonnkne er aes morgri _ Soom mie i | Sins ait i ae ie ees (Se a ro rs re Chart 2 - Yearly Swing Chart of DJIA, 1929 to 1992 “Tables #1 and #2 provide summaries of the up inside and down inside behavior of the DJLA for the past 65 years on the yearly, quarterly, monthly and weekly swing charts. ‘As can be seen by studying Table #1, it could be valuable to know at the end of a given quarter that you just completed ‘an up inside period. The history shows that the odds of the chart breaking the prior quarters intra day low is 62.5%. ‘Other than for the up inside results on the yearly chart, the evidence shows that an up inside period has a beter than 62.5% chance of trading lower and turning the chart down. In the case of the down inside results, there is an even higher probability for the charts to turn up after a down inside period. This can be valuable information to che trader, depending upon his overall view of the market,Table 1 - Dow Jones Industials Up Inside Behavior PERIOD — | TOTAL CASES | # RESOLVED DOWN | # RESOLVED UP | PERCENTAGE DOWN YEARLY 3 1 2 33.3% QUARTERLY. 8 5 ei 62.5% MONTHLY 27 18 9 66.7% WEEKLY: R169 108 “61 63.9% Table 2 - Dow Jones Industials Down Inside Behavior ao # RESOLVED. DOWN | # RESOLVED UP| | PERIOD “TOTAL CASES YEARLY 4 QUARTERLY: | 45 MONTHLY Wel Z ‘After computing the above results on the DJIA, I then decided to do the same study on 59 of my stocks with the longest histories. The minimum file length was 5 years, with many files going back 20 years. The yearly chart was not studied due to the lack of enough long files. Tables #3 and #4 show the results of this study. Table 3 - 59 Stock Data Base Up Inside Behavior PERIOD. || TOTAL CASES. | # RESOLVED DOWN | # RESOLVED UP | "PERCENTAGE DOWN ~ QUARTERLY 95, 33 34.7% MONTHLY [i247 1225 s WEEKLY 617 416 201 Table 4 - 59 Stock Data Base Down Inside Behavior TOTAL CASES. | # RESOLVED DOWN |# RESOLVED UP| “PERCENTAGE UP. QUARTERLY 115 100 87.0% “MONTHLY = 23: e 282.0%) WEEKLY, 303 62.9% This study once again showed that inside activity can be a significant bit of information to the analyst. The results on the down inside quarterly and monthly charts show that more than 8 out of 10 cases resolve themselves by turning the chart up. [Fat the end of a given month, a stock has a down inside plot, you have excellent odds (82%) that a prior month’ high will be exceeded before the recent low is taken out. ‘Another advantage of the swing chart plot isthe ability to see chart patterns very clearly. In addition to the familiar head ‘and shoulders pattern; double and triple tops and bostoms are easy to see. I have observed a pattern that has shown up fs a major top or bottom formation. I call it the “X” pattern. Chart #1 shows this pattern starting with the low marked "3° in 1962. The next 3 lows are all higher than “X” and low #2 is lower than low #1, and #3 is lower than #2. When the chare turns up after this type of set up, the odds are quite high that a significant advance will occur. The degree of the chart increases its significance. A yearly “X” buy pattern is much more bullish than a daily one. ‘Another pattern Ihave found to be useful is what I call che “Y” pattern (it has nothing to do with the shape of the leeeer ). This pattern is most often found on the weekly swing chart and is basically a rapid curning of the weekly chare over 1 petiod of 3 to 5 weeks, A recent example is the period 12/16/92 to 12/30/92 in the S & P 500 price action. Chart #3 8isa plot of the action that shows this set up. The week of 12/18/92 was a two plot week as the chart ruined down, made low and turned back up on the 18th. Prices rallied slightly higher the week of the 24th. During the week of the 31st, the chare tured down on Monday and made a low, turned back up on Tueday to make a new high, and reversed down again on Wednesday to create a 3 plot week. When prices tun down for the 3rd time, a significane decline normally fol- lows. In this case the $ & P declined from 442.65 t0 425.88 in only 8 trading days. Note that the zero balance plot was also signaling a last ditch rally on the final advance to 442.65. D 1273079a0 WED 437.aG¢ 442.65 495.71 12/89/92 TUR 12/91792 THU oy laaa.0 [oD fee Writes eeeess rs free fF Hil ! alt ie Genneeereas SEDRRRREeSE| Hen e200 Pe Orrae | : bee Hy ty La. MJ U Losezeon jazvozro1 _jearaecoa iwevisven jooraarg2 _jn0va9792 yas /oores. Chart 3 - Weekly Swing Chart of the S&P 500 Index Thave found that zero balance can be quite helpful even on the yearly swing charts. Chart #1 shows an example of a3 step sell signal in 1968 that showed strength alerting you to expect the next upswing to go to new highs. This occurred like clock work in January, 1973. When the yearly chart turned down at 883.39 on May 21, 1973, the expectation should have been for a severe bear market to develop. The next 18 months proved this expectation of be correct. ‘Another big advantage of the swing charts is the ability to check the price action on all of the time periods atthe same time. I call this the “wheels of time” concept of cycle analysis. Ifyou study a yearly and quarterly chart ofa stock and find them both up you may find that a major reaction on the daily and weekly chart is only setting up a higher low on the monthly or quarterly chare, I have found that it is quite common for a stock or index to trace out on ABC correc- tion on the weekly or monthly chare turning many analysts bearish. In reality, all that is happening is a turn down in the chart of next higher degree—in this case the monthly or quarterly which could now be set up to create a higher low. In his books and courses, W. D. Gann stared that in a very strong advance on a daily char, prices will not react for more than two or three days before turning back up on the second or third day. ‘This behavior is easily seen on the daily swing chart. Chart #4 is a daily swing chart of the S & P 500 Index. From the October, 1992 low, you can count the number of reaction days, and it wasn't until mid-December that an ABC cor- rection lasted long enough to turn the weekly chart down. This daily chart is interesting for several reasons. The chart covers the petiod from the October, 1992 low, chrough January 22, 1993. Ihave labeled each reaction afte the low with the number of days the swing chart was down. As you can see, Gant was correct in his statement about 3 day reactions. Thave labeled an "X” pattern in circles to show that this pattern shows up on daily charts as well as on charts of higher degree. In this case, che pattern turned the weekly down to create @ higher low. This is shown on Chart #3 at B. Simi- larly, when the weekly goes into an extended correction, you must check the condition of the monthly and quarterly charts to determine if they have a chance of turning up or down. Basically, ifthe market is bullish, the corrections in the 9eT 435.75¢ 437.91 435.49 — Fah - oe H ” iT 15.0 A ses pac sees sunarasulTtePan sescmesauscatin Chart 4 - Daily Swing Chart of the S&P 500 Index weekly will cease once the monthly has turned down, giving it a chance to create a higher low, Ifthe market is bearish, the curn up in the charts will quickly create highs and proceed to go lower. In the August, 1992, issue of “Technical Analysis of Stocks and Commodities” magazine, I published an article on the Gann Quarterly Chart. I pointed out one of the most important characteristics of this chart was the simple fact chat a large number of DJIA lows were made within 15 calendar days after the chart turned down. At the time the article was published, 14 out of 47 turndowns in the chart made a significant low within 15 calendar days. This means that in 30% of the cases, the analyse should be looking for reasons to find a low once the quarterly chare turns down, 51% of the 47 cases made their low within 60 calendar days ‘The chare recently turned down once again on October 2, 1992. As of January 25, 1993, the low on the DJLA was only ‘one trading day later on October 5, 1992: and although the charts still down, it will ean up in the ist quarter of 1993 on any penetration of 3364.90 intra day. If this occurs, it will create the sixth higher low on this chart since 1981 10@ ci7ia7e9e FRI aasaGe 90,80 39.49 @9707709 THU B4707/89 FRI ee fk — caace micned oom on 6/12/90 at 39 1/8, ho.o 1988 Inge 25,100907 nto |_yosrserea josraarag [10/19/07 112714790 101721799 Chart 5 - GM Yearly Swing Chart AN INDIVIDUAL STOCK ANALYSIS will now show a complere example of how I use the swing charts in my analysis of a stock ro determine if ic is set up for a trade, Iwill use GM for this purpose. Since we know that a turn down in che quarterly chare of DJIA bas a 30% probability of making alow within 15 calendar days, the turn down of the DJIA quarterly on Occober 2, 1992, was a good time to check the positions of the DJIA stocks and GM ia particula. a T stare with the yearly chare. Chart #5 is the yearly swing chart of GM. I have noted the key information that you need to know about this stock’ price action on the chart. As of October 5, 1992, the yearly chart had been down since ‘August 13, 1990, when it penetrated 1989's low of 39 1/8. There was a yellow down inside bar working as 1992 was coming to an end, and in October the key 1991 low was 26 3/4. As ofthat time, the 1992 high was 44 3/8. The most important piece of information is that 26 3/4 low in 1991 was within the parameters of double botrom. Sines the yearly chart did not turn up in 1992, and prices were now approaching 30 again, it was a good time to proceed to the Quarterly chart to see iit provided us with more significant information as to the stocks prospects. hare #6 is the Quarterly Chart. The key points that are readily visible when this chart is put up on the screen are a8 follows: (1) There are 4 up inside periods since 1984, and 3 of 4 preceded a turndown in the chart. (2) There is only ‘one down inside quarter and ic led to a significane advance. These results are in line with the expected results shown, in Tables 3 and 4. (3) The latest quarterly turndown occurred in August 20, 1992, when the price broke 36. This tells ts that if GM is bullish, a low should appear within 60 calendar days. This time window ends on October 19, 1992, exactly, We also know that if che price makes a low between 30 3/8 and 26 3/4 a head and shoulders bortom will appear on the chart. If price curs up in this range, an Mé pattern will be completed which according to Mertlls boolk Mle W Wave Paszerns has a 73.3% buy rating on stocks with this pattern. When the price penetrated 30 3/8, the chance for the mote bullish M8 pattern was lost. Ifthe price dropped below 26 3/4, it would give an M3 pattern, which can also be short term bullish. The information we have gleaned from a study of this chart is potentially bullish, so the next step is to look at the monthly chart. Chart #7 is the Monthly Chart of GM. Since this is being written in hindsight, I cannot remove the price action that thas occurred since October. I have labeled the up and down inside action, and once again the results show their value. uwvaieis793e FRI aa.oue 30,30 92.00 @17aa/99 FRI @1704/93 HOW. tp tnalae ath g of 189 tp tnglae 2080 of 91 las. CAT Le cl Ly eS qT. 29/8 Ls.o Briar wnat oso | a 1ons/ar Lioacx6roa josraives josrsare6 110719707 jaro7/09 |12/14-90 92/20/92 "Chart 6 - GM Quarterly Swing Chart | = h2/17390 Sar elage save aov7s Lives/oa TE LAvAa/9a Le ae ae Haat Bar Bb ia HA Ep ee. 832587: 36 ae ‘Theee Up sett alect with a last Wea a JES Mien’ tent BE wenn lee C] vy ta O “HE [aoa rae | 7 ese | 6. rey ain : | a 2. u G Le. Law cane me" on lugacezvas j14/30¢99 jasvear9e _jo17tare1 _j@9v20791 1 eacoz792__ {11/30/92 Chart 7 - GM Monthly Swing Chart 12“The zero balance box in the upper lefe hand corner of the chart shows that the 3 step up pattern that occurred in June, 1992, showed strength and that after the next low comes in, a good rally should occus. This chare in early Ocrober was giving us 2 possible “M" patterns. If che low came in above 26 %, we would have an M14 which has an excellent record for performance in stocks. Ifthe 26 % low was broken, an M9 pattern would be completed. The M14 is more bullish so wwe begin to root for GM to hold above 26 %. “We now shift to the weekly chart #8, and once again, I have labeled the up and down inside periods. The first thing we notice in eatly October is that there isa bullish 3 downstep zero balance setup. Since prices were below 33, the cor- responding zero balance point, we had a warning that after a rally, a new low could occur on the next swing down. We therefore decide to wait for further developments. Sure enough, the weekly chart turned back up on October 13, and made a new high the same day. We decide that the next turndown in the chart wil be the time to take a hard look at the daily. We don't have to wait long, because on October 19, 1992, exactly 60 calendar days from the day the quarterly chart turned down, the weekly turned down by penetrating the prior week’ low at 28 7/8 Ido not use M & W patterns on the weekly chare at this time, but this is pare of my ongoing research into this type of chart. Before moving to the daily chart on Monday the 19th, we need to know what price will turn the weekly back up. Looking at the weekly bar chare, we see that a penetration of the prior week’ high of 31 5/8 will turn the chart back up, and that this price is the prior swing high on the weekly swing chart. 3e,00 Ai7k6/92 HON 41740792 WED w ivieroae HON aiaee save laa.0 Ge Tek: A pee au = ‘ ED Ee pa t 5 Tews Oo aap ay Act . Bos geet i : Ha | U bo.e i laa fl _ Le TLL. u owe 10/19 aff 28% 2.0 To? Tors ony lrersere2 _jesvesre2 _jwazasr9a__josriacoa loreayeea jesvascea j4araecoe Chart 8 - GM Weekly Swing Chart CChare #9 isthe Daily Swing Chare. As you can see, it is a much busier chart. I use these charts to draw trendlines for the most part because with this method, the weekly char is the most important. On the Daily Chart, there is a wo month 5 poine tendline, that once penetrated, should provide some upside fireworks. I do not pay much attention to inside periods on the daly chare because the swings are too small to worry about. It is cleat after October 19, that a rally above 31 would break above this trendline. We also know that ifthe price exceeds 31 5/8 during the current week, a two plot ‘back up will occur and this would be the third reversal in the weekly chart in only 10 trading days. This is a possible “Y” pattern buy secup that frequently forms near key lows. This type of action normally leads toa nice advance. The mini- ‘um I would expect is a 3396 to 50% retracement from the 28 5/8 low to the 44 3/8 high on the monthly chart. This ‘would give a minimum target of 33 7/8, which would be high enough to turn the key monthly swing chart back up. 13en fre ut Son Fin ln _. ag Dir t 4.9 La b2.e TL TNA hone i. u 8.8 Chart 9 - GM Daily Swing Chart In a case like this would normally place a buy stop at the 31 % level for the balance of that week, justin case prices did turn back up. This exact scenario occutted on October 22, a the price gapped open fiom a prior day close of 31 land proceeded co close that day at 32 7/8. This frequently happens when a two plot week occurs. The stop on this trade initially should be below the 10/19 low at 28 5/8, At the current time, the stock has traded as high as 38 3/8, turning the key monthly and quarterly charts back up. ‘This set up had some nice things going for it. We knew that (1) A down inside year was very close to completion. (2) [An inverted head and shoulders formation was developing on the monthly and weekly chasts, (3) Beginning January 1, 1993, the quarterly chart could curn up by penetration of the 4th quarter high of 34 7/8, giving us a higher low on this chart. As of January 25, 1993, the stop should be brought up to breakeven, as the monthly, quarterly, and weekly charts are all up. Since the entire year of 1992 was down inside, we now have a high probability chac the yearly chart will curn up in 1993 by exceeding 44 3/8. If this occurs, icwill make this a very nice trade indeed. All of the above analysis is based on the swing charts, without the benefit of using other indicators. Obviously, with ‘numerous programs available, I would have checked the point and figure charts, and the position of the 50 day, 200 day, 13 week, and 39 week moving averages. THE PLOT’S DISADVANTAGES ‘The main disadvantage I have found using the swing charts is the lack of volume display. Consequently, it must be used in conjunction with other types of bar chart analysis that show volume. ‘Another problem is the possibility that trendlines might be distorted due to the considerable number of two plot peri- ‘ods. This has not been as much ofa problem as I once thought it was; however, its always a good idea to print out a bar chare to check the trendlines' validity. SUMMARY AND CONCLUSIONS In this paper, the author bas presented a method to plot swing price action on any market for any time period. The ‘method is precisely defined and has no exceptions. Consequently, there is no price movement that can occur in a marker that is not represented on the swing chart plot. 14“After spending many years studying the price action on these charts, i became clear that these charts provided another ‘way to measure a marker’s behavior and that significant technical knowledge was obtained by plotting a market in this fashion. The key benefits derived from using this method of technical analysis ate listed below. 1. The key pivot points in the market are precisely defined on any time frame chare. Consequently; a study of a markers daily, weekly, monthly, quarterly and yearly charts provides the analyst with a way to develop an averill trading strat egy on that market. 2, Since the pivot points are defined by a markers own movement, the author has found that M & W swing analysis can be done visually on the computer screen. I have found it to be particularly helpful co study the monthly and quarterly charts with this method. 3. This plotting method has revealed the valuable statistics on up and down inside price behavior summarized in tables 1 through 4. The knowledge that a down inside period on a stocks quarterly chart has an 87% probability of turning Lup before the low is penetrated can be valuable information to the analyst. For example, let. us assume iis the end of the quarter and stock XYZ has just completed a down inside quarter. The lowest plot in the prior quarter on XYZ, ‘was 38, We aso knovr the high of the just completed quarter was 48. Ifthe current price is 41, we can now measire ur risk and reward potential. A purchase of the stock at 41 with a stop at 37 8/8 measures the risk exactly at 3 1/8. Since it is probable that the price will excced 48 sometime during the next quarter, we now have a potential reward of 7 points, Itis now up to the analyse to decide if this isa satisfactory situation. 4, The swing chart plots provide the analyst with the ability to recognize easly fags, pennants, double and triple tops and bottoms. In addition, the discovery of the “Y”-and “X” parcerns described in this paper have also proven quite helpful. 5. The pivot points generated by the method work very well wich the zero balance concepe popularized by Lany Williams. 6. The behavior of the charts when they turn up or down can give the analyst considerable insight into che strength or weakness of the market being analyzed BIBLIOGRAPHY Blair, Score A., “Jerry Favors On Interpreting The Gann Swing Charts,” MTA Newsleter, anuary, 1991. Favors, Jerry, “Jerry Favors Analysis,” 7238 Durness Drive, Worthington, Ohio. Gann, W. D., How To Make Profits In Commodities, Lambert-Gann Publishing, Pomeroy, Washington, 1976. Gann, W. D., Stock Market Course, Lambert-Gann Publishing, Pomeroy, Washington. Gann, W. D., £5 Years In Wall Seret, Lambert-Gann Publishing, Pomeroy, Washington. Gann, W. D., New Stock Trend Indicator, Lambert-Gann Publishing, Pomeroy, Washington. Hesles, Curtis, J., The Three Signals of Dynamic Price Movement, Professional Timing Service. Hill, John R., Stock & Commodity Market Trend Trading by Advanced Technical Analysis, Commodity Research Insti- tute LTD, Henderson, NC, 1977. 9. Mentill, Arthur A., Filtered Waves: Basic Theory, Analysis Press, Box 228, Chappaqua, NY 10504, 1977. 10, Merrill, Archut A., M & W Wave Patterns, Analysis Press, Box 228, Chappaqua, NY 10514, 1979. 11. Reif, David C., “The Gann Quarterly Revisited,” Technical Analysis of Stocks c+ Commodities, August, 1992. SX AVAwR Footnotes: (1) All ofthe swing charts in chis paper were created by a proprietary program developed by Mr. Ed Kasanjian of Kasanjian Research, 20, Box 4608, Ble Jay, California 92317 (009-337-0816). 15REIF SWING CHART PLOTTING RULES 1. APeriod can represent any time petiod ftom a 5 minute bar chart up to a yearly bar chart. The data file must include the open, high, low and close for the period. AConfitined High isthe highest price traded from the time the plot tumed up unt it tums down, 3. A Confirmed Low is the lowest price traded from the time the plo turned down until it turns up. ‘The Swing Chart is ploteed from a confirmed high (low) to a confirmed low (high) in an alternating fashion. Icis not possible to have two confirmed highs (lows) in a row, without a confirmed low (high) in between them. 5., When the chart is up, it can only turn down by penetrating the prior periods low, or a confirmed low that was created during that same period. 6. When the charv is down, it can only turn up by penetrating the prior petiod’s high or a confirmed high that was cteated that same period. 7. An “up inside” no plot period is created when the chart is up, and the current period’s low is higher than or equal to the prior period's low. In addition, the current period's high must be less than or equal to the prior period's high, or the highest price plotted in the current upswing. 8. A “down inside” no plot period is created when the chare is down and the current period’s high is less than or equal to the prior period's high. In addition, the current period's low must be greater than the prior period’s low or the lowest price plotted in the current downswing. 9. The period following an “inside” period can be quite tricky. Pease refer to examples #1 chrough #4 for guidance. 10. A two or more plot period can and does occur quite frequently. If the chart is down and price goes lower than the prior period’s low or the lowest low plotted in the current downtrend before reversing and taking oue the prior period's high, then the chats plotted lower first, then taken up. This action creates a confirmed low the second it ‘turns up. If prices remain above the confirmed low for the remainder ofthe period, then this isa two plot period. On the other hand, if prices reverse again by penetrating the confirmed low of that same period, then a confirmed high is created. This action isa 3 plot period with a confirmed low followed by a confirmed high, both occurring in the same period. ‘The same action can occur when you go into the current period in an uptrend. If the chart is up and prices trade higher than the period or the highest price plotted in the current uptrend before reversing and taking out the prior period's low, then the chart is ploteed higher first then taken down. This action creates a confirmed high the second the chart turns down. Ie prices remain below the confirmed high for the remainder of the period, this is a wo plot period. On the other hhand, if price then reverses back up and penetrates the confirmed high just created, you have a three plot period with a confizmed high followed by a confirmed low, both occurring during the same period. 16