Going forward, we need to have some common understanding of how the price of the markets are evaluated. We'll start with the basics and over time drill down to more specific methods of how the system of analysis works.
A Universe Programmed by Numbers
The first assumption is that the Universe is programmed by numbers. The larger philosophical question of how the Universe came into being doesn't matter in any direct way here. But, whether there is a Creator in the traditional religious sense or we are actually living within some kind of computer program or simulation, the rules are essentially the same.
Over time, my sense of how the program works is that numbers, programatically, keep the Universe (most of the time) from crossing over to extremes too rapidly. If we look at this in terms of the DJIA, we can't have an effective stock market if the average is 27,000 at the open, 100,000,000 during lunch, and 2 at the close. Extreme swings of volatility break the system. Temperature and climate are similar. Human life and society become nearly impossible (or impossible) if the temperature and climate swing wildly during a short period of time.
Square Roots and Price Movements
If we want to start with a very simple "rule" on how far price normally moves during a trading day we could look at square roots. For example, a $100 stock. The square root of 100 = 10. So, on a normalish day, a $10 move up or down is a possibility. Square roots work well for a certain range of numbers. They help explain why penny stocks are a nightmare to trade (apart from just the scam nature of many of these stocks). Take a $1 stock. The square root of 1 is 1. That means a stock that opens the day at $1 can see a move down to $0 or up to $2. That's tremendous volatility. Numbers below $1 you begin to get square roots larger than the original number. A $0.50 has a square root above 0.70. So now (except for the fact that you shouldn't owe money on the stock at the close due to a negative price) the value of the stock can be $0 at the close of your $0.50 stock or $1.20. Where square roots and price tend to get wobbly is looking at larger and larger numbers. If the DJIA opens the trading day at 27,000, the square root would tell us that the market could move a little over 164 points. However, we know from experience that the market can move much further than 164 points or 0.61% in a day. Square roots are OK as a rule of thumb for many stocks, but they aren't much good if we want a more realistic understanding of where prices can move over time.
The Shortcomings of Technical Analysis
I began looking into economics, markets, technical analysis, etc. in a serious manner during the 2007-8 Great Financial Crisis. I became interested in how the economy works, what drives markets, and how to anticipate price movements of gold, silver, the stock market, etc., primarily focused on technical analysis. Much of technical analysis is driven by programs written using various indicators - MACD, RSI, Fibonacci, etc. We won't go into them here. All of them have their use and can be helpful. But, after using various indicators and graphical kinds of programs, I became very dissatisfied at how susceptible to bias all of these programs are. Basically, you can find an indicator, a chart, and draw a line on a chart that says anything you want regardless of whether or not you're correct. In the end, these technical analysis programs and methods appeared to me to be a waste of time.
Cycles
Over time, I looked more deeply into cycles, following the work of Martin Armstrong. While I followed Armstrong's work, I was largely unaware of much of the work he published while in prison. I spent a number of years looking at more esoteric sources, including Gurjieff's work with the Enneagram and Vortex Math. These studies led into other areas - Modulo 9 numbers, imaginary numbers, and utilizing time intervals of prices as a shortcut to square time and price. The squaring of time and price or calculating the intersection of where a certain price and time (number of days) would intersect was something W.D. Gann spoke and wrote about, but largely eluded my understanding.
One of the difficulties with Gann, is that much of what he taught and understood were considered esoteric. Gann was a religious man. So, it's possible in light of his faith, that he did not want to openly associate with ideas that did not fit in with his outward religious idea and the religious beliefs of his time. Additionally, there is some speculation that Gann believed these ideas were very powerful and may not have wanted to make them too easily understood. Often people with esoteric knowledge hide it within their writing where those who seek and study it deeply can find it, but only after years of study and dedication.
Nine
A common element between Gurdjieff, Gann, Armstrong, the Enneagram and Vortex Math is the number 9 or Modulo 9. What is Modulo 9? Modulo 9 can be though of as reducing any number to a number between 1 and 9. The first reaction many have to Vortex Math is that it is numerology. That view is a tragic misunderstanding of the power of Modulo 9 in forecasting price. Without going into the full explanation of how every element works, being able to view numbers by means of a simplified numerical representation that is still a real number - instead of a or b for example - is extremely useful. Why? Because we can use Modulo 9 numbers to stand in for a number of any amount. This greatly simplifies our calculations and makes finding useful time-price intervals much more simple than other methods. It gives us the ability to write formulas within an Excel spreadsheet program and forecast the direction of price.
Applying Nine
Let's look at an example of how Martin Armstrong uses Modulo 9 numbers (or reduced numbers) to look at the prices of the DJIA:
1- 35,713
3 - 33,213
5 - 30,713
7 - 28,213
9 - 25,713
2 - 23,213
4 - 20,713
6 - 18,213
8 - 15,713
Looking at 35,713 or 1 how do we calculate that 35,713 = 1.
3+5+7+1+3 = 19
1+9 = 10
10 ==> Drop the zero = 1
The Why Behind the Arrangement of the Numbers
Another question you might have asked is why did Armstrong arrange the numbers in the order he did? I'm not absolutely sure as I have never spoken to him about it, but my speculation is that the arrangement of the numbers is based on an expanding / contracting spiral. This particular long-term range of prices from 15,713 to 35,713 isn't showing many levels in between each step. For example, between 33,213 (3) and 35,713 (1) there are steps you're not seeing. You aren't seeing steps 4, 5, 6, 7, 8 and 9. The same applied to the numbers 30,713 (5) and 33,213 (3). You're not seeing 6, 7, 8, 9, 1 and 2. This is a spiral pattern of growth seen frequently in nature. In terms of the stock market, this spiral can be looked at as expanding or contracting. Moving from 15,713 to 35,713 is more than a doubling. Anyone who has traded the stock market will know that during market crashes it is not uncommon to see the market shrink by 40-50%. After shrinking by half it will take a doubling of market price just to get back to where we began before the decline.
So, you might be thinking, Armstrong's construction of the market levels into nine levels representing each as a number is interesting, but so what? Excellent question. As stated earlier, it is - in my opinion, based on a growth spiral. That growth spiral is one interpretation of Gurdjieff's Enneagram.
Without going into all of the implications - practical and esoteric - of the Enneagram, it can be viewed as a model of growth and contraction. It can show how a process unfolds from beginning to end. It can show pairs and triplets of numbers that can be useful in evaluating price movements.
Pairs:
1 / 8
2 / 7
3 / 6
4 / 5
Triplets:
1-4-7
2-5-8
3-6-9
Spirals
The triplets will become much more important later on. Remembering that the Enneagram can be thought to represent a spiral, price can travel along the spiral in either direction - so the concept of spin (rotation), related to imaginary numbers, is another important piece in the stock market programming. This up or down spiral price movement becomes equivalent to spin - with a positive price movement within a certain price-time interval representing positive spin and the negative movement representing negative spin. In turn, positive and negative spin stand in for imaginary numbers. The same imaginary numbers make radar and air traffic control possible. Without them the real-time tracking of the speed and location of aircraft becomes impossible. What imaginary numbers can do for tracking airplanes they can equally do for locating price represented by Modulo 9 Numbers.
Determining the Paths
Representation of prices, e.g. the current price of the DJIA, is critical because it vastly simplifies calculating the intersection of time and price. It makes it practical to move away from graphical representation of prices on the screen of a technical analysis program and, instead, calculate a step-wise path that can be checked for accuracy and is also useful even if price falls outside the predicted range. It is akin to the difference between forecasting political state polls for a presidential election and attempting to land one a single number - for example 51% vs. looking at probable ranges of numbers, e.g. 50% - 52.5%.
Other Puzzle Pieces
Some other elements of Stock Market Programming are:
* Price-Time Intervals (as has been mentions): These provide the flexibility to consider different interval references and project price for longer or shorter ranges of time;
* Dimensions: The programming considers the next higher dimension and its influence on the dimension below it. If we assume a belief in higher order dimensions as true then it follows that those dimensions provide the rules or high level programming that governs lower dimensions.
* The Triplets: 1-4-7, 2-5-8, and 3-6-9. These paths are calculated based on our price-time intervals and positive or negative spin. The positive spin paths are represented as already written: 1-4-7, 2-5-8 and 3,6,9. The negative spin paths are reversed: 7-4-1, 2-5-8, and 9-6-3. Looking at these paths as Modulo 9 numbers - 1, 2, 3, 4, 5, 6, 7, 8, and 9. The beauty and value of representing all numbers as Modulo 9 is the simplification of the calculations within the program and the conversion back into the numbers representing the path as actual numbers related to the current level of whatever market or instrument we are trading.
* The Pairs: 1 / 8, 2 / 7, 3 / 6, and 4 / 5. These can be useful in the middle of a trade and show various trading ranges. They help define the boundaries of where price is at any given time and can be helpful in preventing a trader from exiting too soon because they don't properly understand the potential range and volatility of price at a given point in time.
Together, these are most of the pieces of the Stock Market Programming. Over the coming weeks and months we will look more deeply into how the Stock Market Programming works and how it can help us predict / project market prices.
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