Forex Trading System- Count Methods

OVERVIEW

In the previous chapters we have described numerous techniques that generate buy andsell signals. However, none of these specifies the magnitude of the anticipated pricemove. This chapter illustrates some common count methods by which many P&F traderscalculate their price objectives. In the examples that follow, we assume a one-pip boxsize and a three-box reversal amount in the EURUSD currency pair (1 pip = 0.0001 USD).

HORIZONTAL COUNT (BUY)

Referring to Figure 19.1, count the number of boxes across the base of the formationthat has given a buy signal:
4 = Boxes across the baseMultiply that number by 3:
4 =3 = 12
Multiply that product by the pip value of one box:
12 =0.0001 USD = 0.0012 USD
Add that number to the price corresponding to the lowest X in the rightmost column of Xs:
1.3023 + 0.0012 = 1.3035
The price objective is 1.3035 USD. (See Figure 19.2.)


HORIZONTAL COUNT (SELL)

Referring to Figure 19.3, count the number of boxes across the base of the formationthat has given a sell signal:
4 = Boxes across the base
Multiply that number by 3:
4 =3 = 12
Multiply that product by the pip value of one box:
12 =0.0001 USD = 0.0012 USD
Subtract that number from the price corresponding to the highest O in the rightmostcolumn of Os:
1.3027 – 0.0012 = 1.3015
The price objective is 1.3015 USD.


VERTICAL COUNT (BUY)

Referring to Figure 19.4, count the number of Xs in the column that produces the buysignal:
5 = Boxes in signal column
Multiply this number by 3:
5 =3 = 15
Multiply that product by the pip value of one box:
15 =0.0001 USD = 0.0015 USD
Add that number to the price corresponding to the lowest X in the rightmost column ofXs:
1.3022 + 0.0015 = 1.3037The price objective is 1.3037 USD.


VERTICAL COUNT (SELL)

Referring to Figure 19.5, count the number of Os in the column that produces the sellsignal:
5 = Boxes in signal column
Multiply this number by 3:
5 =3 = 15
Multiply that product by the pip value of one box:
15 =0.0001 USD = 0.0015 USD
Subtract that number from the price corresponding to the highest O in the rightmostcolumn of Os:
1.3028 – 0.0015 = 1.3013The price objective is 1.3013 USD

OBSERVATIONS

Currency traders should keep in mind that the methods presented in this chapter areapproximating techniques. Martin J. Pring in Technical Analysis Explained (McGraw-Hill, 2002) summed it up best when he stated, “No one to my knowledge has thus farsatisfactorily explained why this principle appears to work. It seems to be based on theidea that lateral and vertical movements are proportional to each other on a point andfigure chart.”

Even if the full price objective is not attained, traders can still protect earned profitswith trailing stop-loss limit orders. Also, the price objective may not be fulfilled in thesame column as the signal column. Two, four, and even six columns may occur beforean estimated objective is hit.