Forex Trading System- Charting Study

OVERVIEW

The textbook Goodman wave from recent EUR/USD trading shown in Figure 38.1 gives
us an opportunity to introduce a number of Goodman topics and ideas via a brief tour of
the entire system.
NOTATION

The end points of a matrix (“M”) are denoted by 1-2-3-4; going in to smaller matrices,
i-ii-iii-iv; going out to a larger matrix, A-B-C-D. All matrix notation uses parentheses:
M(1-2-3-4).
A wave is denoted by 1-2-3-4-5-6 (points of the wave); going in to smaller waves, i-ii-
iii-iv-v-vi; going out to larger matrices, A-B-C-D-E-F-G. All waves are denoted as “G.” The
notation uses brackets G[1-2-3-4-5-6].
A matrix always has three components; of course, a component may also itself be a
matrix. A Goodman wave has five components at least for the purposes of notation.
A matrix or wave segment or component is thus M(1-2) or G[3-4-5-6].
MATRIX

A matrix is a simple 1-2-3 swing (three components or segments). It may or may not
have smaller matrices as some of its components. A matrix is either simple (no compo-
nents) or complex (if it has components): M(1-2-3-4). (See Figure 38.2.)

A Goodman wave is the propagation or generation of a complex matrix in a specific
manner and of a specific form: G[1-2-3-4-5-6].
Charlie’s concept of how matrices propagate is different from Elliott’s. Once you
start looking for them, finding them, and analyzing them you will quickly realize how
much more they conform to the real structure of the markets and—more importantly—
how much more easily they may be traded. The propagation concept more accurately
reflects the dynamic of markets than does a static wave concept.
Goodman waves are relatively easy to spot after they are built, or as part of a larger
wave. But what we are most interested in—from the point of view of trading—is the
propagation of a Goodman wave.
PROPAGATION

Any Goodman wave obviously begins with a segment S(1-2). The question becomes—
and this is why the concept of propagation is important: Does the wave develop as a flat
segment followed by a complex matrix—or vice versa?
According to GSCS theory, this segment or matrix now becomes the first compo-
nent of a Goodman wave and is thereafter treated as a single segment or component for
purposes of analysis.
We now look for a 50 percent secondary component retracement of the entire com-
plex matrix or segment. On this chart study this is segment S(4-5). This component
could easily be mistaken for a simple wave in a five-wave Elliott wave pattern, but it is
not. In Goodman it is the key return or propagation segment.
Finally, we look for a component or matrix in the primary direction with a magni-
tude equal to the first component.
In Figure 38.3, note the return or propagation wave (the lighter wave).

The four primary Goodman waves occur every day, over and over again, in all mar-
kets—forex, futures, and securities—and at all price levels. The wave is the foundation
and basis of trading GSCS. The opportunities to trade it are only limited by your time to
seek them out in the markets that most interest you.
Forget trading stations with five monitors; forget specialist short sales; forget complex
volume and open interest calculations; forget Gann charts with 50 lines on them all leading
to nowhere and Fibonacci charts with numbers carried out to 14 significant places.

Elliott mistakenly identified this as a five-component wave. This is not accurate or
precise. What is occurring is that a three-component matrix is propagating in accor-
dance with the 50 percent rule. It is not strictly a five-component wave but rather a ma-
trix in generation or propagation. This propagation is critical and fundamental to GSCS.
SIMPLE/COMPLEX

Note: From a matrix point of view, two of the four Goodman waves appear to be a sim-
ple/complex matrix followed by a complex/simple matrix. It is important to think only
in terms of the four Goodman wave types shown in Figure 38.3. By thinking in terms of
propagation you will better anticipate the unfolding of the market through time.
For now just drill into memory the four Goodman wave types.
Keep in mind that—at least theoretically—Goodman waves propagate inward and
outward, meaning that every wave is composed of smaller waves and every wave is a
component of a larger wave. The same is true of matrices.

FAT/THIN

Note in the complex matrix of Figure 38.4 the first matrix is fat and the second is thin;
this is another important alternating structure that assists in templating and trading.
By fat I mean there is a lot of back-and-fro motion (volatility) as prices move up or
down (directional movement). By thin I mean there is little such motion.
The rhythm of the market is much determined by the fatness and thinness of price
action. Rhythm can also give us important clues to templating. In GSCS templating is
the nexus of theory and practice. Templating is the process of laying out the possible
propagations of a wave and narrowing them down as events and prices unfold.
Fatness may simply represent price noise that may be filtered out of analysis. But it
may occasionally represent significant internal matrices and demand deeper analysis.
GOODMAN AND COMPUTERS

The question arises: Is GSCS programmable? The answer is: probably. Software has
been written to capture the basic elements of Goodman. A complete program would be
a substantial undertaking and at least for me would go very much against the grain of
what Charlie had in mind.
A small program to spot intersections, perhaps in TradeStation or StrategyBuilder
format, would not be too difficult.
For further information about GSCS, contact Michael Duane Archer at Duane@
FxPraxis.com.