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.
Friday, November 2, 2007
Forex Trading System- Goodman versus Elliot
OVERVIEW
When I tutor traders on Goodman, I break up the study into ordinal and cardinal.
We study Goodman wave theory (GWT) without respect to measurements first, and
only then overlay a study of the Goodman measurement theory (GMT). These both in-
volve Goodman ordinal rules and Goodman cardinal rules.
Here is a nice formation to look for in GWT. It has some high probabilities, espe-
cially with the use of filters and GMT (the latter beyond the scope of this short primer).
Charlie called it the “Return.”
Elliott identified the basic market wave as having five components (See Figure 37.1.)
This is incorrect. The basic market wave has three components. (See Figure 37.2.)
This propagation rule can be extremely useful in and of itself in anticipating the or-
dinal template of the market as it unfolds, but further details are beyond the scope of
this short overview. There are 16 basic propagation schemes or templates.
THE RETURN
Charlie identified what he called a “return”—defined here as the price location (+/–) in a
wave propagation where the secondary wave of the primary wave approaches the sec-
ondary wave of the complex component. (See Figure 37.4.)
This feature has some interesting ramifications for anticipating the basic market
template. But for the purposes of this overview, I want to draw your attention to a single
idea as a possible short-term trading tactic.
To use this in isolation as a short-term trading tool you will need a timing method—
I recommend a three-box reversal point and figure chart. Also helpful would be moni-
toring the Goodman templates at one higher and one lower matrix. The return can also
be useful in identifying the market template itself.
Typically (but not always) if the return falls short of the point of the BC wave, the
market will build a bit before reversing. If the return is past the point of the BC wave,
the market will often spike through the return point and then reverse.
When this is overlaid with the Goodman cardinal rules, it becomes a very powerful
tool in the broader scope of Goodman studies.
When I tutor traders on Goodman, I break up the study into ordinal and cardinal.
We study Goodman wave theory (GWT) without respect to measurements first, and
only then overlay a study of the Goodman measurement theory (GMT). These both in-
volve Goodman ordinal rules and Goodman cardinal rules.
Here is a nice formation to look for in GWT. It has some high probabilities, espe-
cially with the use of filters and GMT (the latter beyond the scope of this short primer).
Charlie called it the “Return.”
Elliott identified the basic market wave as having five components (See Figure 37.1.)
This is incorrect. The basic market wave has three components. (See Figure 37.2.)
This propagation rule can be extremely useful in and of itself in anticipating the or-
dinal template of the market as it unfolds, but further details are beyond the scope of
this short overview. There are 16 basic propagation schemes or templates.
THE RETURN
Charlie identified what he called a “return”—defined here as the price location (+/–) in a
wave propagation where the secondary wave of the primary wave approaches the sec-
ondary wave of the complex component. (See Figure 37.4.)
This feature has some interesting ramifications for anticipating the basic market
template. But for the purposes of this overview, I want to draw your attention to a single
idea as a possible short-term trading tactic.
To use this in isolation as a short-term trading tool you will need a timing method—
I recommend a three-box reversal point and figure chart. Also helpful would be moni-
toring the Goodman templates at one higher and one lower matrix. The return can also
be useful in identifying the market template itself.
Typically (but not always) if the return falls short of the point of the BC wave, the
market will build a bit before reversing. If the return is past the point of the BC wave,
the market will often spike through the return point and then reverse.
When this is overlaid with the Goodman cardinal rules, it becomes a very powerful
tool in the broader scope of Goodman studies.
Forex Trading System- Cardinal Principles
OVERVIEW
Now we can begin to informally define six of the seven concepts in The Rule that
Mr. Goodman used to construct the Goodman Swing Count System (GCSC). What
had been neglected by previous theorists, users, writers, and purveyors of the rule
was this:
The 50 percent point is indeed an equilibrium point. As such, the equilibrium must
give way, but either side (buyers or sellers) in either a downtrend or an uptrend may
prevail at any given matrix or price level.
PRICE SURGE
Goodman realized both the possibilities for a reversal (as in the case of the completed
measured move) and a price surge. A price surge would be equivalent to the sellers (in
an uptrend) and the buyers (in a downtrend) winning the tug-of-war within a matrix. In
price action this means prices would fall or rise to at least the beginning point of the ini-
tial swing.
In other words, the measured move is not a done deal—the 50 percent retrace-
ment in Figure 36.1 could also become a V or an inverted V. The 50 percent retrace-
ment is not necessarily a reversal point but should be considered as a point of
interest where prices may be more likely than randomlyto decide whether to con-
tinue or reverse.
It may not sound like much, but it is a major discovery.
Clearly price surges are implicit in The Rule. But they are not visible on a chart un-
less you are looking for them and unless you are considering the 50 percent retracement
as a point of interest and not necessarily a reversal. In fact, most practitioners perceive
a price surge as a failure of The Rule!
MULTILEVEL MATRICES
What was even more important, Goodman discovered the implications of The
Rule occurring simultaneously at all price levels. I remember exactly the day and
place when Charlie showed me this one—it hit me as truly a grand revelation on the
markets!
Here you are: The initial (primary) trend and secondary (reaction trend) as well as
reversals (measured moves) and surges are relative to price matrix context. What is one
thing in one price matrix may well be its opposite in a higher (or lower) matrix. (See
Figure 36.2.)
It is true that Elliott wave theory contains the same concept. But with GCSC you
can tell before (in many instances) which it is. In Elliott you can tell only after. GCSC is
a predictive system, whereas Elliott wave theory, grand and elegant as it is, is primarily
a descriptive system.
All price matrices are in theory part of a larger price matrix.
All price matrices are composed of smaller price matrices.
Of course there is the practical limitation of the smallest possible fluctuation.
Besides reversals and surges, GCSC matrix concepts include domination and
generation.
Clearly, prices do not always seem to find any kind of equilibrium at the 50
percent retracement price area. Or so it may seem. This leads to the third grand
discovery:
To the extent a price swing overshoots or undershoots its ideal 50 percent
retracement, that price value will be made up on the next price swing within the
matrix.
Now this is the trading rule that can make you rich!
COMPENSATION
For example, if prices fall only 40 percent of the initial trend and reverse, the mea-
sured move will actually be either 90 percent or 110 percent of the measured move
point and value of the primary (initial) swing in the matrix. The 10 percent differ-
ence—GCSC holds—must be made up eventually. This is the concept of compensa-
tion. See Figure 36.3.
CARRYOVER
Furthermore, if the difference is not fully made up in the final price swing of a matrix,
the cumulative “miss” value will carry over through each subsequent price matrix until
it does. This is the concept of carryover. (See Figure 36.4.) A carryover table is used to
add and subtract cumulative carryover values until they cancel.
CANCELLATION
When no carryover remains, the price matrix is said to have cleared or cancelled.
This is the GCSC concept of cancellation. Cancellation is critical to finding GCSC
support and resistance points. These price areas or points indicate a higher degree of
forecasting probability than would occur with a single matrix measurement. (See
Figure 36.5.)
The exact method for these important concepts is more fully described in the fol-
lowing chapter. We can now get an early glimpse of what the strange brackets in
Charlie’s charts were all about. (See Figure 36.6 for an example.) The brackets indi-
cate the measured area on a chart where prices have a higher degree of moving con-
clusively. The more bracketed areas surrounding a price, the higher the probability of
forecasting.
The five points are: the beginning of the swing, the 50 percent measurement of the
swing, the end of the swing, the measured move if the swing is a primary wave, and the
end of the measured move if the swing is a secondary wave.
INTERSECTIONS
Charlie had even more ideas:
The importance of a hot spot in relation to its likelihood of being an important point
of support or resistance, reversal, or continuation, increases when two or more price
matrices cancel at the same price or same price area. This is the key concept of inter-
section. There is no analogous concept in Elliott, the most common competitor to
GSCS. Intersection makes GSCS much more objective and testable than other swing
systems. (See Figure 36.7.)
This chapter has covered micro formations. Charlie also had compiled a dozen or so
extremely valuable macro formations—combinations of micros. I encourage the reader
to examine some charts and find simple areas of the intersection of two (or three) ma-
trices. You will see at once that these points are golden to the trader. If I had after 30
years of studying the markets only one idea to impart, it would be to show you an exam-
ple of a GSCS intersection in two or three matrices.
Remember, carryover is to the same or next larger price matrix. The above are ex-
amples of independent intersections. That is, each price level carryover calculation is
kept separate from the others and tallied at the end of each matrix. Charlie had also de-
FIVE POINTS OF A GOODMAN WAVE
Here is another perspective to help you analyze a chart and understand GSCS. Given
any component or matrix, there are five points worth watching. Remember, these points
are constantly changing as the market develops.
The five points are: the 50 percent return, the top/bottom, the bottom/top, the mea-
sured move assuming the matrix or component is in the primary direction, and the mea-
sured move assuming the matrix or component is in the secondary direction. (See
Figure 36.8.)
Sometimes it is easier to watch the points instead of totally focusing on the chart as
it develops.
DOUBLE AND TRIPLE INTERSECTIONS
The two key cardinal formations in GSCS are the double intersection and the triple in-
tersection. These represent (respectively) the intersection of two and three matrix
measurements.
The strong support and resistance at these areas may be used to enter the market in
the direction of the dominant wave. (See Figure 36.9.)
Now we can begin to informally define six of the seven concepts in The Rule that
Mr. Goodman used to construct the Goodman Swing Count System (GCSC). What
had been neglected by previous theorists, users, writers, and purveyors of the rule
was this:
The 50 percent point is indeed an equilibrium point. As such, the equilibrium must
give way, but either side (buyers or sellers) in either a downtrend or an uptrend may
prevail at any given matrix or price level.
PRICE SURGE
Goodman realized both the possibilities for a reversal (as in the case of the completed
measured move) and a price surge. A price surge would be equivalent to the sellers (in
an uptrend) and the buyers (in a downtrend) winning the tug-of-war within a matrix. In
price action this means prices would fall or rise to at least the beginning point of the ini-
tial swing.
In other words, the measured move is not a done deal—the 50 percent retrace-
ment in Figure 36.1 could also become a V or an inverted V. The 50 percent retrace-
ment is not necessarily a reversal point but should be considered as a point of
interest where prices may be more likely than randomlyto decide whether to con-
tinue or reverse.
It may not sound like much, but it is a major discovery.
Clearly price surges are implicit in The Rule. But they are not visible on a chart un-
less you are looking for them and unless you are considering the 50 percent retracement
as a point of interest and not necessarily a reversal. In fact, most practitioners perceive
a price surge as a failure of The Rule!
MULTILEVEL MATRICES
What was even more important, Goodman discovered the implications of The
Rule occurring simultaneously at all price levels. I remember exactly the day and
place when Charlie showed me this one—it hit me as truly a grand revelation on the
markets!
Here you are: The initial (primary) trend and secondary (reaction trend) as well as
reversals (measured moves) and surges are relative to price matrix context. What is one
thing in one price matrix may well be its opposite in a higher (or lower) matrix. (See
Figure 36.2.)
It is true that Elliott wave theory contains the same concept. But with GCSC you
can tell before (in many instances) which it is. In Elliott you can tell only after. GCSC is
a predictive system, whereas Elliott wave theory, grand and elegant as it is, is primarily
a descriptive system.
All price matrices are in theory part of a larger price matrix.
All price matrices are composed of smaller price matrices.
Of course there is the practical limitation of the smallest possible fluctuation.
Besides reversals and surges, GCSC matrix concepts include domination and
generation.
Clearly, prices do not always seem to find any kind of equilibrium at the 50
percent retracement price area. Or so it may seem. This leads to the third grand
discovery:
To the extent a price swing overshoots or undershoots its ideal 50 percent
retracement, that price value will be made up on the next price swing within the
matrix.
Now this is the trading rule that can make you rich!
COMPENSATION
For example, if prices fall only 40 percent of the initial trend and reverse, the mea-
sured move will actually be either 90 percent or 110 percent of the measured move
point and value of the primary (initial) swing in the matrix. The 10 percent differ-
ence—GCSC holds—must be made up eventually. This is the concept of compensa-
tion. See Figure 36.3.
CARRYOVER
Furthermore, if the difference is not fully made up in the final price swing of a matrix,
the cumulative “miss” value will carry over through each subsequent price matrix until
it does. This is the concept of carryover. (See Figure 36.4.) A carryover table is used to
add and subtract cumulative carryover values until they cancel.
CANCELLATION
When no carryover remains, the price matrix is said to have cleared or cancelled.
This is the GCSC concept of cancellation. Cancellation is critical to finding GCSC
support and resistance points. These price areas or points indicate a higher degree of
forecasting probability than would occur with a single matrix measurement. (See
Figure 36.5.)
The exact method for these important concepts is more fully described in the fol-
lowing chapter. We can now get an early glimpse of what the strange brackets in
Charlie’s charts were all about. (See Figure 36.6 for an example.) The brackets indi-
cate the measured area on a chart where prices have a higher degree of moving con-
clusively. The more bracketed areas surrounding a price, the higher the probability of
forecasting.
The five points are: the beginning of the swing, the 50 percent measurement of the
swing, the end of the swing, the measured move if the swing is a primary wave, and the
end of the measured move if the swing is a secondary wave.
INTERSECTIONS
Charlie had even more ideas:
The importance of a hot spot in relation to its likelihood of being an important point
of support or resistance, reversal, or continuation, increases when two or more price
matrices cancel at the same price or same price area. This is the key concept of inter-
section. There is no analogous concept in Elliott, the most common competitor to
GSCS. Intersection makes GSCS much more objective and testable than other swing
systems. (See Figure 36.7.)
This chapter has covered micro formations. Charlie also had compiled a dozen or so
extremely valuable macro formations—combinations of micros. I encourage the reader
to examine some charts and find simple areas of the intersection of two (or three) ma-
trices. You will see at once that these points are golden to the trader. If I had after 30
years of studying the markets only one idea to impart, it would be to show you an exam-
ple of a GSCS intersection in two or three matrices.
Remember, carryover is to the same or next larger price matrix. The above are ex-
amples of independent intersections. That is, each price level carryover calculation is
kept separate from the others and tallied at the end of each matrix. Charlie had also de-
FIVE POINTS OF A GOODMAN WAVE
Here is another perspective to help you analyze a chart and understand GSCS. Given
any component or matrix, there are five points worth watching. Remember, these points
are constantly changing as the market develops.
The five points are: the 50 percent return, the top/bottom, the bottom/top, the mea-
sured move assuming the matrix or component is in the primary direction, and the mea-
sured move assuming the matrix or component is in the secondary direction. (See
Figure 36.8.)
Sometimes it is easier to watch the points instead of totally focusing on the chart as
it develops.
DOUBLE AND TRIPLE INTERSECTIONS
The two key cardinal formations in GSCS are the double intersection and the triple in-
tersection. These represent (respectively) the intersection of two and three matrix
measurements.
The strong support and resistance at these areas may be used to enter the market in
the direction of the dominant wave. (See Figure 36.9.)
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