Basics Of Market Geometry
Different technical analyses have been developed to process faster information and ease the pattern identification. Market geometry is considered one of the oldest graphical representation of the technical analysis, and it can be used to anticipate up to 80% of time accurately the next assets price moving direction.
What is Market Geometry?
Market geometry is the drawn of some lines called pivots on a price chart to establish the central middle line. From this central middle, line two parallel lines are drawn on each side of it, which means one upper middle line and one lower middle line is drawn. Taking the central middle line as a reference, the prices will create various patterns, The patterns created by the prices allows anticipating the next assets price moving direction, the beginning of trend trading or the reversal point of it. The drawn lines act in similar ways to the resistance, supportive and average lines from the typical price charts formation. There are hundreds of market geometry patterns with its meaning and the diverse way to draw these lines.
In a nutshell: Market geometry is the graphical representation of technical analysis to identify price patterns and anticipate the asset’s price moving direction. IT consists of 4 primary lines one perpendicular and three parallel lines. The three parallel lines act similar to the three basic lines of any candlestick chart.
Understanding Market Geometry
Select an asset’s price chart from the asset that you want to analyze; it should be up to date.
Identify the highest price and the lowest price of the asset for a period.
Draw one straightline at the top of a group of highs; this line is the first pivot, and you need to assign a name to it e.g. pivot 1.
Draw one straight line at the bottom of a group of lows; this line is the second pivot, and you need to assign a name to it e.g. pivot 2.
Draw one straight line that connects pivot one and two.
Measure pivot 3 lengths or the distance between the two previous pivots (lines), afterward, divided it into two and marked it as the middle point.
Draw a straight line in the middle point of the distance between the two pivots parallel to pivots 1 and 2. It will become the central middle line for market geometry.
Draw a straight line parallel to this middle line at the level of the pivot 1. It will become the upper middle line.
Draw a straight line parallel to this middle line at the level of the pivot 2. It will become the lower middle line.
Now you have a complete basic market geometry setup; the price chart pattern identification will give you the price moving direction accurately 80 % of the time.
No matter what price an asset displayed there is a pattern for it.
Some traders used the Fibonacci’s ratios to draw the middle lines and apply the same principles for charts reading and patterns recognition.