By analyzing historical price extremes according to a proprietary mathematical method, the four targets are generated: the upper maximum and minimum targets projecting the
maximum and minimum position of the future top over time and the lower maximum and minimum targets projecting the
maximum and minimum position of the future bottom over time.
The trading forecast displays its values graphically as lines. The target lines can either converge, diverge or remain parallel. Usually, the minimum target line has the same slope as the maximum target line but with the negative sign. The slope of the target lines, as well as their position on the chart, varies with every forecast.
With this kind of trading, we analyze only historical tops and bottoms, and, thus, calculate
upper and lower targets. Theoretically, all the four price targets calculated (two upper targets and two lower targets) have the same forecasting power.
In practice, one side of this bidirectional forecast has the priority over the other side as it is primarily reached by the market. It especially concerns major time frames where one
side of the forecast may be reached by the market in a fairly long time. After determining the priority side of the forecast,
the price target forecasting lines are specified as profit target lines and DD forecasting lines accordingly (see the Figure below).
The minimum targets play a critical role in the target trading as they indicate the location of a possible turning point on the market's path to the maximum target.
By identifying the formation of the new turning point at the minimum target, one can exit a trade and and thus save time and
money. Although closing positions at the minimum target is a necessity for the major time frames, this can be neglected for the minor time
frames as it shown ob the figure above.
Our system can recognize turning points at the very moment of their formation. These potential turning points may serve as trade entry points.
With this kind of trading, we analyze the historical and the new potential turning points on the one side and
the historical turning points on the other side of the forecast. The calculated price targets may be immediately considered as the
profit target lines and the potential drawdown forecasting lines
because the direction of the trade is predetermined. The trade then may be closed either at the minimum or the maximum profit
target depending on where an exit signal is generated (see the Figure below).
Entering trades at potential turning points works especially well with the major time frames: 1-Day, 1-Week etc.
TYPICAL PRICE MOVEMENT WITHIN FORECAST AREA
Below are examples of the typical price movement from the potential turning point (forecast generation point) within the forecast area.
Our main objective was to develop a system that can generate targets achieved by prices with 100% probability—for any other percentage makes trading senseless.
The task seemed to be absolutely impossible with regard to forecasting time and price (a static price target point), while it became quite
realizable with regard to computing a price target's linear dynamics over time. It should be added that the market almost always forms new isolated highs or lows by achieving our target lines.