Scaling: A key to unlocking the order in the Chaos

Scaling: A key to unlocking the order in the Chaos

A basic premise of technical analysis is that all the information one needs, is contained in the price. By extension each and everyday and in fact each and every moment, a market’s price is composed of  a time and a price component. In other words this space/time or more specifically price/time continuum of energy is what we are observing when we view a price chart.

Often the picture we see, is chaotic and disconcerting. Various analytics can facilitate measurements that serve to clarify a market’s current state. The more precise the current measurements, the more reliable will be the projection.

Establishing the relative weights for both the price and time components of the resultant energy curve, is what is referred to as scaling. In other words the relevant question is, what is the central exchange rate between price and time, that highlights the order and symmetry amidst the chaos. For example, if you discerned that one point of price movement is equal to four bars of time, then ideally a given amount of price change and a given amount of time elapse will cover the same amount of distance, say as measured in inches etc., along the y & x axes respectfully. Charts scaled in this manner present the relationship between the time and price components as a 45 degree angle.

A properly scaled chart will amazingly present the important geometric properties implicit in the market’s motion. This in turn  often exposes some of the critical symmetry groups. With this information in hand you have a distinct advantage over other traders.

My webinar presentation this Saturday, (11/09/13) will outline how to properly scale the chart in order to obtain an edge.


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