How I Identify Powerful Setups Using Symmetry?

I am often asked what I mean by the term "symmetry" in my work. I can attempt to define with words what it means to me in the market but the following charts (visuals) will probably illustrate the concept more accurately. Symmetry is essentially similarity and sometimes equality in the market. Actually, I just used the thesaurus and came up with Balance, Equilibrium and Proportion as synonyms.

Let's start with an example of "symmetry" in both price and time! The first example is on a 15-minute Nasdaq futures chart below. (I had a ball with this one with my subscribers as it started to unfold.) The overall trend on this chart at the time of this "potential trade setup" was bullish. If this trend was going to remain intact, we wanted to consider entering the buy side after a corrective decline terminated. What helps us determine when a corrective decline might terminate? SYMMETRY!

In this particular case, I saw the decline that was playing out in Nasdaq futures approaching the 100% price projection of the prior decline into the 1770 swing low. This prior decline lasted 87 points. If you projected the measurement of this decline and subtracted from the 1918 high, you came up with 1831 for this projection and potential support level. The June contract ended up making a new low for the move from the 1918 swing high at 1831 which was exactly 87 points down from that high. Besides this, just eye-balling the chart, I saw symmetry in time. As I checked the "time count" of the corrections, I found that this low made at EXACTLY 100% in price of the prior decline, was also made at 100% in TIME of the same prior decline (22 bars & 22 bars). This is definitely an argument against RANDOM market theory!!

At this point, I had to call this a pivotal low. If we saw price hold above here, we wanted to consider the buy side against it. Although I was not extremely confident that this low would hold, due to the bearish price action going into this low, I watched it carefully. The result was a continued hold above the 1831 low and a initial rally that took this contract to 1992!

In the next chart, we are looking at the 5-minute June S&P contract . Notice the similarity in both the price and time of the corrective declines shown marked with the red lines. They are not EXACTLY the same, but are very similar in both price and time! I constantly watch for similar corrective moves in a market to potentially enter with an "edge" in the direction of the main trend. In this case, the trend is defined on a 5-minute basis! Ideally, we want to see the higher degree time frame trend, agree with the lower. (For example, we want to see the daily, 60-minute and 5-minute agree, all showing higher highs and higher lows.).

When projecting my key price cluster zones, I will lean towards trading against a zone that INCLUDES a 100% projection of a prior decline. Why? Because of the "symmetry." This projection along with a healthy confluence of other Fibonacci projections, tells me to focus on those price clusters that include symmetry. In this case, I saw the 100% projection of the prior corrective decline came in at 1906. Coincidentally, a beautiful cluster of Fib retracements and extensions overlapped this key 100% projection, and gave us a key price zone to consider a trade against (1902-1909***). In this particular case, a low was made at 1909. The rally in Nasdaq futures resumed almost immediately after testing this zone, that included "symmetry."

How about the Nasdaq cash index ? Note that a very important price projection I will be watching for "potential" resistance and/or termination of the rally from the April 4, 2001 low in this market, includes the 100% projection of the prior corrective rally into the Jan. 24 high.

What does symmetry mean to us when we are looking at it as an indication of trend? It can be very helpful in indicating a change in trend, therefore in tell us when to exit a trade and/or initiate a trade in the opposite direction. For example: In the 60-minute Nasdaq futures chart below, when we "violated" the bearish symmetry (we rallied more in time and price than the prior four corrective rallies) it signaled the potential termination of the decline we were experiencing from the 1777 swing high. In this case, after this "symmetry" was violated, buying a pullback to the last low was a "winning strategy." I see this happen over and over again in all markets.

Although using "symmetry" is a wonderful addition to our "technical tool bag," I feel compelled to show you an example of a "break in symmetry" that did NOT result in a trend change. This is just to remind you, that although these methods work extremely well and produce positive results more often than not, when a market does not start the play out as expected, your discipline should be to stop yourself out of the trade in question in order to preserve capital!!

If you begin to study the markets with these concepts discussed above in mind, you have the potential to greatly improve your bottom line in trading.