Is there any way to project a finishing for the trend? Where the final point will be reached? This knowledge will allow traders to place perfect targets for their positions.

The current post aimed to try to give you a method. The idea of the described method originally was discovered by Richard Wyckoff more than 100 years ago. He wrote about the Law of Cause and Effect. What does it mean?

  • Effect – this is a trend, the directional move from the zone of the trading range.
  • Cause – this is a trading range, the period of preparation.

The idea is as follows: the bigger the Cause (trading range), the longer the Effect (trend move).

So, if you want to project when the current trend will be finished -> measure the previous range.

Here is the example, intraday Nasdaq-100 futures chart.

Here we have:

  1. Small accumulation range. Size = 21.5k lots. It caused the move at 134 ticks.
  2. Small distribution range. Size = 24.5 lots. It caused the move at 148 ticks.
  3. Small accumulation range. Size = 28.0k lots. It caused the move at 138 ticks.
  4. Small re-accumulation range. Size = 24.0k lots. It caused the move at 138 ticks

Thus, we can find the rate of the cause/effect proportion:

  1. 21500/134 =160
  2. 24500/148 =165
  3. 28000/138 = 203
  4. 24000/138 = 174

The average rate = 175. So, you can use this rate to project the target for the trend.

Or not?

Maybe we need more facts to confirm that the Law of Cause and Effect does work?
Does the Law of Cause and Effect work on the bigger timeframe?
Or is it total bullshit?

Share your opinion in Comments.

 

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