This research paper tests whether further retracement levels can be found and usefully applied in technical analysis in addition to the existing retracement systems such as Gann and Fibonacci which are already successfully used. In addition, whether early signals from penetration of a nearby retracement could give warning of reversal moves developing.
The author believes that financial markets act as a natural system, in that not only do prices have a relationship with time (Gann theory) and with each other (broad technical analysis) but also display a mathematical relationship to recent highs and lows (harmony).
Constraints set by the examination only allow for research in this paper to be restricted to one broad area (agricultural commodities), but the author believes research done elsewhere in different markets (MacLean, 2005) would give similar results. This paper will use the inverse decimal value of harmonic ratios (the size of the musical interval from one note to another) as a test of whether this hypothesis is valid.
© International Federation of Technical Analysts