|| J-Chart™ || Charting Markets into the Future. Index Futures, Forex, Stocks, Bonds

Introduction

The Problem of Fixed Time Intervals

Nowadays, candlesticks are one of the most common stock-charting techniques, originally developed and used in Japan over 300 years ago to predict future price movements in rice trading. Candlesticks allowed the trader to see at a glance where the market opened and closed, along with the high and low of the period.

But candlesticks were similar to most other techniques (with the exception of point & figure charting): time and price were plotted on the X- and Y-axes, and whether it was one minute or one year, all price action occurring over that time was squeezed into the one fixed frame (1-minute intervals, 1-year intervals, etc.). Price could then be plotted arithmetically or logarithmically, but either way, time was randomly sliced into fixed intervals and time-price was locked together in a set relationship.

But market action was not under the same constraints. In a slow market, there would be very little price movement, while fast moving markets could witness rapid changes in price. The following question arised: Was an arbitrary representation of price per unit of time the best way to forecast future price movement?

J-Chart: Markets as Energetic Systems

J-Chart's philosophy disagrees. Markets behave more like energetic systems than systems confined to the two dimensions of time and price. Current methods are useful for looking at market action in hindsight, but they do little to anticipate future movement.

Markets can be seen as thermodynamic systems, possessing varying levels of energy and permanently alternating between periods of equilibrium and chaos. After each trend, prices seek to find a new balance point. This behavior can be compared with the act of going up or down flights of stairs that are separated by landings. When there is an increase in buying, prices move out of (kinetic) equilibrium and trend higher until a new equilibrium point is reached (the next landing).

Markets as Energetic Systems

The whole process (equilibrium - chaos - new equilibrium) is not time driven, but rather price dependent: "Time" is an irreversible vector, which has no meaning without "events". As a result, these events (and their effects) are the important factors and not time itself. In order to be able to identify them, we need a concept that allows a flexible handling of time. According to J-Chart's philosophy, price is the only event that really matters. Investors' behaviour is market's "inner force", which drives price action in a cause-effect relationship (symmetry of events). In conclusion, J-Chart's philosophy is based on the following principles:

History repeats itself,
Only the "event" matters and "price" is the event,
The event happened for the purpose of achieving equilibrium,
The outcome of equilibrium is chaos — with an endless cycle between these two states.

J-Chart versus Market Profile^SM

Market Profile^SM was developed by J. Peter Steidlmayer in conjunction with the Chicago Board of Trade (CBOT) in the 1980s. Unlike traditional bar or candlestick charts, both J-Chart and Market Profile ^SM provide the trader with a three-dimensional view of market action. Other than that, the programs are different in a number of ways.

Market Profile^SM Example

Market Profile^SM is based on the assumption that markets are determined by time, price and volume. It plots a letter where transactions take place during a 30-minute period so that an "A" plots for transactions between 8:00 and 8:30 a.m., a "B" for transactions between 8:30 and 9:00a.m., and so on, plotting a bell-curve-like distribution for daily price action. The display allows the trader to see which prices had the most and the least activity. The value area is where 70% of price activity has occurred. The premise of Market Profile is that if prices move away from the value area there is a strong likelihood they will move back to this area as volume dries up. In other words, prices have a tendency to revert to the point of control, or the point where most price action takes place. Market Profile ^SM plots at fixed 30-minute intervals.

Unlike the assumption of a bell-curve distribution of price and a tendency to revert to the point of control, J-Chart is based on an energetic distribution of price and the idea that each action will be met with an equal and opposite reaction (cause and effect). As already mentioned, only price (ticks) counts, volume does not play a role as an explicit indicator.

J-Chart has the ability to plot in a multitude of time frames (adjustable time intervals and data combination) and is based on a different interpretation of price action than any other conventional method. J-Chart allows the user to look at historical trading days of price action in one chunk by plotting X days with X combine, or in daily chunks by plotting X days and one combine. On the trading day, the trader can set the interval to anywhere from one minute to a full trading day of 405 minutes (for futures).

J-Chart's philosophy does not necessarily assume prices will revert back to the daily mean either. In fact, J-Chart's forecasting tool allows the trader to anticipate future price action and make forecasts based on past activity and the distribution of prices over various time frames. If there are gaps in the price action or if the longer-term price equilibrium is out of balance, the trader can expect a re-balancing in the near future.

Traders who have mastered J-Chart have the ability to anticipate price reversals thanks to the principle of resonance. Resonance occurs when forecasts in various time frames give very close or identical symmetry points (target prices), indicating that a move is getting ready to take a rest or reverse. Resonance points often provide excellent points for the J-Chart user to make trades.

Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading, and seek advice from an independent financial advisor if you have any doubts.