In my last article I asked Trader’s Journal readers a question that has been debated for decades by fundamental and technical analysts and a wide range of market participants in between. Are financial markets truly random, or are they dominated by the major players to the point where very little of the trading activity that occurs on a day to day basis can be considered to be random? The main thrust of the argument is derived from the question: To what extent does computer intervention influence a typical financial chart, from the tiniest junior mining company to major banks and resource companies? Well it isn’t possible to offer a definitive answer or any concrete evidence other than the often obvious recurring geometric shapes and patterns found in almost any financial chart in existence.

With an almost microscopic analysis of a typical liquid chart we can see clear evidence of triangular shaped trading models influencing the ebb and flow of apparently random price bars every day. Again this is not to suggest that a sinister tone exists deep within the structure of financial markets, a useful analogy might be that a walk across a sandy beach is going to leave visible footprints that can be tracked by anyone with sufficient motivation. 

When a farmer ploughs a field it is reasonable to expect to see tracks in the soil, it is undeniable that they will exist, we don’t need to look, it is obvious.  We could reverse engineer the activities of the farmer by carefully analysing the tracks in the soil and quite readily deduce some information about the size of the tractor and its trailing plough. We could see in which direction the tractor had travelled and how it had navigated the corners of the paddock. If you think about it, the field is a historical map temporarily displaying clues that can help us to recreate its recent past. In this case there is no time to hesitate, the rains will eventually wash away these tracks along with the evidence of our tractor and like a fading photograph the picture in the soil will be gone.

Of course this is not so with financial data!

There are probably thousands of dedicated data collectors worldwide who will happily supply accurate (and not so accurate) historical financial data for a reasonable price. From pork bellies and steel companies to gold, diamonds, oil and wool, the seemingly neurotic zigzags of past price activity of these instruments have been faithfully immortalised in this data and we can dream away our lives searching for exciting, tradeable shapes and patterns on our computer screens, but what then has this to do with our farmer ?

If we can easily find evidence of past activity in the tracks made by a farmer and his tractor in a roughly ploughed pasture, can we also find such evidence on a financial chart in the high tech computer driven world of high finance?

The answer is of course yes and furthermore some of the information found is not only useful, it is very exciting, almost heart stopping at times and inspires dreams of fast cars and tropical islands. The most significant difference between our farmer and high tech finance is that the farmer will approximate his route and it may or may not be exactly the same route used last time.

Financial markets also appear to conform to a route in a way but it is perhaps more accurate to call it a grid or maybe an algorithm. The computer is more accurate by far, even though it can still deviate on its journey to a certain extent, the overall route appears to be enclosed by strictly pre defined boundaries. You can slide erratically down a ski run in a bob sled but the icy walls will prevent you from going off course.

But! If indeed these invisible but predictable trend boundaries actually do exist and furthermore if we have the appropriate skills to track them and their influence on world financial charts, why then are we not all billionaires?

At least a part of the reason lies in the fact that very few people seem to be aware of this fixed and recurring geometric framework that is clearly evident on thousands of charts and indices world wide and those that are aren’t saying much. Another reason may be that individuals prefer to function in accordance with their own personal programming whether learned or genetic, anything that appears to be counter intuitive is likely to be discarded.