Articles
Applications of Theoretical Wave Mechanics As Taught By Dr. Jerome
A Brief Outline of Theoretical Wave Mechanics Correlated to Financial Market Price Charts.
Intro:
One of the most fundamental and important exercises for any market technician is the study of theoretical wave mechanics. More than almost any subject, this study will help an analyst to understand and recognize the nature of market action and pattern formation. This was the first practical exercise Dr. Baumring assigned to all his students, both private and in the seminars. Since it is such an essential study, we thought that a brief outline of the subject with some of the useful applications and implications Baumring pointed out would be found of interest.
First, let’s briefly review the key points of theoretical wave mechanics. A composite or summational wave is the summation of several individual or component sinusoidal waves. The pattern of the composite wave is the result of the summation and changes of the various underlying waves. Anytime one of the underlying component waves turns there is change in velocity in the composite wave except when two component waves simultaneously turn in opposite directions creating an equilibrating effect. If you change the relationships of the lengths of the underlying waves, the summational pattern will likewise change its structure. If you change the phasing of any of the component waves, you change the pattern of the composite wave.
Wavelength or lambda refers to the length of a particular underlying component wave. Wavelengths are usually referred to by their 1/4 cycle lengths, the amount of time/distance from the 0 line to the maximum or minimum energy extreme. If a sinusoidal wave is seen as a circle cut in half with the bottom half slid forward the length of the diameter, one can then see the relationship between the circle and the wavelength or cycle. A 1/4 cycle can be seen to be also a 1/4 circle, a 1/2 cycle 1/2 of a circle, 3/4 cycle 3/4 of a circle, and a full cycle a full circle. This explains why we use degrees when referring to cycles with a 1/4 cycle being equal to 90 degrees, a 1/2 to 180 degrees and a full cycle equal to 360 degrees. Generally, these lengths are related to each other through musical harmonics, expressing musical ratios such as the third, fifth, etc.
The phasing of the waves describes the relationships of the different component waves to each other. If all component waves began at the same time, and at 0 degrees, they would all begin by moving up, or phased up, according to our explanation above. If they all began moving downwards, they would all have begun at 180 degrees. At any point along the summational wave, you can look at the component waves and determine their phasing to each other which will be most easily expressed by whether the waves are moving up or down. If two or more waves are moving up or down simultaneously, they cause what is called either positive or negative interference, meaning that the combined sum of the energies of these two or more waves creates a greater positive or negative amplitude summational wave. If you have one wave moving up and one wave moving down, you get destructive interference, meaning that there is an equilibration of energies causing a sideways movement on the chart. It is the interaction of these component waves that forms the patterns of the summational wave on the theoretical charts. When you have a particular pattern of the summational wave on a chart, if you simply change one wave, whether large or small, it changes the form of the summational pattern. The differences in the composite patterns depend upon which and how many of the component waves change. If you flip all of the component waves in the opposite direction, you get the same pattern but up-side-down, an inverse pattern.
Market Applications:
The useful aspect of wave mechanics is that it serves as an excellent foundation for integrating many concepts and ideas of market structure and motion. It serves as a sort of foundational schemata upon which one can build a good model of market behavior in simplified form. Following are some of the analytical applications Dr. Baumring elaborated from the theoretical study.
Counting Cycles: One of the first things one learns from studying theoreticals wave mechanics is to see all changes in market activity as changes in the underlying energy vectors, or component waves. This is the first step to learning where to count from in order to determine the wavelengths, or lambda of the underlying vector components.
We see that a bottoming or topping complex is always made from a number of energy vectors changing simultaneously (within the range of the top or bottom). Since we know that a directional movement is caused by combination of several component waves, we would not expect the count only from extreme top to extreme bottom to be the sole determinant of that move. Rather we would count from all of the primary vector change points at the top to all of the primary vector change points at the following bottom. For instance, if there is a head and shoulders top, there would be three primary vector change points to count from, same with a triple bottom. This gives us a larger number of vector counts, some of which will be the wave-lengths of some of the underlying components (or multiples thereof). If one were then to also measure the different impulses and reactions in this way, one would find the same numbers recurring, and in that way determine some of the underlying component wavelengths.
Reactions and Congestion: In the same way, a good place to discover smaller component lengths is within reactions against the trend. Generally, the longer components will be determining the larger trend, while the minor components either strengthen that trend or cause reactions against it. Measuring these reactions is a good way to uncover these smaller components. Also when you have a long congestion phase in which some of the longer components are equilibrated, you can often see the smaller cycles turning up and down within the range of the trend, so this is also a good place to discover them.
Pattern Recognition: One of the most useful elements of the theoreticals is in the study of pattern recognition. The theoreticals teach us to see the cause and process of permutation or morphology of the form or pattern. We can learn to extrapolate this insight into an analysis of market patterns. Two patterns which might not have seemed similar now can be seen to be almost the same with one or two components flipped. This develops a sense of the underlying causal structure of formations and patterns. For instance a broadening top formation or bed of accumulation at a bottom can be seen to be cases where you have a number of turning waves spread out over a longer period with many of them equilibrating until the last one or two turn down or up respectively, causing the ensuing reversal in trend. With a spike top or bottom, you see that you have the underlying components changing almost simultaneously causing the rapid reversal in trend. Likewise, every pattern, whether top, bottom, directional trend, or congestion has an underlying combination of component waves which will create that particular formation. Understanding the cause and effect of these is what Gann calls “Form Reading.” The slight irregularities one regularly finds in these patterns is clearly seen as caused by changes in the underlying component relationships. These changes will also give an indication as to what to expect in terms of ensuing permutations. Say you have an occurrence of a bottom which makes a clean downward half-circle, then you later see a bottom of the same time length but with a sideways S pattern rather than the full downward arc. You would recognize that you have a wave out of phase and that you should not expect the same breakout from the bottom as previously, but, rather that you will see a different angle of attack and different culmination to the upward trend due to this differently phased cycle. The trick is to be able to quantify all of this so as to make it useful. Angle of Attack: The angle of attack is the slope at which the market moves at any time. Baumring said that the slope of a vector is related to its vibratory rate, what Gann called the “pitch or trend of the market.” It can easily be seen that the slope of the market is caused by the relative constructive or destructive interference of the underlying waves. A steep slope or angle of attack has a number of underlying components moving together in the same direction. A flat slope or congestion area only exists when you have an equilibration of underlying waves.
Cycles vs. Periodicity: The distinction between cycles and periodicity is an important concept rarely discussed outside the Baumring circle. Cycles are equivalent to what we look at as component waves on the theoreticals, energy vectors, or directional force fields, moving from a positive to a negative extreme at a regular time interval. A periodicity, on the other hand, Baumring defined as “a sequence of events recurring at a particular interval.” This periodic pattern is made of a sequence of component cycle relationships, which return to a similar juxtaposition at a particular period of time. It is in the understanding of this principle, the cause of recurring patterns, not just turning points, but sequences of structure, that makes Form Reading valuable, for the structure of a pattern foretells the nature of the pattern to follow.
Fundamental Building Blocks & DNA Code: Baumring called these recurring patterns the “building blocks” of the market, and sometimes said there were 13 fundamental building blocks comprising all market activity. He compared this phenomenon to a DNA strand which is likewise comprised of amino acid building blocks, the changing sequences and combinations of which are enough to generate the entire spectrum of organic life. As an analysis of the DNA code unveils the sequences which produce varying life forms, so an analysis of the building blocks of the market unveils the sequences which produce the variations in market structure.
Further Considerations: In theory, many of these ideas seem clear and logical but when it comes to applying them to the markets, the task is considerably more complex. The theoreticals are a simplification of the real market, and the simple analyses which can be done on the theoreticals become baffling when tried on a financial chart. However, it is possible to break down and reconstruct these cycles into an accurate map of market activity. There are a number of excellent studies on cycle analysis which Baumring recommended, and Dan Ferrera recently developed a barometer which breaks down 16 component cycles in the Dow, which over a 90 year period produces a startlingly accurate map of the market, with, of course, projections into the future. We hope to soon make this barometer available as excellent presentation of the subject. Also for the creation and study of theoretical wave mechanics charts, there is an excellent program developed by Ken Turkin, called Cyclekt which produces summational wave forms from varied component waves which can be altered to produce any imaginable pattern.
