The Quantum View
According to our current understanding everything that exists in the universe can be seen as either mass or energy. What mass does in this universe is wholly dependent upon what forces act on it at any given time. An example is the element carbon. Carbon can be coal or a diamond, or many things in between. A little thinking allows you to come up with your own examples.
Now if we get down a little deeper into reality, into the places where theoretical physicists like to hang out, we discover the very interesting branch of quantum theory that deals with exactly how these energies and masses interact. Apparently, what we perceive as physical reality is actually the boundaries between different energies as they interact with each other. A kind of turbulent ‘foam’ erupts along the boundaries and it is this foam that we perceive as having mass.
The Lines of Force method translates that view to the stock chart. Price is the mass we are supplied with and our job is to find the turbulence of interacting forces that creates the mass. We use the daily price prints: Open, Close, High and Low and find relationships between those data points to discover the lines of turbulence between the forces playing out across the chart. Those lines we plot on the chart to expose trading channels, probable support and resistance levels, and other artifacts that will help us make better trading decisions.
It is important to remember that we will be finding lines of turbulence between forces, and not trying to predict future price action. Like all valid forces in the universe, these forces will be true across the entire chart. And just like in the real universe, a force may be strong in some places and seem weak in others. Price is indeed the object we are interested in, but like any object it will follow the easiest path offered. Just because price held one line doesn’t mean it will hold that line forever. At different times on the chart different forces may be in control. Price has no mind of its own. It will always respond to the strongest force.
It is also important to note that this method does not care at all what those forces might be. It is enough to know they are there. It can be rumor. It can be real news. It can be sudden unexpected dilution. This method does not care. It recognizes that the true machinations behind the scenes may never be known publicly, and exposes the folly of thinking that it matters. Price is like a rudderless ship, immediately responding to every force it encounters.
The forces become apparent through the four data points of Price, so it is especially important that only those data points be used. Never try to infer derivative knowledge or knowledge of fundamentals to the chart. Using this method requires that you ignore everything else you think you know about the stock and the company it represents while creating the chart. This doesn’t mean I am recommending trading based only on the chart. That would be foolish to do and I would never tell you to do that.
But while you are drawing the chart, you must ignore everything except the raw data of Price. You cannot afford to let what you think you know influence where you find your lines of force. Draw them true to the price points. Don’t approximate. Feel free to draw as many lines as you need to verify your chart, and feel free to delete every line that is not perfect or useful.
Once your lines are drawn true to the chart, then you can use it along with everything else you know to make the proper trading decisions.