The omnipresent head and shoulder is the unit of time
Human life is about celebration, which is the act, process of showing appreciation, gratitude and/or remembrance, notably as a social event. We celebrate various aspects in, about and around our life. Directly or indirectly celebration is about time, passing time. Conventional belief does not give a shape or ascribe a form to time like a beautiful, colourful surface that can be the reason for party. It might sound weird praying around a beautiful statue of time placed at the centre while revelers drum and sing. This is what we do every day. This is the reality. Every moment of our life, unknowingly we just worship and enjoy the beauty of time.
A time pattern
Head and shoulder (H&S) is the pattern of time. It’s the most beautiful part of the human body. Nature is replete with head and shoulder patterns, market technicians would not debate but the most visible pattern in markets is the head and shoulder formation. Every natural pattern that we will ever see or study in our life is connected with the head and shoulder pattern of time. Romania has the world’s largest bear population. Hunting down bears is legal and stuffed head and shoulder rugs and wall hangings of bear families are elite pastimes. There is a bear dance made at the start of the winters when young men adorn the same head and shoulder bear clothing, beat drums and blow whistles.
What’s with the formation? First and foremost: Head and shoulder are three peaks, a large peak centered around two smaller peaks. Head and shoulder pattern is the time triad i.e. three triangular peaks. Did you ever think why a day has four prices, the open, the high, the low and the close? We just take it as standard. Ok! it does look logical to have the O-H-L-C, but the interesting part is how this classification divides the trading session into three parts.
There is a part with the open and high, high and low, low and close. The three triangles of head and shoulders are there. Market literature is full of pattern ideas from human anatomy. It is not that just a chance that we find similar patterns in markets like we find in human anatomy. We find head and shoulders in markets just like we see it in human body is because time touches anatomy, the same way it transforms price.
The Koch curve
Nature unlike markets doesn’t just move in the first Cartesian quadrant with positive x and y axis values. Nature moves in all dimensions, in free space. Fabian Helge von Koch (1870-1924) was a Swedish mathematician who gave his name to the famous fractal known as the Koch snowflake, one of the earliest fractal curves to be described. The Koch snowflake (or Koch star) is a mathematical curve and one of the earliest fractal curves to have been described.
It is based on the Koch curve, which appeared in a 1904 paper titled “On a continuous curve without tangents, constructible from elementary geometry”. The Koch curve starts from a triangle and in the second iteration divides each side of the triangle into a head and shoulder form. The iterations are repeated and this creates the Koch curve. Koch curve is a zooming head and shoulder bombarding in your eyes like a moving spatial star field.
Thomas Bulkowski wrote a book ‘Encyclopedia of Chart Patterns’. The book explains and classifies many patterns, their structure and probability of success and failure. This is what the author says. “Of all the chart patterns in this book, the head and shoulder is perhaps the most popular. This stems from its reliability, performance and easy identification”. A very popular book among technicians, featured in many research journals and even in the MTA’s (Market Technicians Association) Technically Speaking newsletter too. Even if a group of technicians may contest that markets are not fractals but individual patterns, the fractal school of thought is academically weighted and more scientific. So if we assume that markets are fractalled then all of Bulkowski’s classifications can be explained by one pattern and that is the head and shoulder.
Head and shoulder is the building block for all diamond tops, double tops, triple tops etc.
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The Elliot theory and H&S
The Head and shoulder pattern can even rewrite the Dow Theory and even explain the Elliott Theory. Elliotticians are known to famously quote that there are few rules in markets, mainly the EWT (Elliott Wave Theory) works on guidelines. The only two rules in the long standing Elliott Theory is that the third wave is never the shortest of the three impulsing waves 1, 3 and 5.
What Elliott unknowingly said was that the three up legs in a five legged market structure have a bump or a head, simply putting the middle part of a market fractal is larger than the other two. The third is never the shortest because of the head and shoulder. The pattern of time rules the Elliott fractal. There is another rule of Elliott that the second wave does not make a new low below the low of the first. The head and shoulder pattern of time also makes higher lows and not lower lows. A higher degree of time does indeed make more significant lows than its small degree counterparts.
Bulkowski talks about head and shoulder failure. Constance Brown talks about the same thing “indicator failure is a reality”. Even if we come to the source of life and market patterns and start studying patterns of time, we will still face failure, as the very nature of fractal is unending. Time fractal can never be understood beyond a certain time. This endless overlap and mixing of head and shoulder patterns in nature and markets at all degrees create the beauty of nature. Look around yourself in nature and you will see your environment full of curves reflecting the dynamics of the head and shoulder of time.
The head and shoulder of time drives the 80-20 principle. We will talk about it ahead why the head is larger the shoulders. A friend was expressing his surprise at how performance cycles were working and commented that God must indeed be a mathematician. The head and shoulder of time creates fractals and without fractals there would be no life and no need for mathematics. God just created time and plucked its string, everything else followed.
The author is CEO, Orpheus.asia, a global alternative research firm
