Written by:
Patrick Mikula CTA
Mikula Forecasting Company
www.MikulaForecasting.com
support@MikulaForecasting.com
Copyright © 2011 by Patrick Mikula All Rights Reserved

In this blog posting I am going to be discussing the Square of Nine method that is presented in Chapter 5  of the book The Definitive Guide to Forecasting Using W.D.Gann’s Square of  Nine. This method will use time cycles on the Square of Nine to forecast the  daily S&P500. The first step in using this method is to select the date of a major top or bottom in the past which will be used to start the Square of Nine. In this example I am using the S&P500 so I have chosen the top date from 2000, March 24. This was the major bull market top which ended the century long super-cycle. The first picture below shows a Square of Nine in MarketWarrior with the starting date set to 2000/March/24. I have circled this in red and labeled it A. The Square of Nine charts in this example are compressed because the placement of dates in the Square of Nine cells makes the square very large. The starting value on the Square of Nine is always placed outside the square and not in cell one. The starting value represents the zero point and the value in cell one is the starting value plus one.

Tip For selecting the starting date:
1) A major long-term top or bottom usually works best to start the Square of Nine. You can also use an incorporation date for a stock if you know it.

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Step 2 for this method is the placement of the angle overlay on the Square of Nine. The angle overlay has a zero degree line which represents the starting point of the overlay. In this example I have selected the S&P500 bottom from 2010/August/25. On the next Square of Nine I have circled the date “10/08/25″ and the red angle line is the zero degree angle of the overlay which cross through this date.

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Next lets see what this looks like on the S&P500 daily chart. The picture below is the daily chart for the S&P500 and the MarketWarrior indicator named “Sq9Chapter 5″ has been added to this chart. The vertical red line labeled B is the Square of Nine zero degree angle. This line is aligned to the date 2010/08/25 where the market bottom occurred. You should look at this price chart and the previous Square of Nine chart and understand that they show the same thing.

Tips for selecting the overlay starting point:
A major Change in Trend (CIT) or possibly a CIT that is one-back or one-foreword of a major CIT usually work the best for the overlay zero line. In the S&P500 example the major bottom occurred in July 2010 I am using the bottom that is one-foreword in August 2010.

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The third step to use this method is to select the overlay angles that line up with market tops and bottoms and will be used for forecasting. The MarketWarrior indicator seen on the chart below is drawing both the calendar days count and the trading days count. When selecting the overlay angles that will be displayed you are not trying to find an angle for every market tops and bottom. You are trying to locate overlay angles that have a high probability of success finding CIT. There will usually be 1 to 4 over lay angles that have a high correlation with CIT. In this example the 4 overlay angles 0 Degrees, 60 Degrees, 225 Degrees and 300 Degrees have a high correlation with CIT in the S&P500. I have manually drawn the blue zig-zag line and placed the overlay degree values above the top or bottom points of this zig-zag line. You can see that not every turn in the S&P500 is located with this method. Also I have included the next two forecast turning point dates. These are last (0Deg) bottom and (60Deg-300Deg ) top in the zig-zag line. By mousing over the points in the MarketWarrior chart I can see they are 2012 January 16 and 2012 February 27 respectively. These are high probability turning points in the S&P500 daily chart.

Tips for selecting the overlay angles:
1) The high probability angles often have two angles from the groups (45-90-135-225-270-315) or (60-120-240-300). In this S&P500 example 60 and 300 were used.
2) There is no automatic way to select these points. It should take about 30 minutes to do this after you go through the process a few times.

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It is important to work with the Square of Nine until you have an understanding of this method. But it is important to point out that it is much more difficult to see the correlation between the overlay angle dates and the market CIT points when working with the Square of Nine rather than the chart. In fact once you have an understanding of how this method works you will rarely need to use the Square of Nine but will use the chart indicator instead. On the chart below I have labeled the overlay angles that line up with my zig-zag line as C, D, E, F and G. I have added one picture below for each of these CIT that shows the CIT on the Square of Nine. In the Square of Nine pictures below I am showing the calendar days count. I do not show the pictures for the trading days count.

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The Square of Nine below shows CIT point C from the chart above. The Square of Nine in this example is showing the calendar days count. This turning point date fell close to the overlay 60 degree angle in cell 4008 and was 2011/March/15. This is circled in red on the Square of Nine.

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The Square of Nine below shows CIT point D from the chart above. The Square of Nine in this example is showing the calendar days count. This turning point date fell close to the overlay 0 degree angle in cell 4056 and was 2011/May/02. This is circled in red on the Square of Nine.

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The Square of Nine below shows CIT point E from the chart above. The Square of Nine in this example is showing the calendar days count. This turning point date fell close to the overlay 300 degree angle in cell 4101 and was 2011/June/16. This is circled in red on the Square of Nine.

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The Square of Nine below shows CIT point F from the chart above. The Square of Nine in this example is showing the calendar days count. This turning point date fell closest to the overlay 225 degree angle in cell 4136 and was 2011/July/21. This is circled in red on the Square of Nine.

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The Square of Nine below shows CIT point G from the chart above. The Square of Nine in this example is showing the calendar days count. This turning point date fell closest to the overlay 60 degree angle in cell 4273 and was 2011/December/05. This is circled in red on the Square of Nine.

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