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We believe this。book is。a useful resource for identifying techniques。that can add tremendous。value to your investment strategy； and we're convinced that you'll enjoy reading it too。
—David Keller； CMT February 21； 2007 New York。
CHAPTER 1
Drummond。Geometry： Picking Yearly Highs and。Lows in。Interbank Forex Trading
TED HEARNE
What if you could predict the yearly。high and the yearly。low in a major currency？ If； at the start of the year； you could have a definite idea where the high will form in the Japanese yen or the Canadian dollar or the euro？ Or if you knew where the market was。headed many。months。ahead of time？ Making an educated； accurate forecast of next year's。high and low in every currency is surely the dream of every trader — a fantasy of omniscience and unlimited power over the markets。
In trading； as。in war or building suspension bridges。or performing transplant surgery or creating a new auto design or any plex undertaking； success。is。a function of many。different elements—a bination of having the proper tools； the necessary knowledge； and the appropriate personal characteristics。 If you would like to be one of the few who make accurate； high…probability； long…term forecasts。about market highs。and lows； then read on； because there are some little…known tools。and a coherent body of knowledge that can help you。
Drummond Geometry
The practice of technical analysis。has。a few monly accepted assumptions。 Drummond Geometry builds。on these with its own unique point of view：
1。
Charts。have patterns。that can be identified and will reoccur。
2。
Similar chart patterns。exist in different time frames。
3。
Prices。in a given time frame will center on a consensus。value； and when price moves。away from that consensus； it will tend to revert to a mean。 But this。mean itself will be moving and changing as。the market unfolds。
4。
Support and resistance are real phenomena； and can be measured； predicted； and projected。
5。
Time frame charts。are interrelated； move simultaneously； and can be visualized as。existing within each other。
6。
Historical price charts。of freely traded financial markets。are the visual representation of human crowd psychology in action。
7。
Support and resistance in different time frames。react to price in predictable ways。 The shorter time frames。will react first； and then progressively longer time frames。kick。in。
These statements。are simple； but when logically applied to the broadest context； using a coherent set of analytic。tools； the implications。are staggering。 The trading theories。and methodology I discuss here are based on the writings。of Charles。Drummond； the legendary。Canadian trader who is。emerging as。one of the major。market theorists。of the twentieth century。 He is。not only a major theorist but also a hugely successful private trader who has the personal track。record to back。up the theory。
Drummond s。substantial body of writings； privately published and distributed under nondisclosure agreements。to his。growing body of students； constitutes。a major step forward in technical analysis。 Many aspects。of the work。remain proprietary and not accessible in a public。medium； but some of the main principles。and underlying concepts； as well as。their application to the long…term Forex markets； are free to be discussed in forums。such as。this。chapter。
The methodology hase to be known as。Drummond Geometry and consists。of three main elements； or ponents：
。
The identification of resistance and support and their projection into the future
。
A description of the markets。current state and its next anticipated state
。
Multiple time period analysis； coordinating the first two elements in two； three； four； or more time frames。
In Drummond Geometry； these three elements。are bined into a coherent whole with specific。rides。for entries。and exits； a methodology for monitoring and evaluating market moves； and a way to project viable turning points。and targets。within each time frame。
Projecting Resistance and Support
The idea of resistance and support is。a key concept of technical analysis。 Resistance is。when buying peters。out and selling increases； stopping and reversing an upward move； support is。the reverse； when selling abates。and buying begins； forcing price upward。 Conventional technical analysis。looks。backward at where resistance and support have been located in the past and suggests。that the same levels。will be used in the future。
Drummond Geometry takes。a different approach。 Although it constructs。these levels。out of conventional tools。such as。moving averages。and trend lines； it projectsnstantly。evolving resistance and support areas。into the future and watches。how price reacts。to these levels。as。the market moves。forward。
The core building block。of Drummond Geometry is。a short…term moving average called 〃the PLdot〃 （see Figure 1。1）。 The PLdot was。developed in response to the search for a tool that would distinguish between trend and congestion and run in a straight line sloped upward or downward in a trend but that would quickly and responsively indicate changes。in market situation。 The tool was。empirically derived； and investigations。resulted in the moving average known as。the 〃Drummond Dot；〃 or the PLdot。
The PLdot （PL stands for point and line） is。a short…term moving average based on three price bars。of data； which captures。the trend/nontrend activity。of the time frame that is。being charted。 The PLdot from the last three bars。is。plotted as。a dot； or line； on the space where the next bar will appear。
The PLdot has。a simple formula： the average of the average of the high； low； and close of the last three bars。
｛Avg＇H（1）；L（1）；C（1）＇ ＋ Avg＇H（2）；L（2）；C（2）＇ ＋ Avg＇H（3）；L（3）；C（3）＇） PLdot =——————————————————————————————— 3
The PLdot can be applied to any chart of any modity； future； or stock。 The first thing to note is。that the dot is。always。there。 It is。a polestar in a constantly shifting universe； something that bears。a constant relationship with the immediate past； capturing the recent energy of the hour； of the day； or of whatever period the trader is。looking at。
What is。so special about this。particular moving average； the PLdot； that sets。it apart from other moving averages？ The characteristics。of the dot prove to be useful in analysis。 It moves。across。the chart horizontally in congestion； and when a trend develops； it immediately changes。into a straight line slanted in the direction of the trend with very little lag。 It is。extraordinarily。sensitive to trending markets； very quick。to register the change of a market out of congestion into trend and sensitive to a trend that is。ending； as。well。
The PLdot captures。the heart of market activity on the last three bars。 In Drummond Geometry； this。point would be thought of as。the center of energy and represents。the consensus。of the crowd。 But additional tools。are needed to gauge the strength of moves away from thisnsensus。 For this； other moving averages。are added。 To give the methodology greater muscle。 Drummond added a simple envelope system constructed of a constant mathematical relationship based on the ponents。of the dot。 The resulting structure