Scalar Analysis Reveals Financial Market Patterns

Scalar Analysis in Financial Technical Trading Page 1 of 13
By Ramoncito D.Ulep, CTA/CPO

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SCALAR ANALYSIS (S.A.)

IN FINANCIAL TECHNICAL TRADING
A View of the Markets in a Different Angle
By Ramoncito D. Ulep, CTA/CPO

Investment Advisor
FXA USA
40 Wall St.
28th Floor
New York, NY 10005
United States
Tel.: (213) 235-7889

E-mail: info@fxausa.com
Website: www.FXAUSA.com
July 25, 2012

____________________
TABLE OF CONTENTS
Page Title
3 Introduction
3 Definition
4 Examples of Price Scales
6 Methodology
9 Retracements
11 Sample Probability
12 Retracements Observation
13 Summary
____________________
INTRODUCTION
The purpose of this paper is to define and explain Ramoncito D. Ulep’s (Author)
method of Scalar Analysis in Financial Technical Trading, particularly the observation of
the movement of prices as they pass from one scaled point to the other. Chart
examples are illustrated to further explain how the method is used. (Table Of Contents)
DEFINITION
Scalar Analysis in Financial Technical Trading is a type of Technical Analysis,

which utilizes the scaled values of financial securities and derivatives.
One of the most common scale values is the price scale, which ranges from zero
to infinity. Other common scale values are volume, period and other technical indicators
– all of which make up a contemporary financial technical chart.
Most participants in the financial market use price scales in their analysis as a
basis of market valuation. Although prices of both securities and derivatives sometimes
swing in extreme ranges, their values remain observed and recorded periodically (i.e.,
monthly, weekly, daily and hourly). These prices tally the total position valuation of all
the participants in the financial market.
The age of computers (a.k.a., the digital age) brought these data to where it is
now possible to record price values as they are traded. These plots are called ticks1, the
smallest increment a security or derivative can move. With these streaming data come
tick-by-tick technical charts, which are almost instantaneously created for all participants
to see and analyze. These charts can be viewed either through paid subscriptions
provided by financial institutions and data providers, or available free via the Internet –
the difference varies in the quality of data and the service they provide. (Table Of Contents)
1
"In financial markets, a tick size is the smallest increment (tick) by which the price of stocks, futures
contracts or other exchange-traded instrument can move." - Source: Wikipedia
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EXAMPLES OF PRICE SCALES
Below are chart examples of linear price scales of widely observed financial
securities and derivatives:
Figure 1-1: The Dow Jones Industrial Average daily candlestick chart with a 200-
point price scale ranges from $10,404.49 to $13,661.64 from September 22, 2011
to December 7, 2012.
Figure 1-2: EUR/USD (Euro against the US Dollar) 4-hour candlestick chart with a
25-pip price scale ranges from $1.2660 to $1.3308 from October 15, 2012 to
December 20, 2012.
____________________
Figure 1-3: Gold’s weekly spot market candlestick chart with a 50-point price scale
ranges from $681.10 per ounce to $1,920.74 per ounce from November 4, 2007 to
December 20, 2012.
(Table Of Contents)
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METHODOLOGY
One way of analyzing financial charts using Scalar Analysis is by observing price
values as they move from one scaled marker to the other.
By setting up the charts in fixed scales (e.g., in increments of 50, 100, 200, 500,
1,000, etc.), one can establish a set or sets of random variable2 probability events3.
Figure 2-1: Gold’s weekly spot market candlestick chart with a 200-point price scale
ranges from $413.60 per ounce to $1,920.74 per ounce from October 31, 2004 to
June 4, 2013.
2
“Random Variable is a variable whose value is subject to variations due to chance.” – Source: Wikipedia
3
“Probability Event is a set of outcomes to which a probability is assigned.” - Source: Wikipedia
____________________
Figure 2-2: Ulep’s Scalar Analysis can be best understood by plotting dots on the
chart where the price touches the scaled points, and then connecting them with lines
(see Figure 2-3 below).
Figure 2-3: Together with the gridlines, the dots and the lines simplify the entire
chart into data where simple random variable probabilities can be established.
____________________
Figure 2-4: The numbers on this S.A. chart represent each count the price touches
the markers. In this example, the price went up 8 out of 12 times from point “0”,
which yields a random variable probability of 67%.
(Table Of Contents)
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RETRACEMENTS
It has been observed throughout history that, in most cases, the prices of
securities and derivatives tend to rise and fall overtime due to the buying and selling of
market participants. These actions create peaks and troughs in the charts. Counter
trends to the larger trends are known as a “retracements” (see Figure 3-1 below).
Figure 3-1: This US Dollar Index chart shows the counter trends or retracements
going against the main trend, which is bullish from 1995 to 2002.
While the existence of counter trends are unquestionable, the probabilities of at

which levels the prices would retrace back to depend on very wide variety of both
technical and fundamental factors.
Because of this, there are a lot of uncertainties on these probabilities. As a rule of

thumb, in a technical perspective, professionals use either technical line indicators or
studies, such as the Fibonacci Retracement4, or look for previous levels where values
pause at its current trend (up or down) then bounce off or reverse. These levels are
called supports and resistances, or tops and bottoms, and become probable targets for
analysts’ forecasts.
4
"Fibonacci Retracements use horizontal lines to indicate areas of support or resistance at the key
Fibonacci levels before it continues in the original direction." – Source: Investopedia
____________________
Figure 3-2: This chart shows the most common Fibonacci Retracement levels
(38.2%, 50% and 61.8%) of the US Dollar Index from early 2002 to mid-2013
Figure 3-3: This chart shows the supports and resistances of the US Dollar Index
from mid-1998 to mid-2013
(Table Of Contents)
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SAMPLE PROBABILITY
Upon observing a S.A. chart, one may notice the many different combinations of
calculating random variable probability events that may be used for forecasting and
trading.
An example of which is counting the number of times the price went through the
marker moving to the next, and another is counting the number of times the price
bounced off the marker back to the previous point (see Figure 4-1 below).
Figure 4-1: This US Dollar Index S.A. chart yielded 18 breaks and 20 bounces (almost
equal the number of times, or 50-50 probability), therefore, one may assume that the
more times a certain event (e.g. a break) happens, the higher the chance the opposite
will happen (e.g. a bounce). The reason for this is that the price will always try to achieve
the probability at hand, which is 50-50.
(Table Of Contents)
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RETRACEMENTS OBSERVATIONS
One of the most profound and remarkable retracement probabilities that has
been recorded by the Author while observing the S.A. charts is a phenomenon where
the price goes back to the most recently broken support and resistance markers with
very high probabilities – at least, until such time that the security or derivative cease to
trade or significantly declines in trading volume.
Albeit some professionals call these events, “retests”, there are neither exact nor
estimated probability calculations that are available as guides to be used in any
analysis.
Ulep’s retracements consistently yield a random variable probability of more than

55% in all of the observed charts5.
Figure 5-1: Gold’s spot market S.A. daily chart with a 50-point scale beginning from
$950 per ounce, from September 2009 to June 2013, shows 10 out of 13 (77% yield)
markers were retraced. It also shows that 3 out of the first 5 resistance markers (points
2, 3, 4, 5 and 6) were retraced.
(Table Of Contents)
5
The observed charts used have 10 or more probability events. These charts include the major currency
pairs (USD/CHF, EUR/USD, GBP/USD and USD/JPY), major US indices (Dow Jones Industrial Average
30, S&P 500 and NASDAQ 100), and Gold and Silver spot prices.
____________________
SUMMARY
Ramoncito D. Ulep’s method of Scalar Analysis in Financial Technical Trading is

achieved by using equidistant or scaled basis points in the charts as markers. The
observation of the movement of prices (or other values) within these markers create
multiple probability events in the random variable space, thus, providing the user
additional information which can be used for analysis in trading the financial market.
Ulep’s Retracement involves prices in the S.A. charts going back to the most recently
broken support and resistance markers. This retracement observation yields a high
random variable probability of more than 55%. (Table Of Contents)

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Scalar Analysis in Financial Technical Trading Page 1 of 13

By Ramoncito D.Ulep, CTA/CPO

SCALAR ANALYSIS (S.A.)

A View of the Markets in a Different Angle

By Ramoncito D. Ulep, CTA/CPO

Tel.: (213) 235-7889

July 25, 2012

4 Examples of Price Scales

Scalar Analysis in Financial Technical Trading is a type of Technical Analysis,

EXAMPLES OF PRICE SCALES

While the existence of counter trends are unquestionable, the probabilities of at

Because of this, there are a lot of uncertainties on these probabilities. As a rule of

Ulep’s retracements consistently yield a random variable probability of more than

Ramoncito D. Ulep’s method of Scalar Analysis in Financial Technical Trading is

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