An FLD is a line that is plotted on the same scale as the price and is in fact the
price itself displaced to the right (into the future) by (approximately) half the
wavelength of the cycle for which the FLD is plotted. There are three FLD's that
can be plotted for each cycle:
An FLD based on the median price.
An FLD based on the high price.
An FLD based on the low price.
Why do we say that the FLD is displaced by approximately half the wavelength? That
is because the FLD is displaced by a slightly different amount depending upon its
use.
How the FLD is used
When an FLD is based on the median price, it is used to confirm
the troughs and peaks of cycles (that is why the FLD is described as
a tool). For this purpose the FLD is displaced by half the wavelength of the price
(rounded down, or truncated to a whole number) plus one bar, which postpones the
confirmation provided by this tool by an amount between a half and one full bar.
When an FLD is based on the low or high price,
it is used to as an immediate action signal
for trading. For this purpose the FLD is displaced by half the wavelength
of the price (rounded down, or truncated to a whole number), which does not postpone
the signal at all, and provides a slightly quicker response from the FLD.
The FLD in fact provides three pieces of information:
The confirmation of a peak or a trough of the
cycle:
When price crosses above the FLD from below, this is a confirmation that
a trough of the cycle to which the FLD applies has occurred.
When price crosses below the FLD from above, this is a confirmation that
a peak of the cycle to which the FLD applies has occurred.
A projection to the next trough or peak of the cycle:
When price crosses above the FLD from below, a projection is created which is an
equal distance (in terms of price) upwards from the crossing point as the distance
from the low price at the (now confirmed) trough of the cycle to the crossing point.
The projection in terms of time tends to be less accurate, although it is used as
rough guide.
When price crosses below the FLD from above, a projection is created which is an
equal distance (in terms of price) downwards from the crossing point as the distance
from the high price at the (now confirmed) peak of the cycle to the crossing point.
The projection in terms of time tends to be less accurate, although it is used as
rough guide.
An indication of the future impetus provided by this cycle to price:
If an FLD is falling in the future, then the impetus provided by this cycle to price
movement will be upwards.
If an FLD is rising in the future, then the impetus provided by this cycle to price
movement will be downwards.
It follows from the above that:
when an FLD forms a peak, the cycle is likely to form a trough
when an FLD forms a trough, the cycle is likely to form a peak
Multiple FLD Patterns
A very important use of FLD's is in the observance of the
patterns that multiple FLD's (the FLD's of many different cycles) form.
