# Rule of 4

BarroMetrics Views: Rule of 4

I’ll was gong to have a look at Gold today, but, I’ll leave it till tomorrow.

Today, I want to address a response  to some emails.

On Feb 4, I did a presentation for MacQuarie Securities, Singapore. In it, I made reference to the Rule of 4. I have received a number of emails asking me to give another example.

What is the Rule of 4? It’s an idea I first read in one of Gann’s books. The fourth attempt at a support or resistance should result in a breakout; failure to do so, means the opposite support or resistance will be tested and will give way.

Figure 1 is the S&P example I gave at the presentation. (The S&P example is the 5-D sideways congestion I mentioned in yesterday’s blog). In Figure 1, I have marked in the three lows and possible third high.

What I said in the presentation was:

Given the low at ‘3’, I expected an attempt at the high at ‘2’ to be challenged and to give way; BUT if the high at ‘2’ held, then we could expect the low at ‘3’ to give way because of the Rule of Four. (BTW, for those who have done the Barros Swing course, did you recognise the Negative Development buy signal at 3)?

Figure 2 is another example of the rule in action.

In Figure 2, I have marked in the zones:

1. Primary Buy and Sell Zone (PBZ, PSZ)
2.         Maximum Extensions (ME)
3.        Value Area High (VAH) and Value Area Low (VAL)
4.        The minimum price (Min) needed to complete the move from PBZ to PSZ and vice versa.

Let’s walk through how the highs and lows were formed as it is instructive.

• A swing high and swing low are formed at 1.
• The low at 1 is breached by the low at 2. Note that the low at 2 gives the same Negative Development Buy signal as the one in the S&P.  The buy signal suggests that high at 2 will give way.
• The high at 3 generates a Negative Development sell signal that fails. I’d have expected the low at 2 to be breached. Instead, prices turn up at the ‘minimum price level’ , without even touching the PBZ. Normally I’d see this a sign of strength that would suggest a breach of 3 and the probably start of a 5-D uptrend.
• This analysis would be supported by the fact that a test of the swing high at 3 would invoke the Rule of Four – this would give weight to the upside breakout possibility.
• The failure of to reach even the PSZ suggests weakness and the Rule of Four suggests a downside breakout that has not been negated by Feb 11’s price action. This happens if prices touch the MIN at .7831.

Hope this clears any confusion.

FIGURE 1 S&P

FIGURE 2 AUDUSD

## 2 thoughts on “Rule of 4”

1. Baz says:

Hi Ray, there maybe similar currently on daily GBP/JPY chart , as a comparison. but with the 2 giving way that you mention.
Could it be said, that Barometrics Method, is intrinsically a study of price action at or near support/resistance levels?

2. ray says:

Hi Baz

That is certainly part of the BarroMetrics approach. But, the first order of business is:

1) What is the trend of the trader’s timeframe?
2) Is it likely to give continuation or change?