Now that we’re familiar with all five core foundations of the N2N strategy, it’s time to understand how to use them for a complete analysis of a trading instrument and, from there, to trade it. Nodes, cycles, sequences, fractals, and symmetries are all part of the market-analysis toolkit that help us identify and analyze market structure and locate the right trading opportunities. In the N2N strategy there are different trade setups depending on market conditions, time frame, and trading style. But before we look at those setups we need to know how to analyze a trading instrument thoroughly.
One of the most important foundations of correctly analyzing a trading instrument is accurately determining Market Direction on that instrument. As mentioned in earlier material, Market Direction can differ depending on the time frame and scale of analysis. Depending on their trading style, every trader also uses a particular time frame for analysis and for entering a position. Investors usually work with the Daily and Weekly time frames for analysis or for entering the market. Longer-term and medium-term swing traders typically use the Daily and 4-hour time frames for analysis or even for position entry. Day traders usually rely on the 1-hour, 30-minute, 15-minute, or 5-minute time frames for analysis and entry. Scalpers and fast scalpers use the 5-minute, 1-minute, and even second-based time frames. Consequently, every trader, according to their style, needs a higher time frame to determine overall Market Direction, an intermediate time frame for market analysis, and a lower time frame for position entry.
To perform a complete analysis of a trading instrument and to locate its current position and direction in the market, we proceed as follows:
We begin by placing the chosen trading instrument on the largest available time frame, which is usually Weekly or Monthly. Following the method we learned in the nodes section, we count the nodes on that time frame. Depending on the count, we discover the state the market is in. Several possibilities can occur:
In this situation the market can reverse and continue in the direction of the closed cycle. In positive cycles, once the market has resolved all Pending 1-2s to the left, it finishes its corrective down-trend and returns to the up-trend. The same logic applies to negative cycles: after resolving all Pending 1-2s to the left, the market finishes its corrective up-trend and returns to the down-trend. In cases where the market moves beyond the 92 % zone, there is a chance the corrective move continues and breaks the 100% level to the left. The schematic below show all of these possibilities in both positive and negative cycles.
In this case, depending on the depth of the correction after the 3-node completion, we can conclude that the market has formed a larger Node 1 and may return to its up-trend or down-trend in order to form a larger Node 2. If the market has reversed by resolving the internal Pending 1-2s of Node 3 or Node 2, we can say with high probability that it will resume its up-trend or down-trend to form the larger Node 2. The images below illustrate all of these situations in both positive and negative trends.
If the market, after completing 3 nodes, sits on Cycle Evolution Zone 1, 2, 3, or 4, we can say with high probability that it will resume its up-trend or down-trend. According to the symmetry rules, to complete the larger Node 2 it must move at least the size of the larger Node 1.
Here the market has finished a 3-node Uptrend or Downtrend and is correcting Node 3. According to node rules, the minimum correction required is the resolution of the first internal Pending 1-2 of Node 3; in most cases the market resolves all internal Pending 1-2s of Node 3. In other situations the correction can continue in order to resolve Pending 1-2s of Node 2 or even Node 1. By examining the type of movement and the nodes that form inside the correction we can determine which Pending 1-2s the market is likely to resolve. Consequently the corrective trend remains bullish or bearish. We will now examine all of these cases in both positive and negative trends.
When 3 bullish or bearish nodes are completed, if we assume the correction is located at the pink or blue point, the zones from which the market may resume its up-trend or down-trend look as shown above. As already stated, the minimum correction reaches Cycle Evolution Zone 1 with certainty, so the direction remains bearish (schematic 1) or bullish (schematic 2) and the correction continues. Once the market reaches any of zones 1 through 6 with 3 completed nodes, we can expect the correction to end and the trend to change.
In this situation the market has finished 2 bullish or bearish nodes and is correcting Node 2. According to node rules, the minimum correction is the resolution of the first internal Pending 1-2 of the Node 3-from-2; in most cases the market resolves all internal Pending 1-2s of that Node 3-from-2. In other cases the correction can continue to resolve other Pending 1-2s of Node 2 or of Node 1. By looking at the character of the move and the nodes that form inside the correction we can identify which Pending 1-2s are being resolved. Therefore the corrective trend remains bullish or bearish. We now examine all of these possibilities in both positive and negative trends.
When 2 bullish or bearish nodes are completed, if we assume the correction sits at the pink or blue point, the zones from which the market may resume its up-trend or down-trend appear as shown above. The minimum correction reaches Cycle Evolution Zone 1, so Market Direction remains bearish (schematic 1) or bullish (schematic 2) and the correction continues. Once the market reaches any of zones 1 through 7 with 3 completed nodes, we can expect a change in the corrective direction (bearish in schematic 1, bullish in schematic 2) and a return to the primary up-trend or down-trend.
After we have analyzed the instrument on the highest time frame and established its overall direction, we move to the intermediate time frame to perform the analysis that belongs to that scale and to look for suitable trade locations. Suppose that on the higher time frame we arrived at the conclusion “the market has completed 3 nodes and has formed a larger Node 1.” We now need to determine whether the market, with 2 or 3 nodes, is sitting on the Cycle Evolution Zone of Node 2 or Node 3 to the left. For this purpose we switch the chart to the Daily time frame and count the corrective nodes. If the correction is complete with 2 or 3 nodes, we can expect the market to resume its up-trend or down-trend and form the larger Node 2.
To confirm that the corrective nodes on the Daily are finished, we drop to the 4-hour time frame and count the internal nodes of the corrective Node 3.
In the same way, to confirm completion of the corrective nodes on the 4-hour, we move to the 30-minute time frame and count the internal nodes of the internal Node 3 of the corrective Node 3.
Finally, to confirm completion of the 30-minute corrective nodes, we go to the 1-minute time frame and count the internal nodes of the internal Node 3 of the internal Node 3 of the corrective Node 3.
Once the Node-3 count is complete on the 1-minute time frame we can state that the 3 corrective nodes (bearish or bullish) on the Daily are finished, and from that area we can expect the resumption of the up-trend or down-trend. The schematic example described above is a real case on EURUSD, which can be seen in the charts that follow.
On the Weekly or Monthly time frame the market formed a complete cycle from 1971 to 1985. According to node- and cycle-counting rules, any cycle that forms before Node 1 is excluded from the count. Therefore a new count begins in 1985, and the up-trend ends with 3 nodes in 2008. After the completion of 3 nodes the market must make at least a minimum correction to resolve the first internal Pending 1-2 of Node 3; consequently from 2008 the market entered a corrective phase and, as can be observed, resolved all Pending 1-2s of Node 3 by 2022.
As expected, once the market completed 3 nodes and reached the Cycle Evolution Zone of Node 3 to the left on the Weekly time frame, it finished its corrective down-trend and re-entered an up-trend. We can therefore say the market is in the process of forming an bullish Node 2 on the Weekly time frame.
If we now apply Time Symmetry we know that the Node 1 formed on the Weekly took roughly 23 years, so we can estimate that Node 2 will also require at least 20 years. That time horizon is absurd and unacceptable for a retail trader or even for most institutional traders; the purpose of analysis at this scale, however, is not to trade it but to obtain a Top to Bottom view of the market and to know its overall direction.
In another scenario the 3 bearish nodes may together have formed a larger bearish Node 1, so overall Market Direction remains bearish and the market may have no intention of forming a larger Node 2 on the Weekly. Even so, because 3 bearish nodes have been completed we can still expect a corrective up-trend move that resolves the internal Pending 1-2s of the bearish Node 3.
Since we know that Market Direction remains at least bullish until those internal Pending 1-2s of Node 3 are resolved, after the 3 bullish nodes are finished we begin counting the correction of that node to see whether it is complete with 2 or 3 nodes. If the correction is complete we can take positions from that area in the direction of the trend. As before, we start the count on the higher time frame and continue downward through the lower time frames for confirmation.
As the counts on the 4-hour, 30-minute, and 1-minute time frames showed, the market completed a 3-node corrective down-trend of the bullish Node 1. We can therefore conclude that from this zone the market is ready to begin the formation of an bullish Node 2.
Once overall Market Direction has been established on the higher time frame and the intermediate time frame has been analyzed, it is time to examine how to enter a position. In the N2N strategy there are several different entry setups; among them are:
In the next post we will examine all of these entry methods in detail.
In some of the market states described above it was noted that certain zones must be reached with 3 completed nodes before they can be treated as valid candidates for a reversal. It should be mentioned that the market can reverse from those zones with only 2 completed nodes as well, but the error rate is high; therefore we prefer to consider those zones only when the market arrives with 3 completed nodes.
The Top to Bottom method presented for analyzing trading instruments works correctly from the highest to the lowest time frames because of the fractal nature of the market. To analyze any instrument it is enough to determine overall Market Direction once, from the Top to Bottom, and then, according to trading style (investing, longer-term swing trading, medium-term swing trading, day trading, scalping, or fast scalping), perform the intermediate-time-frame analysis and enter on the appropriate lower time frame.
Medium-term swing traders, day traders, scalpers, and fast scalpers need to count the Weekly or Monthly time frame only once a year; thereafter they should concentrate on the intermediate and lower time frames that match their style.
Of course medium-term swing traders and day traders can also drop to still lower entry time frames if they want greater precision.