How to score a chart


Now we have established the criteria for reading a chart you are now in a position to score a chart based on the identification of its true highs and lows. As we are reading and scoring currency charts it must be remembered that we need to apply two scores to the Matrix for every chart, one score for each currency within the pair we are observing. For example if we are observing a EURUSD chart we must assign the base currency (EUR) a score and also assign the terms currency (USD) a score. 

When doing this for the first time I recommend going back about 2 months on any daily chart and making your way to the current bar, identifying every high and low along the way. Once complete, we will score each chart based on its 2 most recent highs and 2 most recent lows. On any chart there will only ever be 1 of 4 possible patterns present at any given time, as illustrated in Figure 3.1.


A.    Chart is making higher highs and higher lows

B.    Chart is making lower highs and lower lows

C.    Chart is making higher highs but lower lows

D.    Chart is making lower highs but higher lows 




The scores awarded will consist of either a 1 or a 0. Where a chart is showing cycles that are consistently moving in the same direction (patterns A & B) this will be a result of one currency in the pair being stronger than the other. It is this relative strength and weakness we are looking for with the strong currency being awarded a 1 for its strength, and the weak currency of the pair being awarded a 0 for its weakness. If there is no consistent cyclical movement, (patterns C & D) then the currencies in those pairs will both be awarded 0.


Keeping EURUSD as an example and looking at pattern A in figure 3.1 as being the current price action of that pair, we can see it is making higher highs and higher lows. This means that at this time EUR is making higher highs and higher lows against USD, therefore progressively moving higher, which means EUR gets a 1 (EURUSD, blue box in figure 3.2) for its strength and USD by default must get 0 (USDEUR, red box in figure 3.2) because of its weakness. If EUR is up against USD then USD must be down against EUR. 



Continuing with patterns B, C and D the scoring would be as follows:
 
  • Pattern B, EUR is making lower highs and lower lows against USD so this time EUR gets 0 for its weakness and USD gets 1 for its strength.
  • Pattern C, EUR is making higher highs but also lower lows against USD so as there is no agreement between the two sides both get 0. 
  • Pattern D, EUR is making lower highs but also higher lows against USD so again as there is no agreement both sides get 0.


This process of scoring is carried out for each of the 28 currency pairs, reading from left to right, starting with all the EUR pairs then GBP pairs and then AUD pairs etc (Figure 3.3) until all 49 cells of the Matrix are assigned a number as in Figure 3.4





                                                       






















 

Next: How to use the Matrix