Drummond geometry is a trading method consisting of a series of technical analysis tools invented by the Canadian trader Charles Drummond starting in the 1970s and continuing to the present (2010). The method establishes support and resistance areas in multiple time periods and uses these to determine high probability trading areas.
Contents
- Indicators derived from Drummond geometry
- Recent Enhancements
- Effectiveness
- Statistical properties
- References
Drummond geometry consists of the following:
Typical timeframes vary according to the trader's goal:
Daily, weekly, monthly for swing traders Daily, Monthly, quarterly and yearly for long-term position traders. 15-minute, hourly, and daily for intraday traders
The usual moving average length for the envelopes and midline is 3-periods.
The method also relies on a moving average based on the "PL Dot". The formula for the PL Dot is the average of the high, low, and close of the last three bars, displaced forward one bar:
Indicators derived from Drummond geometry
Indicators developed for the efficient application of P&L charting or Drummond geometry include the assemblage of several P&L lines and levels into groups that represent future support and resistance "zones," which are further classified into "nearby" and "further-out" support and resistance areas.
Other indicators include multiple time period overlays of support and resistance from one time period onto a lower time period, for example from a daily time period onto an hourly chart, or of monthly and weekly overlays onto a daily chart.
Recent Enhancements
Recent enhancements include the "EOTEM" or "pipes" indicators which combine momentum indicators, and predicted resistance and support areas. The "pipes" indicator includes elements from traditional Drummond geometry as well (the trading bands and the "PL dot moving average).
Effectiveness
Statistical studies show positive effectiveness of the predicted support and resistance levels established by Drummond geometry. Individual traders have reported both better and worse results as the trading approach requires traders to recognize signals and take action on them, and that skill varies by individuals. A raw statistical analysis of the tools has been published; see this research report chart created by a Drummond analyst: Efficiency of Drummond P&L Lines Holding or Breaking This statistical analysis is misleading, caveat emptor. If the line is not approached it should not be included in the statistical category called hold. A category showing statistics for closes far away from a line is misleading if price was never near the line in the beginning.
Statistical properties
The short-term moving average known as the PL dot has a sensitive response to changes in trend conditions due to the short (three-period) averaging scale and the nature of the components which include in the average the highs and lows as well as the close, thus taking into consideration the volatility as well as the resting place of the period being measured. The "Drummond Lines" or short-term two-bar trend lines can be shown to project support and resistance effectively, which the methodology then takes as a starting point and works to improve these odds by specifying which tools should be used under which circumstances.