The Drummond way to trade financial markets became known in the twentieth century and Charles Drummond, a Canadian trader, is responsible for this theory. Due to its applications, it is also being said that traders are using Drummond geometry to trade markets.
Before going into more details, it is worth mentioning that any financial product can be traded using the Drummond geometry principle, regardless if it is the forex market, stock market, an index, etc.
The overall idea that stands behind the Drummond geometry is to look for three aspects when trading a financial product:
– Identify support and resistance levels and project them into the future (or on the right side of the chart)
– Identify if the market is a bullish or bearish one, or it is just consolidating
– Using a top/down analysis to apply the principle, starting with the bigger time frames and coming down to a time frame that can be traded on an intraday basis.
The top/down analysis is being used the other way around as well. According to Drummond, the price is supposed to turn from support on a bigger time frame; one should look on the lower time frame to see the market turning first, before doing anything. This way, the domino effect assures the trader is on the right side of the market.
The key to the Drummond geometry stays with the first pillar of the three mentioned above the support and resistance levels. Drummond used an interesting approach in the sense that it is forecasting future support and resistance levels on the right side of the chart, based on classical indicators.
The base for finding these support and resistance levels is a so-called PLdot (PL = point and line), but it is also referred to as the Drummond Dot. This dot is calculated as a moving average that is based on the previous three candles.
At this moment in time, please refer to the start of the article and this is a good explanation as for why Drummond uses a top/down approach. Because the PLdot is referring to the previous three candles, it is very important what the time frame is. As a rule of thumb, the bigger the time frame, the bigger the support and resistance to be projected.
Such an approach allows for the indicator (while many consider the moving average as a lagging indicator, in this approach, it is not!) to show both trend and non-trend activity for the future and this tells much about its importance.
The PL dot is calculated as being the average of the average of the high, low, and close of the last three candles. In other words, one needs to find out the high, low and close of each of the last three candles, find out the average value, sum up these three numbers and divide them by three.
While it looks to be difficult, it is quite an easy math principle and the outcome, or the PLdot will be projected as a point on the right side of the last candle that was considered.
The chart above shows the Drummond dot applied on the hourly EURUSD chart. As you can see, the black dot represents the PLdot and it is calculated using the formula described earlier in the article.
Such a dot or the value of the dot is always being projected on the right side of the chart, and it is being based on the previous three candles. In this case, it is based on the previous three hourly candles.
It is important to note that the dot will be plotted as a fixed value on the chart only AFTER the candle is closed, so be aware of this simple, but vital aspect. Therefore, if you’re using the Drummond geometry principle on the monthly chart, the dot may move on the right side of the chart based on the moves the candle is making, but the real value (the one that counts) is plotted only after the candle is closed.
Traders should know here that the indicator that plots the Drummond dot is not on the default settings of any trading platform, and as such it must be imported on the trading platform. This is being done via the Custom indicators function that MetaTrader offers.
A bullish trend starts when the PLdots start to rise, and a bearish trend starts when the PLdots are starting to fall. It is not that simple to use it properly but look for confirmation based on other indicators as well.
The aim of this article was to introduce you to the Drummond Geometry principle, what it consists of and how to interpret it. Moving forward, in other articles we will continue adding more to this beautiful theory here on ForexGator.com.