The ZigZag Principle

Markets move in waves, using only 3 specific fractals.

My Diagonal Entry Model (DEM) evolves around what I like to call “the zigzag principle”. When you study supply and demand, the first thing you learn is the difference between balance and imbalance, and how imbalances lead price to the next area of balance. I never realised when I started, but when there are 10 buy orders and 10 sell orders in a single place, price can’t move. First when there are only 2 sell orders and 10 buy orders, price will move as the sudden increase in demand drives the price up by means of the bid/ask spread.

Therefore, advances are a result of a temporary imbalance between buyers and sellers, and these imbalances shift direction thousands of times per day. It is action, reaction, retest. Each advance depletes orders and ultimately meets a level where the imbalance ends and makes way for balance (equal amount of sellers and buyers). These moments of balance then result in a counter trend move that either fails or follows through.

DEM seeks to capture that counter trend move, and capitalise on that initial imbalance to take partials at the next immediate balance area, to negate risk, and then play for a reversal, a new trend, with the runners. You will learn that risk and position management are an integral part of the system, essential to compounding profits.

Key to Market Behaviour

We should all know that price action consists of fractals to which we can apply geometry and other complex mathematical magic. One example of geometry is using a diagonal with a FIB target.

Markets Move in Three Wave Patterns: ZigZags.

Fractals are a very complex business, and we’re not going to dive into their complexity. I only want to explain one simple elementary concept, as it will show you why and how the Diagonal Entry Model really works.

In effect, there is only one single fractal that repeats itself through price and time. Combinations of this fractal on different timeframes (size) combine it into different patterns, and this is what gives us the trend sequences and our diagonals.

To give you a better understanding of DEM, my Diagonal Entry Model, allow me to explain to you how I have reduced price action to just three variations of the same fractal, and how the entry diagonal forms after the ‘zig’, to allow us a risk inform entry to trade the ‘zag’.