Drummond Geometry: Envelopes and TerminationsIn Drummond Geometry, envelopes serve as dynamic zones of expected price action, and terminations mark key points where price either respects or challenges these levels. Let’s explore these concepts based on the chart provided and the behavior of Tesla stock.
1. Envelopes and Their Role
- Definition : Envelopes represent boundaries derived from price movement, predicting areas of support and resistance. The chart displays various DG lines and envelopes:
- The inner bands (the blue filled area limited by red lines) reflect the Envelope Top and Bottom
- The outer envelope also known as Area 1 for the below part and Area 6 for the above part (dark green zone) marks the exhaustion zone , where price typically meets resistance or support and reverses.
- Behavior on the Chart :
Notice how Tesla’s price action interacts with the envelopes:
- After a significant upward movement in early November, prices exceeded the upper exhaustion zone .
- Rather than reversing, the exhaustion zone acted as support , allowing price to consolidate and enabling the envelopes and PLdot to "catch up" to the higher price levels. This might seem unlogical, it appears however more often than not. The PLdot needs to catch up with the price action!
2. Terminations and Congestion
- Congestion Terminations (Blue dots/circles):
These occur where price closes near the DG line, indicating indecision or a pause in trend direction. In the chart:
- Blue terminations cluster around October 30 - November 6, showing congestion after which a sharp move up follows. This congestion allowed the price action to stabilize before resuming the trend.
- Breakout and Continuation :
When prices break above or below the envelope, terminations play a critical role:
- On November 11, the price could not break the exhaust zone for the Nov. 12, thus typically signaling exhaustion. The high of that day was rejected by the lower exhaust boundary of Nov. 12. Remember, you know the exhaust zone for the upcoming day with DG as these are always available for the bar ahead
- What followed was a "cycle". In DG this is explained as a market movement from one envelope to the opposite one. Price eventually went to the daily exhaust zone below, which was also the proxiity of the MTF live weekly ETOP finding support and rotating again higher.
3. Interaction of DG Lines (5-2 and 5-9)
The chart includes:
- 5-2 Lines (Yellow Circles and Crosses):
These lines reflect nearer-term support and resistance.
- 5-9 Lines (Red Circles and Crosses):
These represent stronger levels of potential support and resistance.
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4. Exhaustion Zone Acting as Support
The most notable observation from the chart is how the exhaustion zone flips its typical behavior:
- Expected Behavior :
Normally, when prices move into the exhaustion zone (upper envelope), resistance is expected, leading to a pullback.
- What Happened :
In this case:
- The exhaustion zone acted as support .
- The price stabilized above this level, allowing the PLdot and envelopes to "catch up."
- This "catch-up" mechanism reflects a realignment between market momentum and the statistical framework of the DG lines.
Takeaway for Traders
This chart demonstrates that while envelopes and terminations provide reliable zones for potential price reactions:
1. Context is Key: The exhaustion zone’s behavior can adapt, switching roles between resistance and support depending on market conditions.
2. Congestion Helps Trends : Congestion terminations (blue dots) can mark pauses that prepare for further trend continuation.
3. Flexibility of DG Lines : The interaction of 5-2 and 5-9 levels offers layered insight into market structure, helping traders refine entries and exits.
By combining envelope behavior, termination probabilities, and DG line interactions, traders can better anticipate price movements and manage risk effectively.
