TradingDay.com - Day Trading - After Hours Trading Home   After Hours Trading
Enter Ticker
Symbol
Symbol
Lookup
 

Topics

Swing Trading

Bilateral Trade Setups

Exploring Market Physics

Pattern Cycles:
Declines
Reversals
Tops
Highs
Trends
Breakouts
Bottoms

Scanning Tips and Techniques

The Profitable Trader

Trading Execution Zone

Trading with Stage Analysis

20 Golden Rules for Traders

20 Rules for Effective Trade Execution

20 Rules to Stop Losing Money

Bottoms & Tops

Adam & Eve & Adam

Adam & Eve Tops

Hell's Triangle

Lowdown on Bottoms

The Big W

Corrections

Anticipating a Selloff

5 Wave Declines

Selling Declines

Surviving Bear Markets

Common Pitfalls of Selling Short

Indicators

Bollinger Bands Tactics

Five Fibonacci Tricks

Fun with Fibonacci

Moving Average Crossovers

Overbought/Oversold Overload

Time Trading

Voodoo Trading

Market Dynamics

Clear Air

Cutting Losses

Effective Market Timing

Exit Strategies

Greed and Fear

Measuring Reward:Risk

Pattern Failure

Playing Failed Failures

Breakouts

Breakout Trading

Catch The Dow and Elliott Waves

False Breakouts and Whipsaws

Morning Gap Strategies

The Gap Primer

Trend, Direction and Timing

Trend Waves

Triangle Trading

Day Trading

3-D Trade Execution

Bid-Ask

Pullback Day Trading

Tale of the Tape

Tape Reading

New Highs

Mastering The Momentum Trade

Momentum Cycles

Uncharted Territory

TradingDay Domain
for Sale




 
TradingDay.com > Technical Analysis Tutorial

T e c h n i c a l   A n a l y s i s   T u t o r i a l
by Alan Farley

Fun With Fibonacci

12th century monk Leonardo de Pisa, better known to his friends as Fibonacci, discovered a fascinating mathematics sequence that appears throughout nature. Beginning with a simple 1 + 1, the sum of the last two number sets that precede it creates another Fibonacci value:

1+1=2 1+2=3 2+3=5 3+5=8 5+8=13 8+13=21 13+21=34 21+34=55 etc, etc.

For reasons that remain unknown, major ratios drawn from these numbers describe a predictable interaction between trend and countertrend movement in markets. The most important ones to remember are 38%, 50% and 62%. Applying these percentages to trending price predicts the extent of retracement contrary to the underlying trend, as well as how far a new high or low will travel. For traders, these hidden points represent invisible support/resistance zones where prices will hesitate and/or reverse.

Fibonacci numbers closely relate to Elliott Wave theory. However, using them requires only a short primer in that arcane study. At the minimum, develop the basic understanding that primary trends travel in 5 waves (3 forward and 2 backward) while countertrends move in 3 waves (2 forward and 1 backward). That's all you need to easily manipulate Fibonacci price grids.

Grab some charts and a good charting program. All good technical analysis software has this Fibonacci function. For example, both SuperCharts and Real Tick allow custom entry of all major points. Lay Fib lines over the extremes of dynamic trends using the Fibonacci Grid. Or just take a calculator and measure swing action from intraday, daily or weekly quote listings.

Placed correctly, you'll notice that most markets swing off Fibonacci ratios as they move from support to resistance and back. Once you get the knack of it, you'll see that trends in all time frames have common elements and similar proportionality.

Trade decisions using Fibonacci retracement must include entry/exit analysis (risk:reward) with respect to key pivot points. Focus on getting into a market at major ratios while standing aside as price hovers between key zones. Most times, the smartest execution will be counter the most immediate short-term trend.

Hidden Support and Resistance: Fibonacci defines trend movement over broad time frames as well as very short ones. On this weekly chart of CPQ, note how the 38%, 50% and 62% retracement of the strong 1997 rally have defined the broad base under construction for almost two years.
Retracement science works in bear markets as well as bull markets. Major market plunges frequently recover 50% or 62% of the last selloff before continuing the decline.
 


Content provided by The Hard Right Edge




Enter Ticker
Symbol
Symbol
Lookup

TradingDay.com

Home   After Hours Trading   Rügen Ferienwohnungen  

Copyright © 2005 TradingDay.com All rights reserved.