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The area of his work we are most interested in is the Fibonacci series,
In this series of numbers each term is the sum of the previous two terms.
That is, if we take 0 and add 1 to it we get 1, 1+1=2, 1+2=3, 2+3=5, etc.
1,
1,
2,
3,
5,
8,
13,
21,
34,
55,
89,
144, 233
..etc to infinity
What Filius found interesting was what happens when we divide one number
in the sequence into another number in the sequence.
The division of any two adjacent numbers gives the amazing Golden numbers
34 / 55 = 0.618
or inversely
55 /34 = 1.618.
A similar thing happens when you divide any one number into the number two
to the left and two to its right.
eg..34, 55, 89
34 / 89 = 0.382
These are Secondary Ratios
or inversely
89 /34 = 2.618.
You will see that after the eighth sequence that the numbers become consistent at
0.618, 1.618 and 0.382, 2.618
Primary Ratios
0.618
= Primary Retracement
1.618
= Primary Projection
0.886
1.13
1.27
= 1-0.618 or 0.6182
0.50
0.707
1.414
2.0
= 1+1
2.24
= square root of 5
2.618
3.14
= Pi
3.618
= 1 + 2.618
1.618 (2.618)
0.50
1.618 (2.24)
0.618
1.618
0.707
1.414
0.786
1.27
0.886
1.13
From these you can see that the smaller the price Retraces the higher it may
Extend.
It is also true that a 0.382 Retracement is likely to get to its 1.618 Extension in
a quicker time than a 0.886 Retracement will Extend to a 1.13 Projection.
But how do we know what Fib level will result in a Price Reversal
Warning..
Focussing on one indicator we can
mistakenly forget about the basics resulting in losses.
Remember that - Fib Retracement and Extension levels are Support and
Resistance levels. Using them on their own will leave you exposed.
For maximum affect Fibs MUST be used with other indicators;
Support and Resistance
Horizontal Support and Resistance lines,
Trend Lines,
Moving Averages (both SMA and EMA)
The Pink Bearish down lines and Green Bullish up lines, show only two
possible, of many different scenarios in price movement. The price can go
anywhere.
However it highlights the connection between ABCD swings and Support,
Resistance and Trendlines.
d
B b
Cc
a
On the AUD 60 minute chart you can see that the last up trend line was broken.
So we have drawn our down trend line and are now looking for trades on the short side.
You can see that we have identified 1 complete down price swing labeled ABCD in red
and have identified the A B in green of our second price swing.
We will use this green price swing to pull our Fib from B to A.
Now pull another fib from B to the highest high on this chart which was our A
to see if we can identify a fib convergence.
As we are aware of all the convergence points and for the sake of clarity will remove all
lines except the Fib pull from the green B to A
Zooming out again to use some support and resistance lines to confirm your thoughts.
The Fib convergence with the 50 / 618, a down trend line and an excellent level of
resistance it looks like 0.7681 is the price area we are most interested in
IF however, the down trend line is broken then we will wait for a re-test of the back side of
that trend line.....
We now have a decisive bearish candle (in relation to the indecisive candle).
Limit 1: 32 pips
Limit 2: 43 pips
We have pulled 3 sets of Fibs from the Blue 'B' high. You can see that we have a Fib
convergence with a 0.382, 0.50 and 0.786. This level is also a level of Support. Giving
us a potential 'C' (Blue 'C').
BUT as we have a Trend line break we then look at the potential down move,
so we will pull a Fib from the Blue 'C' low which we will now label red 'b' to the Blue 'B'
high which we will label red 'a'.
we will now wait to see if we get a reaction at one of the Fib levels......
You can now see we have a Shooting Star (4 pips from our 382).
It is also a previous level of resistance and also a perfect bounce off the backside of
the up trend line. We have a Backside of trend line bounce, a Fib 382, previous level of
Resistance, and a perfect Shooting Star, we now have our signal to go short.
Also note that we had Tweezer Tops at this level on the 30 minute chart.
7687
7654
Profit:
33 pips
7637
Profit:
50 pips
83 pips (in 2.5 hours)
Notice after the red 'a b c d' down move is completed, the AUD managed to find good
support at the outer up trend line and provided a strong rally.
Point to note, is that the rally was inspired by the release of the Australian Federal
Budget...... Isn't it interesting that Technical Analysis showed what the market would do
prior to the release of the Budget.
At this point you are aware that you can pull Fibs in any time frame
Within a single time frame you can apply Fibs in both directions
We covered..
How Ratios and Projections are defined
The relationship between Retracements and Extensions/Projections
The importance of using Support, Resistance and Trendlines to
support Fib information
Always using Candle Psychology to confirm Trade decisions
Look for Fibs within larger Fibs Large ABCD and smaller abcd to
determine probability of one Fib level over another and to determine
the strength of a possible price move
Using Harmonics to have advanced knowledge of a possible Trend
Reversal
Most important
NOT to take anything as given or absolute.
You are trading Probability (not Predictions) so you will get some
wrong. Accept it and precondition your self for it.
Thank you
www.acceleratingperformance.com.au