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Fibonacci Ratios
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230-07-000026
Elliott Wave Theory
Glenn Neely
Introducing R.N. Elliott
• Expert business organiser
• Talented mathematician
Corrections
What is a Wave?
What is a Wave?
Waves are the result of imbalances in the
markets which occur between the number of
buy and sell orders for whatever reason.
1
4
2
Follow the Highest Degree
Degree – SPX Daily
Degree – SPX Weekly
Degree - Monthly
A Digression to Fractals
A Digression to Fractals
Waves Within Waves
A full 5 wave pattern contained within the
Wave 3 of a larger EW pattern.
5
33
5
4 4
1 1
2
2
Basic Elliott Theory
Chapter 2
Impulse Construction Rules:
146.57
Rule of 15%
359.27
Rule of 15%
13
2
3
1
8
5
Fibonacci Ratios in People
Fibonacci Relationships for Impulse
Patterns
3rd Wave Extension
Chapter 3
Rules of Logic:
Chapter 4
Corrections
First determine whether wave-b is shorter, longer or
the same as wave-a in the correction
Corrective Patterns
ZIG-ZAG TRIANGLE
FLAT
B B
A
C
A C
Trendline
2
0
Channeling
Wave 2
0
Channeling
Wave 2
Trendline
2
0
Channeling
Wave-4
1
5th wave failure target
4
0 2
Channeling
• To prove a 5th wave failure, the entire move
should be retraced faster than it took to form
1
5th wave failure target
4
0 2
Channeling
• When the 5th wave has completed, the 2-4 trendline
should be broken soon after
b
0
b-wave not exceeded
Channeling
• With Practice, you can learn to use channeling to
determine which wave of the Impulsion will be
extended
• The 5th wave will usually not touch the upper trend
line
3
1
5
4
2
Trendlines contracting
Channeling
3rd Wave Extension
3 5
1
4
2
Channeling
5th Wave Extension
5
3
2
Channeling
• Channeling can also be used for identifying
Corrections
Common
a c
b
Flat B-Failure,
b
possible Zig-Zag
b
b
a
c a
d
Triangle is complete
c
a
a-c trendline
Channeling
• You can use diagonal channels to try to validate
current Elliott Wave counts
Chapter 5
4
4 Elliott Wave Trade Setups
BEARISH BEARISH
Elliott Wave 5 Sell Elliott Wave 4 Sell
EW5 SELL EW4 SELL
BULLISH BULLISH
Elliott Wave 4 Buy Elliott Wave 5 Buy
EW4 BUY EW5 BUY
3
Timing the Wave 5 Sell
5
B
3 Entry
A
1
4
Target
2
San Diego
San Diego
San Diego
Displaced Moving Average
Crossover Rule
Chapter 6
The Butterfly
Consider the following
Option Chain:
How many 5-POINT call spreads?
2
What are they?
95/100 100/105
+
$1.60
– –
$0.75
+
Suppose we buy the 95/100?
Reward
0
Risk
= Long 95/100/105
Butterfly
95 100 105
Call Fly =Strikes
Put Fly
Target Price
• Already at Target - Sideways
Movement - ATM
B retraces 61.8% of A
B
A
C
C extends 100% of A
Ft. Myers
165% Return!
325% Return!
Zig-Zag Butterfly Entry Rules
Ideal if the Butterfly is placed 45 Days or Less to Expiration
Sell the Strike that corresponds with the Fib Extension Price
Target. Then Buy a Strike above and below the Strike sold to
complete the Butterfly.
Chapter 7
Strangles
Straddle Review
Profit without forecasting market
direction
Buy ATM Calls and buy ATM Puts with
the same expiration—creating a Delta
Neutral Spread.
The net result is a debit
127
Delta
Price Consolidation
Cheap Options
Up-coming News Event –
Earnings Report
133
Consolidation Patterns
135
136
137
138
139
Strangle Review
Profit without forecasting market
direction
Buy OTM Calls and buy OTM Puts with
the same expiration—creating a Delta
Neutral Spread.
The net result is a debit
Delta Curve
Straddle ATM
Delta Curve
Option Makes
Money Faster
Strangle
Profits Faster!
GOOG
Straddle
Strangle
GOOG
Straddle
5% Return
Strangle
19% Return
GOOG
Straddle
3.8% Return
Strangle
19.6%Return
GOOG
Straddle
11% Return
Strangle
38.25% Return!
FXI
Straddle
Strangle
FXI
Straddle
7% Return
Strangle
23% Return
FXI
Straddle
22% Return
Strangle
56% Return!
Strangle Entry Rules:
Enter with 45 to 60 Days to Expiration
Place each option with a Delta between 25 and 35. The Net Delta
should be between -5 and +5
Chapter 8
Pattern Implications
Double Zigzag
By Rob Roy