Fibonacci Trading Videos
A retracement is a countertrend reaction that retraces a trend. An extension is an impulsive action that continues a trend. Therefore, a Fibonacci retracement is a retracement that fits a Fibonacci ratio and a Fibonacci extension is an extension that fits a Fibonacci ratio. Fibonacci retracements and extensions appear in much more than trading charts and have a strong following among analysts and high-level traders because of their prevalence and repetition in the marketplace. The famed market analyst R. N. Elliot went so far as to call the Fibonacci summation series of numbers and the numerical ratios it creates the secret of the universe. The four most common Fibonacci ratios for analysts and traders are 38.2 percent, 50 percent, 61.8 percent, and 100 percent. Here we will focus on Fibonacci retracements and extensions in height, not time. Fibonacci retracements are both a countertrend tool and a trend tool in that they give the trader a potential level for a market retracement to...
A Fibonacci retracement is tool used to measure the amount the market has retraced compared with overall market movement. Fibonacci retracements give you support and resistance areas along with general target prices. Fibonacci retracements commonly are drawn from the beginning of wave 1, the zero point, to the top or bottom of wave 2 to find a target for the beginning of wave 3. The default retracement percentages are 25, 38.2, 50, and 61.8 (see Figure 10-5).
Virtually any charting software will draw Fibonacci ratios for you. In this case we are interested in drawing Fibonacci retracement ratios. Retracement ratios are useful to identify profit targets when you believe the market will reverse direction. This can happen when a trend is coming to an end or when the market is stuck in a range. Fibonacci retracement ratios are drawn by connecting two price points. Usually an extreme low, known as a swing low, and an extreme high, known as a swing high, are connected using the Fibonacci ratio tool offered by your charting software. Fibonacci retracement ratios are automatically calculated between the swing high and swing low prices, once they have been selected. Figure 5.4 demonstrates a swing low and swing high price with Fibonacci retracement ratios drawn. Fibonacci ratio tools will typically draw three standard retracement ratios, which are 38.2 percent, 50 percent, and 61.8 percent. You can change them or add other ratios if you prefer. For...
T Gann Swing Chart must show an Uptrend (Solid Line). 2 Bar must close abQve HiLo Activator - Buy Stop by 2 ticks. RULE 1 Buy when bar closes above HiLo Activator. Buy Stop line by 2 ticks (program default). RULE Buy when Gann Swing Chart changes from Downtrend (Dashed Line) to Uptrend (Solid 1. Gann Swing Chart must show a Downtrend (Dashed Line). RULE 1. Sell when bar closes below HiLo Activator Sell Stop line by 2 ticks (program default). RULE 2. Sell when Gann Swing Chart changes from Uptrend (Solid Line) to Downtrend (Dashed 2. 38 retracement rule. Take profits on all contracts on any 38 retracement of the current Gann Swing. Do not wait for the 'close . Must be past the HiLo Activator before using this 38 retrace rule.
Units of PRICE are unique for each commodity. A one-inch price movement on a chart for Treasury Bonds may equal 64 points. However, for the S&P 500 Index, this same one-inch distance may equal 100 points. It is the number of points on the chart, not the actual chart distance, which defines a unit of price, for purposes of establishing Gann angles. By graphing Y units of price, moving in X units of time, Gann originated his Gann Angles. Gann Angles are written in the algebraic expression of PxT, where P equals units of price and T equals units of time. Gann Angles define price movements, by relating units of price to units of time. Each Gann Angle represents a relationship between price and time. The relationship between MANY Gann Angles, drawn from significant tops and bottoms, intersecting with each other and trading days, can not only determine WHEN prices will react, but AT WHAT PRICE that reaction will occur - a harmonious blend of price versus time. The basic ratio of Gann Angles...
The chart above illustrates an example of trading Fibonacci ratio levels from the Russell Emini futues (ER2) 610 tick chart. One of the effective method to trade Fibonacci levels is to trade pullbacks in the direction of its primary trend near the Fibonacci retracement levels. For the first swing at AB, trade reversal occurred at the 61.8 retracement level. A long trade is entered at C with a stop order placed below A. On the second swing at CD, a long trade is entered at the 61.8 retracement level. The swing retraced to E to 78.6 , but rallied back into DE swing. For the second trade, a stop order is placed at C. Targets are set at the top of swing highs at A, D, F and H.
Predicting the market using Gann angles requires subjective judgment and practice. Here is the procedure 2. Determine the high or low from which to draw the Gann lines. The most common way to accomplish this is to complement it with other forms of technical analysis, that is, Fibonacci levels or pivot points. Gann used what he called vibrations or price swings. He determined these by analyzing charts using such theories as Fibonacci numbers. The most common use for Gann angles when predicting the market is to indicate support and resistance levels. Many other trading methods use support and resistance lines, so what sets Gann's method apart from the rest Quite simply, predicting the market using Gann, angles adds a new dimension to support and resistance levels in that they can be diagonal. The optimal balance between time and price exists when prices move identically with time. This occurs when the Gann angle is at 45 degrees. In total, there are nine different Gann angles. When one...
The Fibonacci analysis gives ratios which play important role in the forecasting of market movements. This theory is named after Leonardo Fibonacci of Pisa, an Italian mathematician of the late twelfth and early thirteenth centuries He introduced an additive numerical series - Fibonacci sequence.
Geometric analysis is the interpretation oflines on charts, ranging from a single line segment to a Gann square with intersecting angles 18 . Horizontal lines are drawn at support and resistance levels double bottoms and double tops, and triple bottoms and triple tops. Lines also enclose patterns such as rectangles and triangles. Much has been written about these chart patterns 2, 11, 15, 25, 26 . Here, we present a simple but effective daily and intraday trading system based on a unique definition of a rectangle. Further, we explore variations of other geometric patterns, e.g., the encapsulated triangle.
Volume and Open Interest is absolutely necessary. These need to be monitored constantly. Ganntrader can display total volume total open interest or contract volume and contract open interest depending on the type of data loaded. Not all futures contracts contain both total and contract volume and open interest. Stocks will only have total volume. Select Volume and Open Interest under the View menu.
With Ganntrader set the type of daily trading chart by clicking the type of trading day you desire. You can plot a regular 5 Trading Day Chart, a 6 Trading Day Chart, a 7 Day Chart or a 5 Day Chart. If you take out the weekend, then you must also take out holidays to be consistent. Ganntrader does allow you to do this. Look at figure 2. On the second row of buttons there is Holidays, which allows for the entry of those future holidays that fall on a weekday. When printing a trading day chart these days will not be printed in the extra blank grid lines at the end of the chart. It only affects trading day charts and only those holidays that occur on Monday through Friday that might otherwise be printed in the extra blank grids at the end of the chart.
Currencies rarely spend much time in tight trading ranges and have the tendency to develop strong trends. Over 80 of volume is speculative in nature as a result, the market frequently overshoots and then corrects itself A technically trained trader can easily identify new trends and breakouts, which provide multiple opportunities to enter and exit positions. Charts and indicators are used by all professional FX market traders and candle charts are available on most charting packages In addition, the most commonly used indicators such as Fibonacci Retracements. Stochastics, MACD. Moving Averages. RSI and support resistance levels have proven valid in many instances. In the NZD USD chart below, it is clear that Fibonacci Retracements. Moving Averages and Stochastics have at one point or another given successful trading signals For example, the 62 retracement level has served as support for the NZD USD from the beginning of September 2002 to the end of September 2002
As a trader you need to know that what you see on your computer screen is the same thing you see on your charts. There are very few trading programs that allow you to do this. In the Ganntrader, for the most part, the program operates on a What You See is What You Get basis meaning if it is on the screen it will print on the printer. A few exceptions follow
Analysts, investors, and traders often ask how to determine where a trend comes to an end. The Fibonacci trading tools and the candlestick patterns provide two significant ways to answer this question. Chart patterns are a third method for analyzing trends. We try to integrate Fibonacci trading tools, candlestick patterns, and chart patterns because, as mentioned, they are all based on the most important element that moves the markets investor behavior.
Technical analysis is a very popular tool for short-term to medium-term traders. It works especially well in the currency markets because short-term currency price fluctuations are primarily driven by human emotions or market perceptions. The primary tool in technical analysis is charts. Charts are used to identify trends and patterns in order to find profit opportunities. The most basic concept of technical analysis is that markets have a tendency to trend. Being able to identify trends in their earliest stage of development is the key to technical analysis. Technical analysis integrates price action and momentum to construct a pictorial representation of past currency price action to predict future performance. Technical analysis tools such as Fibonacci retracement levels, moving averages, oscillators, candlestick charts, and Bollinger bands provide further information on the value of emotional extremes of buyers and sellers to direct traders to levels where greed and fear are the...
For one to make money in the markets, it's usually best to trade with the main trend of the market. In the Ganntrader using the SW and MT Swing Charts this is easy to do. You should follow the main trend of the market first using the MT Swing Chart. If the MT Swing Chart is down, then wait for the market to reverse (make a higher high) on the swing. Then use the SW Swing Chart to go long with when it reverses and makes a higher high when it is in a downtrend. If you look at the following chart of Apple Computer you will notice that both the MT and SW Swing charts both went long on 4 24 99 and the market took off.
If you want to enter to Buy (go long) once the market hits a predetermined price that is BELOW the current market price then you do so with a Buy-Limit order. (used if you believe that if the market moves down to that price that it'll bounce back up - example uses within-range trading buying at the 62 Fibonacci retracement) 4. If you want to enter to Sell (go short) once the market hits a predetermined price that is ABOVE the current market price then you do so with a Sell-Limit order. (used if you believe that if the market moves up to that price that it'll bounce back down - example uses within-range trading buying at the 62 Fibonacci retracement)
In the Ganntrader you can move the cursor to other points and hit or to start angles from those points. The program will carry the current angle sets to the new marked points. Notice that hitting its function key can include any angle. If you hit the key again the angle toggles back off. If you have a cluster of angles and you want to remove all but one you can hit the appropriate function key in combination with the key to quickly remove all but that particular angle. You will find that this exclusive mode using the key is used by other modes of the program as well.
The next chart of 3Com is another example of a stock that sold off sharply after almost exactly hitting a Fibonacci retracement. 3Com experienced significant resistance at the .786. When a stock does not rally through a major Fibonacci retracement, as this example of 3Com demonstrates, this should indicate substantial resistance in this area. The stock moved sideways for over a month without even challenging the reversal high. Even if you were still in the stock, the major decline that occurred in the beginning of February 1999 would have confirmed that the new downtrend was in place. In summary, the .786 is a very significant Fibonacci retracement. When a stock is declining, it is a critical area for support before retesting the initial bottom. When a stock is rallying and attempting to retest a recent high, the retracement can act as significant resistance. The key to gauging the .786 as a potential reversal point is to study the price action at the .786 number and assess the...
The last section of the trading journal is the range group. The first indicator is once again ADX, but this time, we are looking for ADX below 25, which would suggest that the currency pair's trend is weak. Next, we look at the traditional oscillators, the Relative Strength Index (RSI), and stochastics. If the ADX is weak and there is significant technical resistance above, provided by indicators such as moving averages or Fibonacci retracement levels, and RSI and or stochastics are at overbought or oversold levels, we identify an environment that is highly conducive to range trading.
To be successful a trader must set the 1x1 angle properly. In the Ganntrader when a file is first loaded the 1x1 angle is set to the chart's scale. The main reason for this is so the inexperienced user will see something reasonable on the screen when angles are selected. Earlier Ganntraders set the 1x1 to 1 as the default value. This value was fine for grains and most stocks but worthless on the DJIA because of its high price. As you gain experience you will most likely want to set the 1x1's value to something other than the default setting. Select Setup 1X1 Angle to enter your own value.
Gann used labels and markers all over his charts. In the Ganntrader you can use Sizes, Labels & Markers under the Option menu that serves several functions. In addition to activating dimension lines the option also displays a dialog box as you 'Move To' each selected angle origin point. The box indicates the price and date of the marked point as well as its active angles. Hit any key and the box will be cleared off the screen.
Every new system is the Aladdin's lamp that you will rub and rub away in the hope that cash will start flowing like a river into your bank account. You will chase the market, pick tops and bottoms, and draw channels, trendlines, and Fibonacci retracements until price can't be distinguished any more on your charts.
Gann used paper charts and therefore a clear plastic overlay square. He could move it all around the chart in a temporary fashion. The Ganntrader allows you also to have a temporary square which you can make permanent. Notice these natural squares appear under the View menu as Temporary Squares. If you put up a different square the previous square is erased first. They were designed to allow quick tests of the squares. If you would like to make a Temporary Square a permanent entry under the View menu precede the natural Square's number with the letter . For example, P9 would make the square of 90 an entry in the View menu. You could then move to another point and start another temporary square or another permanent square.
Peter Temple would specifically like to thank Jeremy du Plessis of Updata (and formerly of Indexia). Jeremy has been a longstanding business contact and friend, and has contributed substantially to his knowledge of technical analysis and provided some important pointers to Peter's contributions to this book. The same goes for Synergy Software's Mitchell Brooks, and Bruce Waugh, a leading UK technical analyst, who first sparked Peter's interest in investment software some 10 years or more ago. Andy Pancholi of Cycles Analysis helped set up the interview with Peter Pich of Ganntrader and provided some useful pointers in that particular chapter.
The ascending triangle is a variation of the symmetrical triangle Ascending triangles are generally considered bullish
There are many different forms of support and resistance, i.e. historical highs and lows, price moving averages, Fibonacci retracements etc. Those are all technical forms of support and resistance. There is another very important form of support and resistance - the support resistance thru whole numbers in the stock price, i.e. 0.5, 1, 5, 10 etc. This form of support resistance is of psychological nature. Image you are buying a stock at 55 and it is going to almost 100 wouldn't you be very inclined to take some of your profits there
Gann many times modified his squares. Some of his charts were drawn all over with many angles and timing squares. The Ganntrader allows you to modify squares without messing up your charts. You can add or remove angles or price and time lines at any time after a square is setup. As usual you need to 'Move To' the origin of the square before changes can be made. You can use the backslash key or the Tool Bar icon. Once you are on the origin point the function keys are used in the usual manner. Since you can have more than one square set up from the same origin point use the Options Sizes, Labels & Markers to help identify the square you want to modify.
Division of the range can be used to project future price points. Gann used this all the time. You can easily do it in the Ganntrader. You have probably noticed by now that 1 2 of a range is often a point of strong price support and resistance. By locating price clustering and setting the cluster level as 1 2 of the range the top half of the range can be assumed to follow the lower half. Here is an example
Another way to project future price points is by using the 7 Times the Base feature. It is activated under the Options menu in the Ganntrader. When active the program assumes that the range between the two marked points is 1 8 of the final range. The initial range is multiplied by 7 and that value is then added to the initial range so that it becomes the first 1 8 of the whole range. Here's an example
To avoid paralysis by analysis, traders should ideally master a handful of chart elements and become an expert on how price reacts to these elements. For example, a trader may study in-depth how a certain currency pair reacts over time in relation to the outer bands of the popular Bollinger Bands indicator. Or another trader may wish to become an expert on price behavior around the key Fibonacci retracement levels. Yet another trader may choose to work exclusively with trendlines, trading bounces and breakouts of these dynamic support resistance levels. There is virtually no end to how a technical analyst may specialize to become a master of one (or a few), rather than an unfocused Jack of all Trades.
The time between two points can also be squared. Here the time between a high and a lower high is squared by the following procedure in the Ganntrader As you know, most of the current crop of software trading programs will not make squares on your chart or keep your chart square all the time. That's what really sets the Ganntrader apart from these other run-of-the-mill programs. Ganntrader is truly a professional trading and research program for serious Gann students.
The following candlestick chart patterns occur frequently and combine well with Fibonacci trading tools. Our goal is to be practice-oriented to show what works, is easy to understand, and is useful for all traders. The few candlestick patterns we show here represent probably 80 percent of all valid patterns in real-time everyday trading and can be easily integrated with other strategies.
After six years we continue to be visited by confused traders who desire to predict the market Here is a typical
How can one tell how the market is going to move Fundamentals often turn out to be media hype or stale data. Prices fluctuate due to underlying economic activities that we only learn about in hindsight. I have lost all faith in buy-and-hold strategies, Gann lines, Stochastics, and the rest of the nonsense pontificated by the pundits. I know you guys talk about money management, and I agree it's vital. In short, what are there about trends that is even remotely predictable There are so many variables, most of them hidden. Brokers who spend all day staring at computer screens, talking to companies, researching technical and fundamental data appear to have talent only in separating you from your money and building up their personal portfolio with commissions. If the Turtle program works, it's because it can predict the trend. Sure, the trend is your friend until the end, but how do you find a good trend to ride
The large market swings in the DJ EuroStoxx 50 Index mean they work very well for analysis with candlestick charts. With smaller market swings, candlesticks do not work as well. The same holds true for Fibonacci analysis. Candlesticks and Fibonacci corrections have much in common. In both strategies, the core principle is a focus on investor behavior.
A short-term trader will set targets at nearer-term levels, such as pivot points, Fibonacci retracements, trendlines, or other technical zones. Stop losses will be calculated to get out immediately if the position is not performing. Exit strategies will be devised by taking account of short-term technical studies or fundamental events.
3) Gann Angles have proven to be market sensitive. A lxl Gann Angle, for instance, will not intersect prices at the same level for all chart scales. However, the relationship between the 45-degree Gann geometric angle, being used as a stop-loss line, and the Retracement Zone angles will be the same.
Of the 7 Gann levels listed in Table 2, the 50 , 62-1 2 and 100 levels are the most significant, and correspond to GEOMETRIC angles of 45 degrees, 63 degrees, and 90 degrees. These are the ones that will be used for determining Gann's 50 Retracement Zone. While the concept of using Gann Angles balances price and time, the geometric angles of 26, 45 and 63 degrees will be used to determine price-only movements. If Gann used these three angles, imd met with success, then there must be an inter-relationship between these angles, independent of a chart's price and time scale.
In order to let profits run, S5 is drawn from a minor low or high reaction point. This will be a point from which prices will trend into the Retracement Zone. Such a point is on 11 4, at a low of 5633 (a minor Gann Pivot Point). The Gann angle for S5 will be determined by using a protractor. This angle will usually be 63 or 75 degrees. In a slow market, it may be 45 degrees and in a fast market, 82 degrees. S5 should not be too tight for the specific price range. Prices need room to move. In Chart 18, S5 is 63 degrees from 5633 on 11 4.
It is a stronger trade when prices fail at key resistance or hold key support levels (use Fibonacci retracement points and moving averages). Indicators Stochastics, MACD, RSI, Bollinger bands, options, Fibonacci retracement levels. Indicators Options, Bollinger bonds, stochastics, MACD, RSI, Fibonacci retracement levels.
In the last few chapters, I've covered using Fibonacci analysis on the time axis of the market using Fibonacci time cycles, which can be found in quite a few market analysis programs, along with the more automated reports that can be projected using the Dynamic Trader software. However, while many charting packages do allow you to project these time cycles from two points, there are only a few that will allow you to run the time projections from three points. The automated time histogram reports that I have discussed in this chapter are only available within the Dynamic Trader program.
We now focus our analysis on sets of daily charts of the Japanese Yen cash currency and the S&P 500 Index. As mentioned, we have selected these products for their public interest, volatility, and liquidity and because they especially represent investors' behavior, which is the underlying maxim of Fibonacci analysis. In principle, of course, PHI-ellipses can be applied to every product traded.
Instead, the more effective trading strategy is to actually take a position in the direction of the trend. In the AUD USD example, this would have involved looking for opportunities to buy on dips. Figure 8.2 is an hourly chart with Fibonacci retracements drawn from the February 2004 all-time high and the low of June 17, 2004. Rather than looking for opportunities to sell, we use the 76 percent Fibonacci retracement level as key support zones to go long the Australian dollar. The horizontal line in Figure 8.2 represents the Fibonacci retracement level. What we did therefore was use the daily charts to get a gauge of the overall trend and then used the hourly charts to pinpoint entry levels. Taking a look al the hourly chart for the GBP USD, we want to look for opportunities to buy on dips rather than sell on rallies. Figure 8.4 shows two Fibonacci retracement levels drawn from the September 2004 and December 2004 bull wave. Those levels held pretty well on retracements between...
Using Fibonacci Extension Ratios The advantage of Fibonacci extension ratios is their correlation to retracement ratios. During a trend, the market often retraces its steps after making a new high or new low. This retracement often stops along well-known retracement ratios such as 38.2 percent or 61.8 percent, as shown in Figure 5.6. During the USD JPY downtrend, the market retraced its steps three times before making a new low all three times. When a trade entry using any method in this book happens to correspond with a Fibonacci retracement ratio, an opportunity exists to use extension ratios as a profit target. To identify the You also learned how common techniques such as moving your stop to breakeven or scaling out of a profitable position can actually hurt your trading performance over the long run. This chapter taught you three systematic techniques for identifying profit targets and managing profit. Fibonacci retracement ratios provide effective profit targets during a ranging...
This chapter highlights the many benefits that leading price indicators like Fibonacci price extensions, projections, and retracement analysis can offer you. Fibonacci analysis is popular yet some believe it is a complex study. Most traders are familiar with the common correction numbers 38 percent, 50 percent, and 0.618 percent levels. However, there is a lot more to Fibonacci than just these ratios and how to use them. This chapter is designed to give you a good understanding of how to use this technical tool as it applies with other measuring techniques, such as Elliott wave theory, which we will cover shortly, and how to incorporate Fibonacci price levels using pivot point analysis. In addition, the CD (compact disk) that comes with this book includes a Fibonacci calculator and a pivot point calculator so that you can develop your own trading plan based on these studies without having to purchase extra software. Or perhaps these calculators will help support the software you...
The original of this next chart has been reproduced in several books about Gann's methods. On Gann's original chart the astroglyphs for both planets are clearly visible. The deciphering of it was critical in the development of the planetary portion of the Ganntrader program. Here the actual positions of Jupiter and Mars are shown. At the point the two lines cross is what is called a conjunction.
Take Fibonacci retracements and projections from a number of different lows or highs to find a level where 2 or more retracements projections are at the same level. This will give a level with a strong possibility of a turning point. For example, a Fibonacci convergence is where a 38.2 off one high and 50 off another and a 61.8 off another, converging on the same area of the chart. A Fibonacci extension can converge with a Fibonacci retracement creating a bounce. For example, a Fibonacci convergence is where a 38.2 off one high and 50 off another and a 61.8 off another, converging on the same area of the chart. A Fibonacci extension can converge with a Fibonacci retracement creating a bounce. Two Fibonacci retracements have been drawn on the chart above from two different low points. Three cluster points are drawn
Other popular short-term day trading methods for determining support and resistance include pivot points, Fibonacci retracements, and trendlines. Day traders will use the levels derived from these studies to identify either breakouts of the lines or bounces off the lines. All of these techniques will be discussed in more detail further on in this chapter.
The Three Hills and A Mountain is rare, but a very reliable pattern. This pattern is similar to the 3-Drives (Bearish) pattern. However, the Three Hills pattern is not of equal magnitude hills, and consists of another reversal trade in the original trend direction. The pattern also has a close relation to Elliott wave theory. The pattern supports Fibonacci retracement and extension concepts for key support and resistance areas. This pattern has two trade setups one short and one long.
In presenting Fibonacci Trading tools, candlesticks, and chart price patterns, we concentrate on the ones that have a high analytical value and can be combined with each other. Our goal is to avoid information overflow, while providing adequate detail, because all of the strategies can be important in different market situations.
The vision of applying technical analysis is readily seen in the software packages wide range of different drawing tools. Some of the drawing tools are relatively commonplace the cross hair, line and multi-line tools, for example, as well as more esoteric tools used to draw Fibonacci retracements, arc and time zones.
An understanding of the geometry of price and time, plus practical Fibonacci and Gann techniques, can help you set profit targets before you enter a trade. These targets have the benefit of being self adaptive they're based on recent market activity and not just an arbitrary number which may have no bearing on what the market is willing to give you at this point in time. Most of us are familiar with the use of Fibonacci retracements to find support or resistance areas prior to entering a trade. Figure 6.4 shows the 15-minute GBP chart that demonstrates this principle. Figure 6.4. GBP chart with Fibonacci Retracement Figure 6.4. GBP chart with Fibonacci Retracement We call these 'Fibonacci Extensions . An extension is a retracement which is larger than the swing being measured. Commonly used Fibonacci retracement values such as .618 and .786 are great for measuring support and resistance when you're looking at pullbacks. A retracement, since it is a fraction of a prior swing, must by...
Most often you'll see the market retrace into the middle section called the Mid Yellow Zone. This is quite typical and a great zone to enter a trade within (if you can) because your stop loss will typically be below the 100 retracement level (so feel free to decrease your stop if you want at the start of the trade) and you'll often score many of the pips that the market retraced (potentially catch them twice). Your key Fibonacci retracement levels are contained within this zone (the 38 , 50 & 62 ). When the market retraces to within this zone (and you get a good reversal for an extension to enter onto) then you are generally pretty happy. Using standard traffic light mentality. you're yellow to step on it (think about what you actually do (not what you're supposed to do) when you are driving. When the light is green you keep driving, but when the light turns yellow you step on the gas.) Standard Fibonacci trading methodology dictates that when you enter a trade (say getting on around...
The signal remains intact until either a major Logical Profit Objective (to be defined later) is achieved (point 'M' on the chart), or until the .618 retracement '*' from the furthermost extreme of the consolidation area (after the second penetration) to the furthermost extreme on the thrust, has been exceeded on close. When we get into Fibonacci analysis, the last sentence will be easier to understand. In terms to be defined later, you create a resistance series and look for the '*' retracement level to be exceeded on close. I'd like to say this is a lay down but of course nothing is in trading. This trade is designed to book you some nice comfortable profits with little risk. Unfortunately, it requires a good understanding of advanced Fibonacci Retracement Analysis to implement, so you will need to reread this after D-Levels are covered. Some of the terms, of necessity, must be broad. 3. Once the trade is entered, set your stop loss beyond a deeper Fibonacci retracement level, and...
To summarize our findings on PHI-ellipses as Fibonacci trading tools, we reconsider the reliability of PHI-ellipses in the various fields in which they can be applied to chart analysis. PHI-ellipses as investment devices are special because they make chart patterns visible. When working with PHI-ellipses, investors always know what to look for in the markets no matter how confusing daily, weekly, or monthly It boosts our confidence if other Fibonacci trading tools confirm trend reversals derived from PHI-ellipses. These confirmations come either from price analysis based on corrections and extension or time We do not believe that the entire spectrum of system design and the development of trading strategies founded on PHI-ellipses can ever be fully automated and computerized. The dynamics of PHI-ellipses and the three dimensions of price, time, and angle would surely be too problematic for programmers. But there is no need for fully computerized trading signals. PHI-ellipses in...
The use of Fibonacci retracement tools will help you in calculating a buy or sell price and in determining the currency pair's retracement potential. I strongly advise you to look at the currency pair's trend history to determine what the retracement percentage usually is.
As discussed in Chapter 3 on technical analysis tools, the mathematical theory now generally known as Fibonacci Theory is widely considered to have originated from a 13th century Italian mathematician appropriately named, Leonardo Fibonacci. He calculated a sequence of numbers that led to the discovery of the Golden Ratio, 1.618, which is a proportion that advocates say can be found in nature, science, music, and even financial markets. Derived from this ratio and its inverse of 0.618 are the Fibonacci percentages commonly used in technical analysis today. There are several modern charting tools based on these percentages that have been created expressly for analyzing price charts, of which the most popular is the standard Fibonacci retracement tool. The most common Fibonacci retracement percentages, as shown in Exhibit 5.10, include 23.6 , 38.2 , 50 , and 61.8 . Of these, the latter three are perhaps the most closely followed by traders and
Source The New Fibonacci Trader Workbook, by Robert Fischer (New York Wiley, 2001), p. 20. Source The New Fibonacci Trader Workbook, by Robert Fischer (New York Wiley, 2001), p. 20. Figure 3.1 Fibonacci numbers found in the flowers of the sneezewort. Source The New Fibonacci Trader Workbook, by Robert Fischer (New York Wiley, 2001), p. 4. Figure 3.4 Parthenon temple in Athens. Source The New Fibonacci Trader Workbook, by Robert Fischer (New York Wiley, 2001), p. 7. Figure 3.4 Parthenon temple in Athens. Source The New Fibonacci Trader Workbook, by Robert Fischer (New York Wiley, 2001), p. 7.
Do 38.2 percent and 50.0 percent Fibonacci correction levels require different rules from the ones described thus far in this chapter This question is important because nothing is more frustrating for a trader than to wait for the Fibonacci retracement level 61.8 percent, and then shortly before it is reached, to have the market turn with no trade done. A strong rally is followed by a price correction to the first Fibonacci retracement level of 38.2 percent. At this point when almost all information services, market letters, and media representatives call for new lows the trader must decide whether to wait for the 61.8 percent retracement level or to risk executing a long trade in the Dax 30. A similar simulation can be conducted for the 50.0 percent retracement level, which is also well recognized by traders. For traders who plan to keep stocks longer in a portfolio, this is a decent correction level, especially because it is reached much more often than the conservative 61.8 percent...
Trading signals based on Fibonacci corrections become more valid as more tools confirm a turning point in the market. All Fibonacci trading tools are devices for reflecting investor behavior. That is why it is easy to combine them. The three main Fibonacci retracements 38.2 percent, 50.0 percent, and 61.8 percent are nothing more than the converted Fibonacci ratios 0.618, 1.000, and 1.618. When looking for trend changes, we can combine the calculations if the necessary swing sizes exist (see Figure 6.10).
The Square of 9, discussed in a previous section, is another example of a non-linear expansion. With the Square of 9 expansion the initial price was expanded by taking its square root, adding 2 for a 3600 move and squaring the results. For example a price of 25 could be expanded by 3600 as follows '425 5, (5 + 2)2 49, a 3600 move on the Gann Square of 9. Any other degree move can be had by using a number other than 2. Adding 1 for example would yield a 180 move.
The great diversity of opinions and techniques used translates directly into price diversity. Traders, however, have a tendency to use a limited variety of technical tools. The most common are 9- and 14-day RSI, obvious trend lines and support levels, Fibonacci retracement, MACD, and 9-, 20- and 40-day exponential moving averages. The closer you get to what most traders are looking at, the more precise your estimations will be. The reason for this is simple arithmetic Larger numbers of buyers than sellers at a certain price will move the market up from that price and vice versa.
When you are setting your Fibonacci retracement levels, you base your levels on the previous trend. When you are setting your Fibonacci projection levels, you base your levels on the previous retracement. USD JPY, indicating Fibonacci retracement levels and projection levels USD JPY, indicating Fibonacci retracement levels and projection levels
There are a number of other exit types not used in tbe standard exit strategy trailing exits, critical threshold exits, volatility exits, and signal exits. A trailing exit, usually implemented with a stop order and, therefore, often called a trailing stop, may be employed when the market is moving in favor of the trade. This stop is moved up, or down, along with the market to lock in some of the paper profits in the event that the market changes direction. If the market turns against the trade, the trailing stop is hit and the trade is closed out with a proportion of the profit intact. A critical threshold exit terminates the trade when the market approaches or crosses a theoretical barrier (e.g., a trendline, a support or resistance level, a Fibonacci retracement, or a Gann line), beyond which a change in the interpretation of current market action is required. Critical threshold exits may be implemented using stop or limit orders depending on whether the trade is long or short and...
How is the placement of a trailing stop determined Many of the same principles discussed with regard to money management exits and stops also apply to trailing exits and stops. The stop can be set to trail, by a fixed dollar amount, the highest (or lowest, if short) market price achieved during the trade. The stop can be based on a volatility-scaled deviation. A moving threshold or barrier, such as a trend or Gann line, can be used if there is one present in a region close enough to the current market action. Fixed barriers, like support resistance levels, can also be used The stop would be jumped from barrier to harrier as the market moves in the trade's favor, always keeping the stop comfortably trailing the market action.
Believe it or not, some trading programs do not have all the Fibonacci retracement levels and extensions. The MTI 4.0 trading software has the Fibonacci tool that becomes critical in analyzing your trade. As you use the Fibonacci trading tool in your trading software, always start by connecting the A to the B to find the retracement and extension ratio numbers. The settings in your software will automatically find the retracement and extension levels for you. In an uptrend, use your Fibonacci tool to connect point A and point B and find the retracement levels of support and the extension levels of resistance, as seen in Figure 8-11 and 8-12. In a downtrend, use your Fibonacci tools to connect point A and point B to find your retracement levels of resistance, as well as your extension levels of support, as seen in Figures 8-13 and 8-14. When we discussed trend lines, I pointed out that the market moves at different speeds, forming inner and outer trend lines, just like cars move at...
Only a cursory look is needed at the daily charts, but sometimes overnight moves will have created significant developments (broken trcndlines. Fibonacci retracements, etc.) that will he missed if your attention is squarely focused on the short-term charts. The following steps should be taken to get a proper feel for the market
The notion of more is better isn't always true. You can have a complex mess of indicators & lines on your charts (i.e. having Stochastics, Bollinger Bands, MACD, S.E.X. Lines, Fibonacci, Gann Lines, Pivots, fanned trendlines, some MAs, RSI, and a handful of other stuff), but doing so will most likely lead you to total and complete confusion rather than clarity (as each individual indicator or line aims to provide). Over analysis can lead to paralysis the incapacity to trade. I often say just because you can do something doesn't mean you should do it , and applying a barrage of technical analysis tools is one of those things that you would be best to avoid.
Two Fibonacci retracements have been drawn on the chart above from two different on low points. Two cluster points are drawn where the 61.8 and 32.8 retracements coincide and the 61.8 and 100 coincide. But note the second cluster is also a Double Bottom pattern and a descending wedge with a bullish engulfing candle. This is also a good example of how these patterns etc work well on any timeframe as this example is on the 4 hr chart. It also stresses the point why you must look at all timeframes. This chart above illustrates so many other examples. Look at the top where a Double Top has given a reversal pattern indicating the up trend is over and retracement is about to take pace. This methodology we use in the CI System is so powerful compared to other mechanical strategies as we look at many factors and the more we get, the more powerful the resultant move is. Each time the EURUSD has sopped, reversed or consolidated there has been a good reason for this, ie a fibonacci retracement,...
If you purchase the Ganntrader 3.0 software, your use of the program constitutes your acceptance of the following terms and conditions. You will be granted a non-exclusive license to use the software entitled Ganntrader 3.0, subject to your compliance with the following You will receive a software disk that enables you to make two installation copies of the software as long as only one copy is used at a time. You may transfer the Software to another party provided that all copies of the Software are removed from your computer. The new user may apply for the rights under this agreement by paying a 495 license transfer fee. The original disk with 2 installations in place should be returned to Gannsoft Publishing Company. Upon receipt of the transfer fee and verification that all installations were removed the new party will receive the current version of the Ganntrader 3.0 by return mail and be granted all rights and privileges under this agreement. You the purchaser understand the risk...
On the 30 minute, 1 hour and 2 hour charts I keep the exact same indicators, with the same settings. The 4 hour chart I have a 25 period simple moving average line instead of the 3 15 cross, and a DPO set to 16 and the DMI with default settings. On the daily chart I just have the 50, 100, and 200 MAs. If I take a signal on the 30 minute chart, I take it with the exact same indicators and same rules you have learned with the 1 hour chart, however I only take signals on the 30 minute time frame when I have a very strong confirmation that the market is switching directions, and I want to get an earlier entry point than the 1 hour system will give. If you take all the signals on the 30 minute chart the same as you do with the 1 hour chart you will have a lot more losses, so this is why I only use the 30 minute chart when there are very strong confirmations for the trade. Examples of this would be if the market has already crossed a significant trendline, and it is clear that the market...
FIBONACCI TRADER le) RoCwt Kr uM - E nc o Jiat on - Pat*nt for FIBONACCI TRADER le) RoCwt Kr uM - E nc o Jiat on - Pat*nt for FIBONACCI TRADER (c) Robert Kisuw - Encap*uiaOan P*tant apptwd tot FIBONACCI TRADER (c) Robert Kisuw - Encap*uiaOan P*tant apptwd tot ADVANCED CHART 5 GANN SWING COMPOSITE CHART Let's zoom in on the Wheat Chart 6. Where and how could we have taken action You can see that I have numbered the Weekly boxes (Encapsulation ). Each box represents one week's trading. Not only do you have the Weekly and Daily Gann Swings but also the Daily and Weekly HiLo Activator.
On Bar 2 the Slope changes to up, BUT because we need TWO CONSECUTIVE Higher highs ONLY the Slope is changing and not the Swing. This line is drawn thinner than the Swing line. In the Fibonacci Trader program it is plotted as a thin white line. Also note that because it is not yet a proper swing in the opposite direction, this thin white line is plotted to Bar 2's close (and not to the bar's high, if that only happens on a proper swing in the opposite direction). When this occurs, I call it Neutral . You will soon see the reason why. I could have shown you hundreds of Multiple Time Frame applications. The purpose of this Advanced section was to introduce you to the concept and the real potential of Gann Swing trading using 2 time periods. If it started your creative juices flowing, then the effort was well worth it.
I am going to give you an over view to Fibonacci retracement levels to be use in conjunction with the Codex Trading System. I will then give you a complete example of how you should proceed with the system as a whole, with lots of chart example. Most people say a picture is worth a 1000 words, for me its worth about 6000.
The mathematical equations of Gann are not complex. They result in lines of support and resistance which prices invariably will follow. The intersection of these lines of force, called Gann Lines (See Gann Angles - Price versus Time ) can pinpoint when a price reaction will occur, while others will reflect at what level price reactions will occur. Letters P, J, I and M appear above or below some price bars in Chart 1 and others in this book. These letters indicate Primary, Major, Intermediate and Minor Gann Pivot Points, generated by the software. These Gann pivots are included on some charts only as an easy reference to designate certain days. They are not needed for plotting Gann's 50 Retracement Zones. (See Appendix D for a further explanation of Gann Pivot Points.) Computerized positive and negative lxl, 2x1, and 4x1 Gann Lines have been drawn on Chart 1. The negative Gann Lines appear in parentheses. Chart 2 is the same chart as Chart 1. 1 5 89 (the Primary - P - Gann Pivot Point...
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The first point to locate is PI, a significant high or low from which prices will be moving. On the Deutschemark chart, prices are dropping from such a significant high of 6247 on 4 18, an Intermediate Gann Pivot Point day. The second point to determine is P2. This is a reaction point from which prices will change direction from the previous trend, and move towards the 50 Retracement Zone. For instance, if prices were falling from PI, they should now be rising from P2, toward the anticipated 50 Retracement Zone. P2 on Chart 16 is the low at 5292 on 8 10 (a Primary Gann Pivot Point day).
You can square a range in the Ganntrader using the mouse. This is an important task to do by any serious trader of Gann. Here the range between the highest high and lowest low of Apple Computer is squared with the following procedure Gann found that squaring of ranges as one of him most important techniques. You should always square previous ranges to find the important support and resistance points of today's market. After you square the range Ganntrader will draw a square to the right of the square with the square and the angles inside of it. If you look at the example below, you will be amazed at how accurately the square fits the market.
Can we improve the trading strategies based on candlestick chart patterns, 3-point bar chart patterns, and geometrical Fibonacci trading devices if we combine them Can Fibonacci trading become even safer and more profitable These are the key questions we consider in this chapter. Timing is the most crucial element in trading. It is important to know what to buy, but it is even more important to know when to buy. The candlesticks, 3-point bar chart patterns, and Fibonacci trading tools described in the previous chapters can serve investors as profitable stand-alone trading solutions. All trading signals result from special interpretations of market price patterns. All geometrical Fibonacci trading devices as well as candlestick patterns and 3-point chart patterns are based on the core understanding of investor behavior expressed in peak and valley formations. Working with our Fibonacci trading tools takes nothing more than swing highs or lows and the Fibonacci ratio (or the ratios from...
In general, extensions mean investments against the main trend, which is defined by the first impulse swing in a 3-wave move or a 5-wave pattern. Extensions are important as Fibonacci trading tools because they show up not only in fast moves over a couple of days or weeks in soft commodities, but also in financial instruments, derivatives, or currencies as indicators of major trend changes.
Many times it is necessary for you to print out a chart to have the perspective to trade like Gann did. You must be able to see the beginnings of trends many years back. With Ganntrader you can print out almost any chart you need for this purpose. The best printer to use is a continuous dot matrix type by Epson. The 15 wide carriage is preferable to the narrow type. You can buy a case of continuous 15 wide paper for around 20.00, which will last you a long time. Grid refers to the dark grid line pattern (8x8, 8x10 or 10x10) or the line that is emphasized when printing. The 10x10 mode is useful for markets that trade in tenths and the 8x10 is better for markets such as T-bonds that trade in multiples of 8. For example, a scale of .125 or 4-32 per grid line would create a full point difference at each emphasized grid line on the chart. The 8x8 pattern matches standard chart paper that you may be using.
There is a beauty and a symmetry to the markets that is at the same time simple and profound. The closest anyone has come to reducing it to technical terms is found in the Fibonacci series of numbers which, when properly used, can help define that beauty and symmetry so that it can be used to trade the markets. However, this is not a book about Fibonacci trading. I am not a Fibonacci trader. But I am aware of the effect of such trading upon the markets. In some situations I use Fibonacci numbers to project short term objectives. As often as not, I use them to fade those traders who trade as though there were something divine regarding those numbers.
For example, if the top trend line is at 20 and prices have declined from there to 14 then started back up in what you suspect is a partial decline, buy when the price closes above 17 (that is half the distance between 20 and 14). You might use Fibonacci retracements of 38 , 50 , or 62 as buying locations. If prices turn at those retracement levels, then consider opening a position.
You need to set your chart scale for the prices you are working with. In Ganntrader when a data file is loaded for the first time it will be scaled by the program so that the price bars will fill the screen or will be scaled so that the price bars will fill a printed chart. This is determined by the status of Options Scale Screen. If this feature is active it will have a check or tick mark in front of it. Scale Screen, when active, will attempt to fill the screen with that portion of the data that is on the screen, rescaling as necessary. When not active the program selects a chart scaling that would guarantee that the entire file would require no more than one sheet of paper to print the price dimension of the chart. As a matter of fact the program automatically reverts to file scaling when you select File Print Chart regardless of the Scale Screen setting. Ganntrader 10, Gannsoft 509-684-7637
Many traders prefer to have a Close Only Chart to monitor. It is an important chart to monitor. In Ganntrader select Options Close Only to display the following type of chart. You can use the Gann Angles with close only charts very effectively. Look at the following chart using the lxl and 1x2 angles. You can use the Gann Angles with close only charts very effectively. Look at the following chart using the lxl and 1x2 angles.
If you are a serious Ganntrader, you will need to print out charts to give you the big perspective. Many traders feel that you can't get the same feel of the market looking at a computer screen as you can with real charts on paper. Some traders say that the computer screen fools your eyes. The curves computer screens do not give you the true chart picture. In Ganntrader to print a chart select File Print Chart or click on the Tool Bar icon. This will open up the following dialog box.
As a trader you need to print out time spans of prices on your charts. In the Ganntrader you can do this by clicking the Time Span button you can specific a starting and ending date as well as the number of blank grid lines at the end of the chart. The default setting of 20 will produce at least that many blank grids after the last price bar. The program may print a few extra blanks to end the chart on the next emphasized grid line.
Doing your research into trading, there may be times when you will want to leave off part of the printed portions of a chart. For example, Overlay on Blank Paper and Overlay with Dates would print a square or planet plot only with no prices, grids or labels. You could then reproduce these on clear plastic to produce your own overlays. The next three Blank Chart options are in the Ganntrader program and are a handy way to make some blank chart paper for hand charting purposes. Load any file that covers the time span desired and leave off any elements you don't need. The last selection, Chart, No Background Grids works well when you want to FAX a copy of a chart or reproduce it in a book or newsletter. The background grids often produce too much clutter when reproduced.
Whenever you make a change to a chart setting that would affect the chart's scale many times you need to rescale the chart. Some software trading programs do not allow you to rescale the chart. In the Ganntrader you can easily rescale the charts. With Ganntrader this box will appear so you can easily do this. For example, changing the time span to be printed might eliminate a very low price from the early part of a chart and require a different scale per grid line. Adding volume to a chart would reduce the number of grid lines available for the price bars and require a new scale. By clicking OK a new chart bottom and scale will be calculated based on the new reality. You can also click on the Chart Scale button and set any values desired. Notice the 2 buttons, File and Screen. File scaling will be the default setting and reflects the highest high and lowest low for the time span entered. You can enter a different chart bottom and or scale but notice that the top of the first page will...
Gann developed two different swing charts, the Standard Swing Chart and the Main Trend Swing Chart. In the Ganntrader the Main Trend draws a line up or down if the price bars make higher highs or lower lows for at least 3 days in the same direction. Inside days are ignored. The Trend Line or Swing Chart is drawn up or down depending on whether the price penetrates the previous swing by a certain number of points. Gann used 3 days, sometimes 2, days for the Main Trend and 1 4 point for soybeans. His descriptions for them leave a number of unanswered questions. They are simply a trend following system. If a market is making higher highs the trend is up. If a counter-trend move exceeds the previous counter-trend move the trend may be about to change. The MT and SW indicator can be selected under the View menu or by clicking on the MT or SW Tool Bar icon.
Several types of angles are used by Gann traders. In the Ganntrader program there are several angle modes available. Under the View menu you will find All Swing Angles, Main Trend Angles, Selected Angles and Back 360 Hi Lo Angles. The Main Trend Angles selection, shown on the next chart, draws an angle from each swing of the Main Trend Indicator. All Swing Angles is similar and draws angles from each swing of the Trend Line Indicator.
Selected angles are the most used part of technical analysis according to the rules of W.D Gann. In the Ganntrader software program the Selected Angles mode to give you complete control on the location and types of angles drawn. It is a 2-step process to use this feature. First, under the View menu click on Selected Angles. The program will try to locate any selected angles and draw angles from those points. Since we have not marked any points yet you will see this reminder box. Click OK. Next, move the cursor to any desired point and hit either the key or the key. This will place a 1X1 angle from that point. Other angles from the same point can be applied by using the function keys. The function keys are assigned as follows In the Ganntrader you can place all the selected angles on the charts using the major highs and lows and get a good idea of the relevant angles the market is following. In the above chart all the angles are displayed. Many of the angles are not important to the...
In contrast to regular trend lines and trend channels, which are mostly used for trend indications, PHI-channels can be used to generate buy and sell signals. Breakouts of PHI-channels lead to buy and sell signals at the outside lines of the respective PHI-channels. We describe PHI-channels in greater detail in our previous book, The New Fibonacci Trader.
Technical analysis is a very popular tool for short-term to medium-term traders. It works especially well in the currency markets because short-term currency price fluctuations are primarily driven by human emotions or market perceptions, The primary tool in technical analysis is charts. Charts are used to identify trends and patterns in order to find profit opportunities. The most basic concept of technical analysis is that markets have a tendency to trend. Being able to identify trends in their earliest stage of development is the key to technical analysis. Technical analysis integrates price action and momentum to construct a pictorial representation of past currency price action to predict future performance. Technical analysis tools such as Fibonacci retracement levels, moving averages, oscillators, candlestick charts, and Bollinger bands provide further information on the value of emotional extremes of buyers and sellers to direct traders to levels where greed and fear are the...
Some Gann traders prefer the use of using All Swing Angles. This gives you the overall trend view of the entire market. The Ganntrader program will display Swing Angles for all tops and bottoms with just a push of a button. This is generally good to view the main trends of the market. Look at the following chart. It looks like the ones Gann used to draw. It's very clear to see the channels that are forms using this technique. Notice when price gets out of a channel it's probable an ABC correction according to the Elliott Wave Theory. It will usually resume its trend once the correction is over. Also notice that in many cases the trend lines will hit more than one point usually on the outer parameters of the channels.
Gann extensively used dimension lines. He had labels and markings all over his charts. The Ganntrader program will display the price and time difference between the origin point of a selected angle and the current cursor's position. To activate or deactivate this feature select Options Sizes, Labels & Markers. With the feature active you can also enable or disable labeling for individual marked origin points. 'Move To' the point in the usual way and hit the key to turn the labels on or off for each point. will quickly remove all angles and leave the dimension labels on. Notice on the time dimension line the vertical red lines mark the basic 360 time cycles. You will see a mark at 36, 72 ,30, 60 and 45, 90, 135 time periods. The time dimension label is normally the same color as the cursor lines. When the cursor is exactly equal to one of these 360 time points it will turn red in color. When the time dimension equals the price of the origin point the label turns green in color. In...
Gann also charted what he called Zero angles. These are angles that rise up from zero price level and are in line with the date of important highs and lows. They are very important to watch since they often supply the last support point in a falling market. Squares of highs and lows, another Gann method, perform a similar function. To turn on Zero angles in the Ganntrader with any angle mode simply hit the key. The Zero Angle technique on high numbers works best with weekly, month, quarterly or yearly charts as you are able to see the angles coming up from zero more readily. The other Gann angles can also be plotted from the zero line. Gateway lnc NYSF ML, Selected ang, Sc 0.25 Bot 6.775 Top 80.5251X1 0.25 The other Gann angles can also be plotted from the zero line. Gateway lnc NYSF ML, Selected ang, Sc 0.25 Bot 6.775 Top 80.5251X1 0.25
You must know the Natural Squares listed here to trade the methods of Gann. With the Ganntrader using and applying these angles are easy to do.You should refer to the keyboard overlay while using the squares portion of the program. The numbers 1 - 9 across the top of the keyboard are a quick way to enter Gann's common square sizes. The keys are assigned as follows
In Figure 9.9, we see that USD JPY is trading well below its 20-period moving average on a 10-minute chart and is headed toward the 105 double zero level. This trade is particularly strong because the 105 level is very important in USD JPY. Not only is it a psychologically important level, but it also served as an important support and resistance level throughout 2004 and into early 2005. The 105 level is also the 23.6 percent Fibonacci retracement of the May 14, 2004, high and January 17, 2005, low. All of this provides a strong signal that lots of speculators may have taken profit orders at that level and that a contra-trend trade is very likely. As a result, we place our limit order a few pips below 105.00 at 104.95. The trade is triggered and we place our stop at 104.75.
Breakout models are very popular and come in many forms. One of the oldest is the simple trendline breakout used by chartists. The chartist draws a descending trendline that serves as the upper threshold When prices break above the trendline, a long position is established if the market has been rising, and prices break below an ascending trendline, a short entry is taken. Support and resistance lines, drawn using Gann angles or Fibonacci retracements, can also serve as breakout thresholds. Historically, channel breakout models, employing support and resistance levels determined by previous highs and lows, followed chart-based methods. The trader buys when prices rise above the highest of the last n bars (the upper channel), and sells when prices fall below the lowest of the last n bars (the lower channel). Channel breakouts are easily mechanized and appeal to traders wishing to avoid the subjectivity of drawing trendlines or Gann angles on charts.
Most charting software include both Fibonacci Retracement Levels and Price Extension Levels. In order to apply Fibonacci levels to price charts, it is necessary to identify Swing Highs and Swing Lows. Fibonacci Retracement Levels This is an hourly chart of USD JPY. Here we plotted the Fibonacci Retracement Levels by clicking on the Swing Low at 110.78 on 07 12 05 and dragging the cursor to the Swing High at 112.27 on 07 13 05. You can see the levels plotted by the software. The Retracement Levels were 111.92 (0.236), 111.70 (0.382), 111.52 (0.500), and 111.35 (0.618). Now the expectation is that if USD JPY retraces from this high, it will find support at one of the Fibonacci Levels because traders will be placing buy orders at these levels as the market pulls back. Now let's see how we would use Fibonacci Retracement Levels during a downtrend. This is an hourly chart for EUR USD. As you can see, we found our Swing High at 1.3278 on 02 28 05 and our Swing Low at 1.3169 a couple hours...