Fibonacci and Candlestick CONTENTS 1 - DEFINITION OF TECHNICAL ANALYSIS 2 - THE TECHNIQUE 3 - Fibonacci numbers 3.1 BRANDING 3.2 - RETRACTION (CORRECTION OF A MOVING HIGH) 3.3 - EXPANSION - THE N UMBER "HEAD" - (OR PIVOT FOR SOME). 3.4 - 4 SYMMETRY - Candlesticks 4.1 - THE MA IN FIGURES 4.2 - REVERSAL OF FIGURES 5 - THE UNION OF TWO TOOLS 6 - IMPLEMENTING THE STOP 1 - DEFINITION OF TECHNICAL ANALYSIS If opposed to fundamental analysi s. While this looks at the company (dividends, future investments and so on.,) T o TECHNICAL ANALYSIS focuses on the market in which the action is being negotiat ed. To fundamental analysis is the market is not efficient in terms of informati on and, according to this, the prices do not instantaneously reflect all relevan t information possible to determine the stock price. ANALYSIS TECHNIQUE, in turn , uses a set of analytical tools and techniques to achieve projections of future stock prices, which are not random variables. The most widespread techniques ar e: - Dow theory - the theory of elliot waves - The Fibonacci series - Candlestic ks - Using Indicators. 2 - THE TECHNIQUE In our case, we will study the application of Fibonacci number s in graphs and combine the application of such numbers in a strategy with the u se of candlesticks. 3 - The Fibonacci numbers The Fibonacci series (Italian mathematician) is made s o that each number is equal to the sum of the two that precede it. So we have th at: 0 +1 = 1 1 +1 = 2 1 +2 = 3 2 +3 = 5 3 +5 = 8 5 + 8 = 13 and so on series bec ause it is: a, 1, 2 , 3, 5, 8, 13, 21, 34, 55, 89, 144 The ratio of two consecut ive numbers tended to stabilize in: ½ = 0.5 2 / 3 = 0.66 3 / 5 = 0.60 5 / 8 = 0 .625 8 / 13 = .615 13/21 = .619 21/34 = .618 34/55 = .618 55/89 = .618 Thus: app lied to graphical analysis, it was discovered that the conclusion of a movement (of low or high) can be predicted using the basic relationship of the Fibonacci series, ie 0.618, 0.382 and its complement approximate. In percentage terms to 6 2% and 38% respectively. In addition to the percentages cited, 38 and 62%, is al so greatly used the percentage of 50% (and less use of the extremes: 23.6 and 78 .6%), as we shall see, when we deal with expansions. See an example of correcting a movement of a paper (TNLP4) in the study1 From what we can see from the chart, in the period from May to August, we had a move that left the TNLP4 quotation of 27, reached the top 50 and dropped to 36, which represented just 62% correction from the previous movement. We note, howev er, considering the same period, at times the percentage of 38% and 50% of the f all caused the movement of the paper attempt to go up, both stumbled in the perc entage of 23.6%. 3.1 - Marking of Fibonacci numbers study1 What we saw was evide nce that stock prices tend to move obeying the percentage of the Fibonacci serie s. We could see also that the downswing ended exactly the percentage of the numb er of 62%. But how to make this appointment? The two key markers of the Fibonacci series to predict the "expected" future prices are: 3.2 - RETRACTION - forecast the size of the fall To make an appointment retraction of a movement, or can calculate th e time when the Paper can "stop" to fall, apply the fibonacci from the lower sto ck price (in the period in which they want to analyze) to its full credit. This is the simplest part of the theory, but clearly this is only possible to apply o n a graph with the help of a program able to do so, as is the case with Metastoc k, Apligraf, Broadcast and others. That teach how plot tool in the chart. Altern atively, for those who do not have a graphics system is the calculation of FIBOS

which can be downloaded from the folder: 3.3 - EXPANS ION - providing high maximum paper should reach Herein lies the biggest secret o f using fibonacci series. For both concepts must be met: A) - the adoption of th e calculation of the expansion has to be applied always after to make sure that the paper is starting a movement of "ladder" high, with at least one step. That is, it should be noted that there was a break in the downtrend and paper is now starting a movement of funds above, B) - the beginning of this movement in funds above also requires that the correction (or fall) than would be the 1st high, a fter cutting the bearish movement, is limited to a maximum of 62% from the previ ous movement.€See example in ARACRUZ (starting its upward movement in Dec/00) i n STUDY 2. Why the drop can not exceed the limit of 62% from the previous movement? - Becau se the rule is that 62% of passing the motion tends to rule out the previous hig h. IMPORTANT NOTE: The beginning of this movement of a "ladder" high we call MOV ING HEAD (or pivot, as some say). The rule then is: ALL MOVING HIGH only consoli dated WITH THE EMERGENCE OF A "MOVING HEAD (PIVOT). See below: the calculation of the expectation of continued upward movement of AR ACRUZ (still in Dec/00), from the emergence of a MOVING HEAD in study3. Why the name "moving head"? Because the top of this movement (1st high) will be the basis (HEAD) so we can calculate the maximum movement that action can be ach ieved, based on your move SYMMETRICAL. That is, we believe that the 1st high is 50% of the movement of such a role, hence the symmetry. You may also be seen tha t the role, after reaching the maximum symmetry, began a movement to drop again until the 62% (NO DIA 01/20/2001). THE IMPORTANCE OF "MOVING HEAD (PIVOT) As explained above, what we call" moving head "(or pivot) is extremely important in the application of the technique. We can even say that any upward movement is only relevant to the technical analyst if confirmed by the appearance of this movement. It is the sign. Having high in case of a role without the appearance of this "sign" then the analyst should dis regard the high of this paper. And this occurs even. It is not a constant thing, but can occur. As the technical analyst uses his tools to minimize losses and m aximize gains then it needs to have their defenses. One is to ask - is it alread y formed a "moving head" (PIVOT) high? If the answer is yes then he can start pr eparing your buying strategy. If the movement has not occurred yet he pulls back and wait. There is no rush and no need to purchase that particular role. The ch oice may fall on one another which in turn is arming the motion we expect. This precaution is necessary because the analyst is not uncommon for the market "prep aring" a move from high to attract and then continues its downward trend, forcin g us to make a stop at a loss. See a more complete definition of "moving head" b elow: Observe: 1) In high motion takes the form of an "N" (see white line), 2) In low motion takes the form of an "N" upside down, 3) both formats conform to the sequ ence ABC, being the "A" movement that crosses the trend line - yellow line (in b oth the low and high), the "B" an attempt to return to the previous movement and the "C" the development or acceleration of the fall or high, 4) the movement be gins exactly at the cutting trend (see the yellow line). 3.4 - SYMMETRY affirm in the previous section that the movement of the letter "C " tends to make a symmetry (having the same amplitude) with the movement of the letter "A". This assumes that the letter "A" tends to represent half of the move ment increased. Actually, this was the case ARACRUZ. The move was "perfectly" sy mmetrical, ie the leg accounted for 50% of the whole movement. We say here that the expansion of fibonacci was 50%.

But it could have been different. See a new example: In the case of BBAS4 in estudo6, we use the expansion of 61.8%. But there comes a big question. What is the expansion that should be used? Imagi ne that we have made an expansion of 61.2% and the market will fall from the exp ansion of 50 (as was the case ARCZ6). In this case cease to earn a profit and wo uld move to take a huge loss. The answer is: always use the expansion of 50% and seek help in other tools of technical analysis lest we be betrayed by the marke t. The auxiliary tools we use are: - Candlesticks - Stop As we have stated, this technique (Fibonacci conjunction with candlestick s) as well as any technical needs of other tools that can give greater support a nd security. The other tools used by technical analysis are: Dow Theory, Elliot Wave, indicators, studies of volumes, candlesticks, stops and the very fundament al analysis (which in itself already ensures the safety of the investor, and thu s could never be neglected) . In this sense, both can use all the tools separate ly, we can together as their various combinations. Example: - fibonacci and cand lesticks - Dow Theory and Eliott - candlesticks and Dow theory and indicators an d elliot wave and fibonacci and fundamental analysis and so on.€As we have said this course intends to deal only with the combination of technique on the appli cation of Fibonacci and Candlesticks. As I take care of the Fibonacci numbers, w e now turn 4 of Candlesticks - Candlesticks 4.1 - Defining What are Candlestkcs? Translation: Candle Candlesticks = = candle candlestick refers to the technique developed by the Japanese (approximately 1,600) and now widely used throughout the world in the face of it is an excellent tool for reading the prices. Can be understood as a method of predicting the future movement of prices, having as ba sis the previous movement. To interpret the candlesticks, we must understand how it forms the body of the figure of a candle. The body of a candle is formed by the difference between the opening and closing of a share for the period that yo u want to analyze (may be May 1 minutes, 15 minutes, 1 hour a day, week, month, year, etc.).. A black body means that the closure was below the opening. And a white body means the close was ab ove the opening. The lines extended below and above the body signify the maximum and minimum that the share reached in the period and are called shadows. What i s a candle, or a combination of more than one, that enables the reading of the m arket and leads us to "try" to predict the next move of the paper. See the graph ical representation of a candlestick below: 4.2 - The leading figures in the study we can see examples of: - Bass patterns - upward standards - standards that indicate trend reversal. At the following address you can delve into the subject (including the interpretati ons of the candles): Considerat ions on some figures: Hammer (Hammer) - Represents a figure of high. It is ident ified as a small white body with a shadow as to be two times bigger than its bod y. A hammer is identified by a small real body (ie a small range between the ope ning and closing prices) and a long shadow, that is, the minimum is well below t he opening. Means that there was a decrease in the downtrend. Note - If after a significant upward movement, will be called hanged, and in this case is bassist Piercing Line -. Line drilling. Represents a high figure. The second candle clos es below the minimum of the previous day, but closed above the middle, without g oing over the top. It is expected, in this case that the market is starting an u pward movement. Engulfing Line - This pattern is strongly bullish if it occurs a fter a significant downward movement (ie, acts as a reversal pattern). Shooting Star - Indicates low. The market had been in a bull move on and make a new top b ut loses strength and closes in the same opening price. Engulfing low - This pat tern is strongly bassist if it occurs after a significant upward movement (ie, a cts as a reversal pattern). Doji Star-Indicates change in the upward trend. The

market had been rising gradually and then suddenly shows indecision and lack of confidence in the continuity of the movement. An opening on the following day be neath the Doji could mean reversion. The following illustrates the application of this tool. See at: 5 - THE UNION OF TWO TOOLS Now that we have the knowledge of the two tools can s pend to use them together. One giving support and security to another. While one (fibonacci) gives us the unconscious sense of mass, with respect to th e goal previously established that the price of a stock can reach (either low or high) to another (candlesticks) allows us to follow up almost that snapshot of the evolution of prices, giving conditions for the re-routing, if any. Again, th e purpose of technical analysis is to minimize losses and maximize gains. Since there could be different, the analysis technique works only with the facts overl ooked. The imponderable (Unchained by an atomic bomb Iraq in NY, for example) is beyond the capacity of evaluation by the technical analysis. Let us now see the end product of our work. The union of the two tools. See: 6 - THE USE OF STOP The stop is a device of great utility in the application of the technique. Because if we have the goal to be achieved (fibonacci) able to fo llow the movement of prices (candles), we now have something that projects our h eritage. Then we have two types of stops. One is classic: it is a sales order to limit the risk to protect our investment (with or without profit) from the knowledge of something has changed in the dire ction of the market and, therefore, in our claims.€But there is another that is more an addendum to the technique and is best used in intra-day. Suppose you ar e drawing the following strategy: - we know that a paper has been falling and is thoroughly prepared to meet the marking fibonacci 62% - we are following the ev olution of its price in the intra-day and realize that it is forming a figure ca ndlestick indicates that the reversion to a new bull move. What do you do? - Car ry out a purchase and establish a stop just 1 or 2% below the point of purchase. Thus we will be running the highest of technical analysis: minimize losses and maximize gains. Here's an example of this procedure: