Fibonacci Applications and Strategies for Traders Robert Fischer ®(eorrgh 81986 Bt Wie So. A ghee Pandan in nob epradctin oe rtion of ay pase of end {iat ete iy ecto er lhe oH Ud ‘Sats Cpr Awa Se perm fh coh meni unpre Library of Cares Cotloging in Publication Data ant tan drei kere hy Raters To.Jens and Claudius, who graciously tolerated my absences, fand who were missed over the Many sears ‘more than Fean ever 29,ACKNOWLEDGMENTS {In 1977 Me. Joachim Bahe-Votleath of Germany introtuced me to the trineiples of Elliott and Fibonaecl. Without the generous sharing of Inielenowledge-—the foundation for this Book, Febuld never have peo- ‘ceeded. Thank you, Me. Baht! "Ader my 1983 Fibonacci teminars, was fortunate to meet omar stl Heer did an incredible creating the aoftiare on the oe ‘rithmic spiral and time snalyes uted In thie Book, Withowt Homers programming sil, most afte substantiation othe theary wo not Ihave been possible Eventhough te Knowledge and the programs have been in place since 1985, t tok unt 1992 for me to pu the loee ends together Te started with a visit to Omega Resear, Ine in Mian Bill Cruz gave ‘ne the aceasary sopport te print most ofthe chaste with TradeSta- ‘Yon, one ofthe leading on lize technical information sytem, More Importantly, rg to know Soma Tenn. Sam is @ enor softrare technician with Omega Research, His programming skills made it ‘omaile for me W analyze corrections and extensions in & way never boforo possibie. Sam's personal engagement contributed cubstantally ta thia bole My bgstst problem as getting mentally organized to write this My son, Jens student atthe University of Colne, Germany, was ofivaluble help in getting me tated and guiding me through the ot ‘cept fom one chaper coche nex. Working co loesly with an wa {rly the great reward of this book ‘Germany ie far sway and writing in a second language i any thing bat eazy. Whenever I had a chapter afted, I gave it to ANR€ CCovanagh. With her indepth Knowledge ofthe markets nnd hor Write {ng skill, she helped to get thi book Fniched ‘Mr- Perry Koutnan and Ihave come long way together Wee Inborated on my firt wore in 1979, but ie time Perey gate me 50 rch more, I his Mai forthe written word that shapes this bose ‘otto mention hie patience and cantinued deve for perfection (which Inurt at times, but sade me work even hander. Thank you, Peery! RE, PREFACE ‘This book deals with the mot fascinating sublet in stack and com ‘modityanslyie Ts the ilegration of Nature's Law eoen as a bea ioral phenomenon} into pre stedies ta ereate a serogs and reliable investment tal New diveaveries with the Pbonaces summation sriet ‘open the window fora priee-time analysi that ean pinpoint tops and ‘elton with a stunning accuracy Tor 60 years, RN. Eilon has cemained a legend for legions of analysts. Without bis ideas, this bok could never have been writs, Fis briliant deductions inca + Market swing! area reflection of Bum behavon + Human behave ean be related to & phenomenon of nate + Natures aw santo measured ty ong the Fibonacci mmation| From hie findings, published in The Warw Principles, Blliott lama tht he can forecast price motements ere we separate ourelve fom Eliott. We consider this impos sible and will prove it Because of Use wave count, the Eliott concept Decomes highly enbjectiveInstead, we approach the markets by fecusing strictly on the Fibonacci summation series and ignoring the ware count. This re ‘mover all subjectivity and Fepaces the uncertainty with definitive, tested rales The introduction of entry and exit rules mates 8a plined, eben automatic trading possible. ‘The oak begins with an indepth study ofthe Fibonace summa: tion series, emphasizing the Fibonace rate Iti always surprising to Tearn that major achievements in the fields of natural sienee clear ‘theory, odio, and television have this ration common. The Fibonacci ‘tla not ost a numbers game bat one ofthe mast important mathe ‘mati! protenations of aural phenomena wer discovered. We apy this ratio ata geometric tol to equity and commodity price swings using techniques never sem before “The Fibonated ratio is best used in farecasting correction targets Homever, different strategies are presented, incuing # Very short term approach fr thovestvestare who do not want ta hal poron longer than one orto de. A computer study was used eaefiem the sldity af thi strategy. Tn addition, the Fibonacci ratio ls used to analyze price targets on extensions, Extensions happen in run-away markete. An invest ‘ment entered atthe end ofthe extension i considered the afest stat. fy in the Eliot enneept [introduced che idee af time analysis in 1988 at 2 seminar in Chicago, Nir years later, with the aid ofa computer, ite now posse ‘le to show that thie aoalsie i a valid investment alernative "The final chapter introduces the lagarthmc spiral the ives ‘ment too that takes alot of imagination to believe im. Even though we ‘ow have a computer program to draw the spirals it took us many sears ta understand ie and ta develop rules that make iene to ue for fnvertment decisions. This spirl in the link between Nature's Lave fd human behavior, expressed inthe price pattern of sacks and com ‘roditien Price patterns don't happen by ecident. The logarithmic spiral allows us to analyze mavket swings both “price and timo" with ‘precision never teen before “This boa intended to be educational. With te size limits of | ‘this bo, the eoneepte are presented tharoughly with detailed exam: ‘les. U hope that 90 find these ident as exiting, enlightening, and ‘oeful as T ve Roneer Fsciern THE TRADER’S ADVANTAGE SERIES PREFACE ‘The Trader's Adsantage Serie ina new concep in pudiahing for traders fad anlyate of fotos, options, equity, and goneraly all wor eco ‘omic mariate, Books inthe serice present single ideas with only that background information needed to understand the content. No ang n- ‘odoctions, ne definitions ofthe futures contract, clearing hove, and order entry Focused, ‘The futures and options industry is no longer inate infancy From its role aa an agriculural chile haa became the aterego of the most setive world mariets. The ase of BFP (exchange fr ph ‘als n corvney markets makes the selection of phyiea ot futures ‘markets traneparent, m the same way the futores markets evolved Into the official pricing vehicle for world grain. With w single tele- ‘hone call a trader or investment manager ean hetgem stock portfolio, Seta crostate, perform 4 swap, or bay the protectin af an nation Indes. Te classe regime can lager be clearly separated “And thie ie jus the bopinning.Astomated exehanges are pene~ ‘trating traditional opon ovtery markets, Even now, fom the te the transaction in completed in the pit everything eleo is electronic “Program treding™ ia the wotomaled reeponse to the analysis of »“+ HE TRADERS ADVANTAGE SERIES PREFACE computerized ticker tap, and iti just the tip ofthe inevtsle eval tionary process. Soon tho execaions will be computerized and then ‘we won't beable to ealt anyone to complain bout fill. Perhaps we wort even bave to place an order to get «fil, Market literature hac alan evolved, Many of the books written on {trading are intraductory, Even those intended for more advanced au fences often inchude # view of contract spacifcation® and markst Iechanics. There are very few books specifically targeted forthe ex Derianced and profersinal traders and analyats. The Trader's Adan fage Series changes al that, ‘This series presents contributions by established profeesionsle and exceptional eararch analyete The author? highly specialized tl- ‘cts eve bean appied primarily to futures ash, and equity markete ‘but are often generally applicable to price forecasting. Topce in the series will include trading systems and nda techniques, but ll fare a neceazay par ofthe development pracess that iiss Lim ‘roving price forecasting and trading ‘These works are eretive, often state-o( the-art. They offer new techniques, depth annlpis of current trading methods, or innova Live and enlightening ways of loking a tll unsaved problems, The ‘dens are explained in e clear straightforward manner with freqent uamples ond illustrations. Because they do ot contain unneceseary ‘ackgroud material they are abort and to the point. They require careful reading, study, and consideration. In exchange, Uhey com ‘nba Knowledge to help ld an ueperalleled understanding af ll areas of market analsin and forecarting 1 firs met Robert Fischer through his manuscript, Stocks or Op tionat Programs for Profits (Wiles, 1880) It has ariginaly been pob- lighed in German and he was struggling to make the concepts clear to English-speaking readers Iwas pressed by his intense desire com: munieate that information coors lped him with the translation Ipecaus of my belief that every author wants the quality of his oF her publiation abe the very best ‘bert has always been fascinated by the patterns thet contin ally appear on price charts, Long before his options book, he ha de- ‘soured al the information eesable on Eliot's wave principles, He traded Eilts method for Years always lacking for way to improve ite consistency and remove tubjectivity ‘When he began to realize the importance of Fibonacci numbers within chart analysis, yu could ee the electricity in ila reneaceh He a wud the ublete of Fiona rating an ree totes Maman tehair In 1983, 1 atended hr Fibnasel Se tare Sve aber tranche ae tine gl day «mato of rae wees based on Fone! al Everyone was enthralled by the ‘ee hat tna benoit sired certain proerione Whe San trots no ne Foc raceme es of 36 pee. metre and 62 percent, Rober wae sl far aked of ther ya Sta there erecting evn! dae He added depth ad con ve ea ol happy wit evel UT watched Raber earch to fnd sation that tase cera 38 et conse wumndche bares the underpin beaver frente rat Te iow the lngaritnme sia one of tbe mes ophistiated Meee antreIneprated nt is andi, combines oth iro time ta dramie way ree che mid-1960e, Iwas acked to program the formulas so that hone lguritie srl could appear on sreen slog with the ee CERT trader woul beable oat and watch pie movement WERE sper or rerntanc lee indicated by the ep Being SOW tnT undreemtcd she dieutes and was toon si ie pages lomo, And his we before {got tthe pnt oF TUM eter to oat thesia Ceci ot coserlerkwist ‘ekcamatly wes st en thet Raber found Hamer Ruse made race ei bt ws danpoited that Homer dst ser 0 TERE WPap egunons Te snen ong etre he osetia frearam wer operons is bas, Roer icer snr al ofthe important sep ha retltd coining lint and Phone i unsqve wo. 8 Sreutto tne pinot devetpee ody Tei ied with ne ess ‘i ter xpectaions Un Jou rach the very en te ecrie ‘Squire no mater xe. After Shaya compaer prox to ‘edn Appendix Bil othe ro cy ead ta Robert hasbeen bet wre his ask Leow cain beter sdertnding of lat etd ad Fcracls pipes ora whos werk hard opt tom teeter ea J Kaveaean ine T009CONTENTS Cuarren1 Tue Fmovacer Ratio "The Planact Smmation Seren ‘The Divine Propertion i Nature ‘The Fdconesi Raion Geometry ChaPren2 Tee Etssorr Wave PRINCIPLE aw A NUTAMELL ee Met Pate iboraes Ratio ‘Tend Chanact Cuapren 3. Wonsva wirn a .Wave Parra ‘Predicting the Bodo Wave § Using» rend Chanel reiting the Ee of Wave 5 with Phone Rain "The Ample of Was 2, an yan the Pbonesh nveting with Options Summary Cuapren 4 Wonkrve wrt Connecrions Rules That Are Raliate Sin ef Grectione n u 6 28 ” eCorrections in Leng Term Trend Corrections n Sor Ter Tend Dig Corrections and Trend Cheng Un ofthe Options Markt Cuarren 5 Wonkine wirw Exresstons Exteesions in Wave 2 Urn the Opcons Market Summary CuaPret € MvLripie Pipoxacet Paice TARGETS ‘Catining Daily 5 Wave Pusterns ond Weekly Coectone Ccmbining Estonia a Carections Summary CHaPren 7 Tove ANALYSIS “Tne Goal Days “Trading Using Time Anas More on the State of Tine Goal Days anal Roles Cuapren8 Cosprsnsc Price AxD Tom ‘Concopt of Cambinng Pie ond Tame [A Brith Pound Example Cnarren TnLooaerine Sena. “The Conep f the Sp Wore on the Stree Spr rking withthe Spiel Sommary AveenDaxA ‘Tar GoLDeN SECTION Commas AppENDDXB. Sruat EqUATION so ConerUTER Phoonase woes 1a 169 Fibonacci Applications and Strategies for Traders1 THE FrBonacci RATIO ‘THE FIBONACC) SUMMATION SERIES Let your imagination soar. Think of the universe the constellations, the galaxy. Contempine th beauty and forms of all the-to0ders of ne ture the tees, the oceana, Rowers, plant Ife. animals, and eves the microorganism in the air we breethe. Give further thought to the Achievements of man in the ielde of tural science, neler theory, Inedicine, radio, ad television. Te may surprise yout lesen that al of ‘these have ne thing in orton—theFibonares Suntmation Series Inthe thirtonth century, Thomas of Aquinas described ane of thebasicrulet of acrtheties—man’ senaes enjoy sheet that are prop ry proportioned, He referred to the direct relationship between beauty and mathematics, which is often measurable and ca be found fn nature, Man instinctively reacts positively 10 clear geometries form in both his natural environment and in chects ereted by hin, such at paintings, Thomas of Aquinas was referring ta Uh same pri. that Fibonac\ discovered Fibonacci, a matheratician, lived in 1175. He was one ofthe most ilvetrous scientists af hie time, Arson hir greatest schieve- sents wa the introduction of Arabic mumarals to supersede the Ro- man figures He developed the Pitouace summation srl: 1,1,2.8,5,8, 19, 21,34, 56,30, 146,2+ THERBONACC! RATIO ‘This mathematical series develops when, Degizning with 1,1, the next number i formed from the sum af the previous feo numbers ‘But what males this series so important? ‘The aris tends asymptotically (approaching slower and Sewer) toward constant ati. However, thie ratio ie erational, that ithe s neverending, unpredictable sequence of decimal vale stinging ‘fer it Tecan never be expreted exactly. each number in the series Is divided by its preceding value(eg. 13 ~ 8 the eeult lea ratio that ‘oscillates around the irational 161809398875.» , being higher ‘onetime and lower the next But never in eternity can he preese rato ‘be known tothe last digit. For the sake of brevity, we wil rfir tot sa 1618. ‘This ratio had begun to gather special names even before Luca ‘Pacioli (a medieval mathematician} named it the Dicine Praportion ‘Among ite current day names are the Galden Section, the Golden ‘Moon, and the Rerio of Whirling Squares. Kepler eslled the ratio “one ‘ofthe jemls im geometry” Algeraically ii Keneally designated by the Greek letter phi ~ 1.818, ‘The atymplatic tendency ofthe ris, its ratios ever tightening ucillation around Ue irrational ph, can be best understod by show: lng the ratios of the fee few entriex the aris, This example tet ‘he ratio ofthe second entey ta the ira, the third tothe second, the forth to the third, and go ort 1:1 = 1.0000, which is lower than phi by 0.6180 2:1 = 2.0000; which s higher than phi by 0.3820, 13:4 = 1.5000, which is lower than phi by 0.1180 5:4 = 1.6667, which e higher than phi by 0.0486 1:5 = 1.6000, which is ler than phi by 0.0180 [As we continue in the Fibonace summation series, each member will divide into the next one by a loser and eager approximation of Dl which car neuer be reached. ‘We will see later thatthe individcal numbers in the Fibonaci ‘rommation series can be seen in commodity price movements, The {ings ofthe ration around the valve 1 618 by either higher or lower numbers wil be found inthe Eliot Wave Priniple described a= the Rule of Alteration Man ubconseously seeks the Divine Proportion: iWeaiefies hia comfort love Dividing any number ofthe Pibonaci sequence by the flowing number inthe series ceymptatically approaches the rata 0.618, heh ‘THE DIVINE PROPORTION IN NATURE. 3 {a simply the reciprocal of 1.618 1 * 1.618) But tis is also a very un {unuay even remarkable phenomenon. Sine the ofiginal rato has no ‘Sd, thi ratio mast ala have no ed "Another important fact is thatthe square of any Fibeoaee! num: ‘ber is equal tothe nurber in he series before st, mutitiod by the romber afte i, plus or minus 1, B(ges 41 #215 13—1 nie 2 ‘Pus and minus continually alternate, Again thie phenomenon ian im ‘lst part ofthe Eliott Wave Principle called the Rule of Alteration It Teates hat complex corrective waves alternate with simple ones strong Impulse wove with weak impulze waves, and sn, ‘THE DIVINE PROPORTION IN NATURE [he remarkable how many constant values con be calculate using he ‘ibonacel sequence and hve Ue separate figures ofthe sequence fcr in so many variations, However, ueannot be stressed to troy that this snot jst mmbers game bu he most important mathematical presentation of natural phenomena ever discovered. The following ilas- {rations dopct some interesting appliatiens of sis mathematics! The Pyramid of Gizeh Many people have tried to penetrate the secrets of the Pyramid of Gizeh, Ten different from the other Bayptin pyramids because iis tot 8 tomb, bot rather an uosoleable pusle of figure combinations ‘The marvelous ingenuity kil, time, and labor used bythe designers tthe pyramid to eres perpetsal symbol demonstrates the supreme lnmportance ofthe message they denied to convey to posterity. That ‘era was prelterary and prehieroglyphic and symbols were the only "Te key to the geometrical and mathematical tert of the Pyra id of Gizeh, to long a purale to mankind, was actually handed to FHretotutue hy the temple priests when they informed him that the ‘pyramid wan derigned in auch way Una Uhe area ofeach ofits faces twas equal t the roars of es height (Figure 1-1)4+ THERBONACCI RATIO Sructure of Pyramid of Ge (One ag othe Pyramid of Gish is 788.3 foot lang, the height of the Pyramid 4864 fet. The length af ane sideline divided by eight leads tothe phi ratio 1.618. The height af 484.4 feet corresponds wo S518 inches (5-8-13)—figares from the Fibonacs saquones, These Interesting dservations give a ee thatthe pyramid we designed incorporate the phi proportion 1.618. Modern ceientats tnd townrde tho interpretation that the ancient Fayptians bul it or the sole pur pose af transmitting knowledge they wanted ‘0 preserve for coming [eneratians. Intensive research at the Pyramid of Giach ha show how fox advanced mathematical ahd astrological knowledge was at ‘that time. With respect to all propartions in nd around the pyramid. ‘the number 1.618 played the most important role The Mexican Pyramids Not only are the Egyptian pyramid built acontingo the eset pro- portions ofthe Golden Section, Dut the same phenomenon sendin the Mexican pyramide, I i conceivable chat both the Egyptian and the Mexican ppramide were built at approximately the came time by people af common descent. Figures 1-25 and b ive an example ofthe Importance af the incorporated proportion, phi = 1618, ‘Acracszecion of the pyramid (Figure 1-2a) shows structure shaped asa staircase. Ther are 16 steps inthe frst ne, 42 the ee fond and 68 inthe thivd. Those riombers are based on the Fibonacci ratio LBN8in the fleeing way: 16» 1818 = 26 16 2642 26x 1.618 = 42 2x 16k 6s “THE DIVINE PROPORTION IN NATURE + 5 . Bove 9E goneng Fie 1-2. Suber phi = 1.610 fcrpoate inte Mev rami (Sore Wicd ortecrtan amu fee hom Nw Yo: ares ow reteset apn ct pom) The Plante different representation of Fibanaci mers s found in the number raxilsan the scm ofa plant seit develops. An desl eae can be seen ‘he stm and flowers of mneezewort Figure 1-3) Anew branch spines from the aul and mote branches grow from the new branch, When he tld and new brenches ane added vogether. Fibonacei number i fod {meach horizontal pane : 7 “The golden number come int view again if we examine the 6 currence of pela af eriain common lowers, For example6 + THE FHBONACCI RATIO t Figre1-> ‘loose numbers found inthe fears nezevat. (Sure: The tie Ppt by FE any tow a 70 4 ep ‘hpermtsons Iris Primrose Ragwort Daisy ‘Michalmas Daisy 86 and 89 petals ‘The number and arangement fh retin the edo mem ber afte compos amily ls parclaly tema eanpe Jen arbor fond ar 7 ‘We were looking for laws that worked in the past and therefare have Dc ight poe of cetinsng werk nthe te Eth Fhceatel tow ee aha ound ach ‘THE FIBONACCI RATIO IN GEOMETRY | ==__—-id_s_. ping ation pt ea cammeiy pe SEE crn re bet’ Te rer it Tesny teh pe computes ep oprth Raye rae tt a THE FINONACCH RAMON GroMerRY «7 oth the sytal and ellipse have unusual propertios consistent with the Fibanatei rats in two dimensions, price and time Ie ery likely thatthe integration of spirals and elipes will elevce the iter pretation and use ofthe Fibonacci ratio to enathe, mich higher evel Up to now the Fibonace ratio was used for measurement of core, Lone and extensins of price swings. The tine element forecast was sridom integrated because it didnot seem ta be as rahe a the price analysis, By ieloding spirals and ellipses in a geomeriennaiyois, ‘oth price and time analyae can be combined accurately The Golden Section of Line ‘The Greek mathematician Euclid related the Golden Section to a straight line (Pigure 1~8). The ine AB of length Lie divided into two scaments by point C, Let the length af AC and CB bea und, nee tively: IFC i point sch that La equals a, then C in the Gallon ‘Section AB, The ratio La or a:b isalled the “Golden rat” th ater ‘words, the point € divides the line AB into two part in nach & way ‘thatthe ratios of those parts ix L618 and 618, Figre 1-4 Golden section fe. The Golden Section of Rectangle ‘Inthe Great Pyramid, the rectangular floor ofthe King's chamber i Itrates the Galden Section Figure 1-5) A "Golden Rectangle” can ‘eat be demonstrated by starting with «square—the basic arene the Pyramid of Ginch. Side AB of the square ABCD in Figure 123 by sected, With the easter B and radius BC, an are ofa icles drawn cutting the extension of AB! at # Line FG i drawn perpendicular to AF, mecting the extension of DC st G. Then APGD ie the Golden Rectangle. According to the definitinn, the Gelden Section Rectangle 1.618 simes longer than tit wide. The ratio af ite prportone ts therefore ph 16181(Greek architects and seulptrs incorporated this ratio ta their work, Phiiae,» tamows Gres eeulpor, made wee of i; the propor {ions ofthe Parthenon at Athens illustrate this: the (ith een tury ne, nated on a triangular pediment, whichis efil intact. te imensions exactly fi ite the Golden Rectangle, It stands ab an ex ‘ample of the aesthetic value of this unique shape. The Logarithmic Spiral “The only mathematical curve to fellow the pattern af growth isthe fag rithmic spiral, expressed i tha spira mirabilis o the agutilus shell Figure 1-5). The logarithmic spiral sealed the mact heautiful of mathematical curves This spiel has been a cammon ofcurrence in the natural world for millions of yeas. The Gelden Section and the Fibonacci series areal associated with this rematkable curve Figure 1-Showe a radiograph ofthe shell ofthe chambered naw tilus (nautilus pompition) The seceasive chambers of the naxtilas fare bile on the framework of logarithmic spiral. As the shell grows ‘thesis ofthe chambers inerensea, bu ther ehape remains unaltered. We will domanstrate the geometry of the logarithmic spire! ua ing the Golden Rectangle ABCD (igute 1-71 with AB BC = phi ‘Through pone E,clled the “Golden Cut” of AB, line BP iedrawn pet pendicilar to AB cutting the aquare AEFD from the rectangle ‘The remaining rectangle EBCF ie 3 Golden Rectaagle Ifthe square EDGH is lopped off, the remaining figure HCCF is alzo @ Golden Rectangle. Amuse thot chi proces ts reneate indefinitely nti the limiting rectangle O isso amall tha ie indietinguishable from Figure 1-6 Lopvthmipa: Source: The Divine Proportion by HE Maney [now Ver: Dower, 1970p. Reprnied wath perio) "The linking point O i called the pole of the equal ana spire which passes Usrough the Golden Cuts D,,G,.J (the sides of the rectangle are nearly, bt not completely, tangential to the curve ‘The relation ofthe Fibonactserix ix evident fom Figure 1-7 forthe spiral passes diagnally through appaite corners of successive, squares, such as DE, BG, GJ, -.. The lengths af the sides ofthese ‘square form a Fibonace series Ifthe smallest aguare has a side of Tength, the adjacent square toust ao have side of length d. The igre 1-7 ort of he lari pr (Source: The Divine Proprio, IIT inept York Be 1970 p10 Repaid wah personFigwe 1-8. Logritmc clipe. (Source: The Disne Proportion by ME Huntley (Rw Yek: Dover 1370). eit with permis) ext square has aide of length 2 ven as lng), the next of 3d, and fon, forming the aria 1 2d. SS, 84,134, which inex ‘ety the Fibonacci Serie J, 12-3, 8,18, ‘Two segments ofthe spiral maybe different in iz, but they are rot diferent in shape. The sit ie withoatm terminal point while ‘roving outwards (or inwards) indefinitely, its shape remains we- hanged. The logarithmic spiralis the link between the Fibonacst Summation Series and the World of Nature. The Logarithmic Ese Important curves are found in natute, The most sigiieant te sik lization include the horizon of the ocean, the meteor track, the ‘arabala of a waterfall, the ares traced in the ay by the sun and the frescent aon, and Uh Tight of bid ‘An elipr ie the mathematical term fr an oval. Bach lip ca bo precisely drignated by’ only ew characteristics, The extreme form ofan ellipae 6 he parabola (Figure 1-8), which con be repre sented mathematical yt da Point Pi equiiatan rom a fixed point F the fous) and a fixed line ZM (tho directrix, The curve in aymmetrical about the axe THE ELLiorr WAVE PRINCIPLE IN A NUTSHELL Ralph Nelson Eliott was an engiseer. After serious ilness in the early 19206, he turnod to the analysis of stock pries,eapecialy the Dow Jones Index. After a number of remarkably muccseful forecasts, Elliot published sores of articles in Financial World Mogazine in 1999. In thet, he fret presented is contention thatthe Dow Jones Inder anes in ehythms: According to Eliott, everything moves with ‘the sam pattern ns the tides low tide fllews high tide, reaeton fe lows ation. Time does nt affect thie scheme, because the sructure of the market in its entirety renisine constant Tn thie chapter we wll yeview and analyze the following concept of Ei + Natures Law 1 Tha “Secret of the Universe” 1 The Wave Principle ‘Interpretative market letters ‘The facus of thie section will be on the main areas of Flite srork that have longrlasing value, Even if we da not agree with comeOf Eliot's findings, he must be admized for his eas. We know how Sificl it to ereate ene concept without the technical support we Ihave available today. When we began to study Eliot's work in 1977, 1 sas a tremendous struggle to get the data needed for an indepth ane! sss, How mach more diffiesle mut it have been for Elliot when he “Started hie work’ With the eampter technology available today, we Ihave the ality to tnt and analyaequekly bt i nail eceenary 10 Ihave Eliot's ideas in order to begin Eliot wrote, "Nature's Law armbraces the most important ofall clement, timing, Natures Law ia nota este, or method of playing ‘the market, but ia phenomenon whith appears tomark the progress ofall human ativites. Its applieation to frecestingis revolutionary "> Elliot based his discoveries on Nature's Law. He notes, “This law behind the market can only be discovered when the market ie viewed in its proper light and then is analyzed from this approneh Simply put, the stock market je a ereation of man and therefore re Fleets human idieynerasy™ (Ett, 10) ‘This chance to freest price moves motivates legion of analyete ta work day and night, We wil fous onthe ability to forecast, and try ta anawer whether or not itis poatble, Elliott was very specific when he introduced his concept, He id, "All human activities have three distinctive featores, pattern, ‘me and ratio, allo which abnsrve the Fibonacei summation series” Mitt, p48, ‘nce the waves cam be interpreted the knosledge maybe aplid tw any movement asthe same rales apply tothe price of stack, bonds, grains, cotton, and colfe. The moat important of the three factors 6 pattern. paltern is always in progres forming over and over. Usually, ‘but not invariahy, you ean visualize in advance the (ype of pater, iott describes this market eyele a2)”. divided primarily into “Bull Market’ and "Bear Market™ (Eliott, p48). Figure 2-1 eubdi- vide the bull market. ito five “major waves" und the bear market into ‘three majoe waves. Tho major waves 1,8, and 5 of the bull market 26 “subdivided into five “intermediate wave” each, Then each of the in: termediate waves 1,5, and 9 subdivides itn fie minor waves” “The Cpe Wrings if BN Bit th Protea ication Pil 3 HES eo anton THE RLIOTT WAVEPRINCIPLEIN A NUTSHELL = 13 fa @ on Fyre 2-1 thot vided th perfect” tack markt ce noma ner ‘The problem with this general market concepts tha, most ofthe time, there ate no regular S-wave swings, More often, the S-wave toring inthe exception. Ta fine tune the concept, Elliott intradced a Series of market patterna which tnke care of aliost every station ‘The most important ones are dexeribed next14+ THE ELUOTE Wave PRINCIPLEIN 4 NUTSHELL ELLIOTT’S MARKET PATTERNS The 5-Wave Swing Ifthe market rhythm ie rogular, wave 2 will not retrace tothe be ‘inning of wave and weve 4 will not correct lower than the lp of ‘wave 1 ft does, Uhe wate count mut be adjusted (Figure 2-2), Figwe 2-2) roneos counting 25a up-ring com 2 Sve upaning (oe “aumting int Sse psig Conections Bach of the corrective waves 2 and 4, can be subdivided into three ‘waves of a smaller degree. The correction wave 2nd corneetve wae 4 lernate in pattern. Eliot called this the rufeof alternation, This ‘means chat, Fave i simple, wave 4 will be complex, and vice versa ‘This ie shown in Figure 2-2, figure 2-3. (a) Wave esl; wine 41 comple () wave 21 comple: wane Sine ELUOTES MARKET PATTERNS = 15, With this remarkable servation, Biot linked Nature's Law with human behavior n the manflower pinecone, er pineapple there are spirals that alternate by fist turning clackwse tad then sunt ‘lockwise. Ths alternation repeats itelf nthe erecting mone Soa sume 4 ‘There are threo types of corrections: 4. Zigzag in a downtrend (the opposite fr the uptrend) VAS tome item © 2, late ina downtrend (the opposite forthe uptrend A. Triangles in an uptrend or downtrend. WA ears “The student cannot be certain that a triangle forming nti ‘the fifth wave has tarted” observed Eliott (p. 88) Thit makes's very Aifiult co forecast price move,ligt noticed thatthe standard type of corrections were not ‘rough te cover all market actions, Therefte be added the complex orrections, which he desribes as 1. Minor correction of three waves 2. Double sideways correction with seven waver Blot made the statement, Ite poteible however to hao wh longated wave e will occur by understanding the rte of alternation” (p51) I in mot clear tht itis pouibe to freeast wave cand iit were, it isnot vious that tha rule ina any valve forthe imestor. ‘The corretins gre aa omplex that itis impoesibe to determine, in vance, any of the fllowing essential points The length o¢wave © 1 The curren state ofthe correction (i thisa simple, double or triple formation) + Wrst wave wil come net. Diliot never indkeated either a definitive etry rexitrale to une When treding: The means thatthe trader must use subjectivity and Initiative ta inplemant Fits dena FLUOTT'S MARKET PATEERNS «17 extensions “Extensions may eppear in anyone ofthe 3 impulae waves wave 1, 8, for & but never in more than one” (Elliot, p. 6). Figures 2-4 snd 2-5 show extension for uptrends and downirends, respectively _/ ,/ NX AN co oN NS Figure 2-4 (Fest mae entesin in uptrend thed wae entero up {ted th wae extension In uptrend Figure 25) Fit wave eteoton in downtrend (9) thd wave even in downed (6 ith wave ees in dewrtren i willbe noted that in each instance there are a total of 9 ‘waves counting the extended wave a § instead of, On rare secasiont lan extended movement will be compored of 9 waves, sl fea see” ‘(Elliot p85). For example, Figure 2-8 chows an uoteend and down: trend each consisting of nie wes. ‘According to Eliat, exlensions have he flowing characteristic: 1 They occur only in new terrtary ofthe curent eye; they donotFigre 2-6 (0) 9a extenson in uptend [by wave estenton in dewntend ‘They are doubly retraced, that is, correction will pass ove the same ground (wien, down and uP. + 1F extensions occur in wane 3, double retracement wil be sti. fied by wave 4 and wave 5 All ofthe possibilities that Eliott introduced and described sn Ibis publications have not been shown here, The purpose of this re view waa to show the easence of Eliett’s ideas end fllw chem aa ‘hey become more Intrleate. In is moet complex stages, itis een dit ‘cut fran experienced Elliott follower to apply these roles to real time trading. Elliot admited, “Corrections in bull and bear swings are more sng so there i a complete change in his strategy lic claim tha, by mastering his concept, we can fecast rice motes in advance, Evan though the sDservation of che extensions au a chat parm i brilliant, tis nota forecating tol. Forecsting mans that, ifthe ccurent price is 6009, we anticipate that it will go for example, to 70.00, We do not believe this ix pousibla with high securey, but what ‘we il ty to prov is that, ithe pice reaches the precaleuted level ‘£70.00, then a short trade canbe entered sneiptingw price reer ‘al Lo the downside. Theis exactly che wpposite of what lat fll cern ty td. Tot nover worked with extanstns a8 an independant tang tool Ieoalt we ben tat he ae oable else chieprablem Because his focus was fixed on Ube wave count. Again, iti ol the wave exert that makes the Eliott concept work, but the Mibonacel sequence with allo L618, But the routs are better hon both are used vgether Extensions cam be soen in Intraday, daily, weekly, or monthly chart the longer the extension, che bier the soft potential. Ox the other Irand, it might take weeks or month 10 got signal. Extensions can ‘ccurin an uptvend, dawrend. prin a) kind of market contin. In order to work with extonnions aueseatully ia eeanenry ts have a al ‘anced strategy consisting of ‘+ A.inimum swing size (the wave count is no important), +The rato 1628, ane + Batey and exit rules, EXTENSIONS IN WAVE 3 Eliot said, “The frst retracement wil occur immediately in $ waves approximately the beginning of the extension” (p. 18) Biot ab served another characteristic ofthe extension sn wave 3, “Wher the rovernent occurs st high speed the some territory is reltated at a ‘oot the same speed in revere” (P87. ‘The extensions in wave 3 can he seer’on the daly sybean chart in Figure 6-6. Once the precaleuted pee pal ie reached (wave 1 timo 1818), ateong correction fll. EXTENSIONS IN WAVE «77 rue 5-6. Oxi Fite 5, Dat abn cht fo 1-02 7-92. Terai 4 do the eatersion of wns with he sens To calevlate pricy tanpets in the snc btn sion of wae 2, the follow 1. Measure the total amplitude of wave 1; $5.98 — 5.74 + $0.19 2 Nuluply che swing sae of wave 1 lime L618 S019 1618-$ ar 5 haa $560 91 = $624 hon the precalultd rics art fr the thin wae eens Ys $620 per bho) Figure shows thatthe market ni cee ‘$6.41 and the Sropped i a free fall to 84.05, _ sing extensions, the se pales eu that ware ‘cen nth retracement analyte Thee ate tate este ne ‘Comes elace to the prcaleulted price, but miases by » ams 2 ed price, + Reaches the procalulited price exactly78 + WORKING WITH EXTENSICNS Figuee $7 shows the three possibilities igre 5-7 (Trg pice of the esnion ot ached baat pice of he ‘RRS ech markt pice her on he preslted re pice ‘A trader must accept the premise that there is no peroxt entry point. To wore with this assumption, the following sections defi she pecesaary les swing Size [A minis swing sie i needed to make this strategy work. If che ‘wing size eto small then: «There is too much noe, causing the swings co be unpredictable ‘The corrections donot fer enough profit potential. EXTENSIONS IN wave = 73 ll J Figce 5-8 Four example for succes minim sing, + Thore is greater chance thatthe price goaleprecleulatea rom the ratio L618 will be unreliable ‘The minimum swing sie recommended forthe Deutsche mark, “iapanece yen and Swiet Senne is 200 babe point, and 400 pit Firthe British pound the swing rns ie t0 big, then there are very few accurreneos of the extension formation on weekly or monthly charts, However, when they do appear they afer good prafit patent ‘To conirm a avlng high is necessary to have: + An wpswring of at eas the minimum swing site (e.g, 200 basis pointe forthe Swiss franc. The wave count snot sed + Aconfiemation af the high, given as alos Uta lower than the Tow ofthe highest dy Figure 5-8 shows four examples of euccessful minimums ewig In addition, there must be » 8% minimum correction flowing ‘he highest day(s in Figure 5-0), nd alow that lower than the low ofthe highest day Figure 5-10), gue 5-9 Mini sng ie with 8% correction.90+ WORKING WITH EXTENSIONS ' ly wicen arr tat ‘Cle iowa han 8 a ‘Sekt Figure 5-18 Minima swing sae with 38% cretion and the se that ic lowe than th Tw athe pest Fibonacci Ratio rom the Fibonacet Summation Series, th ratios 9.618, 1.0, and 1.618 were sntroduced. These were applied to the length the previous ving (Gee Figure 5-11), Of these thre ratios, we wil nly work with the ‘ato 1.618. Thiel the ratio that represents “Nature's Law” and best ‘expresses homen behavior ae discussed in Chapter 1 ‘There ie no rationale behind this ratio. Move are triggered by ums, crop oF storage reports, political or ceonomis event, But emo tons take ave, Greed, ear O5¢ markets, and tzp-loss orders ease the exteme pice swing. Entry le By integroting the entry rule, the investment strategy can be fine tuned, When the trade ita ell or buy into an extent, protection se ete in the eve the trend reversea. Although te eniy rule takes ‘sway par of the profit potential, the trade becomes much safer. igure S11 Rt 0.6485 (ratio 1.0 ratio 1.618, ‘Whenever the price target reached on a daily chart, short po: sim entered ithe vie no isa broke whi ae a Include the low of the highest day), orf the clei ower than the ew ofthe highest day, whichever eomen first (the eppowte for a uy aig ral) These Lwo cases are shown in Figure 5-12, Fire 5-12) Salsa ate th extension a wave in uptrend by salar the estonia a mane nto. ae82+ WORKING WITH EXTENSIONS: wen eh S Ry lh =i Mw wae ne i A og TMV $ ns 998 SL ati: 8 HE, Fiares-14 eel jpaese yon ram 7-89 106-8, Sel sgl ‘enn the wane ters ute fo een ‘The entry rule isa very important part of the strategy when working with extensions. Tere i always a chance thatthe price will ‘rer the prealculated price goal. Figure 9-19, the weekly chert tebe Japanese yen, chows the cate where the entry rule served 9 ‘alunble protection against entering the masket too early. A shot po ‘ition would be entered after the price target reached if |The clot is ler than the low of the highest day, of ‘The price breaks the last four previous lows, whichever comes fire Stoptoss Rule ‘When s psition is entered it should shways he protected with sop Joes The rue fs tha, after entering a short position, a stop ie placed te tick above the previous high, Fae ln, Is placed ene tk Below the previous low: Figure 6-14 shows the location ofthe stop LPXTENSIONS IN WAVES = 83 | he ft . Figure 5-14 Stop ls ee placed tk above previous high ter gal e-Enry Rule Whether the trad eto bo re-entered aftr being sapped out doponds an the swing sizeof wave I, There ie n0 re-entry ifthe amplitode of ‘rave Ir wbout 200 points or less, forthe daily Deuteche mark, Swies ‘anc, or dapancce sen. Tha ratianale is that a small ewing increases the chanees ofthe cred continuing in 05 2A recentry ie fevered i the amplitude of wave 1 ie greater than 400 points (twice the minimum swing move) for those come curren cies, By analysing extensions i uns OU that pre targets based ‘large First wave seem to be aafr than price Largeta frm a smaller frst wave. Fallowing Eliott, every extension will be double retraced. Uehe tea i supped ou, the enuse may very well be the irregular top or bottam a crrective wave & Most ofthe time the stronger wave wil follow in he anginal trend direction. This move can only be ‘aught hy re-entering the postion. Reentering seis Uo be aafer When Uh price ow in the extension 8 large The re-entty rules the same asthe entry rule Figure 5-10) "The reentry signal is based on the amplitude of wave 1 because ‘the magnitude of wave mut be ba enough to expect correspond: ‘np bg eoreection. Normally, these large swings in sve can only been om weelly charts They de not occur afem, hut Hf they ca be ‘enti in w timely manner, ey offer very good pri ptentialspy Sn Hall sexe FL gt em, “, _ L's morte d & pire 5-25. Retry ele ater sgl he ps ‘The biguee swing sie len works in favor ofthe re-entry signal ‘The chances that the market has exhausted ill afer a very trong. ‘night mave is much greater than after a smaller move, The sing ‘tel leo important for the profit target. Profit Targets ‘Whenever a patition is entre Ue proalculted profit target should also be anered. The profit target i 50% of the total distance fam the start of wave 1 tothe end af wave 3. Once this target is reached, the Position by closed out and the trader must wat for anther epport- nity. The 804 rales not eompoter-tated bu a value commonly used fn chart analysis, Pisin shown im Figure 6-16 How athe profit ange clealeed? Using the 2-eing patevn in ‘igure 5-16, gate the start of wave 1at point A= 7000, an the end fave Sat pane # = 54.00. calculate the pri target take 50° of {he dictance from A to B and add i othe low at point B. Start of wave I minus end ofwave 370.00 ~ 54.00= 16.00, “Toke 50 of the distance A-B= 500 "Then the profi target i 62.00 ‘The lone postion ie closed out when it reaches 62.00, No position is entered ual the rubs offera new opportunity. Figure 5-17 dem ‘Shrates the noquence of evant in thie strategy EXTENSIONS IN WAVED = 85 i il /I | Vi oat at Fige 5-16. 50% Pai erge ele. Taling Stops ene gti inte rings yb da an tenes the re ag han he pet pea ads Hinton ent, «eaten bees eres et terkng with ayn mare th tee sb re Weary arte By aig agp 8 hr psa a he ight sh visto de pfs rote win ates tient a pricing atoning mares eerte Tin ttgy nn ne ef eae186 + WORKING WTH EXTENSIONS fl | TT snags Ah Hat fi Seren” 5 a ot eo bp ora nl uy we 440 apes Fire 5-18 egraton oft ops before the profit target it reached, The atraogies canbe combined iy using the profit target, then awsching oer to the trailing tap once he peut target i reached (Figure 518), "The daily chart of Use British pound (Figure 8-19) offers good ‘example of how ta Work with extensions The entry signal secure at point A, and the tailing stop i= a pina B iva HE OE) rar wet: Figre 5-19 Daily uth pound char fom 0:91 903.82 feamplefor he ersonin wave tary ua pat Arig top oi 8 ATINSIONS INWAvES + 87 EXTENSIONS IN WAVE 5 In searching for safe entry pints, the end of he extension in wave 5, in eombinatien with the double retracement. offers a goed poslbil ity, The only disadvantage is that is happens very aldon, Batt wrote, “It will bo noted that In each instance there isa total of 8 ‘waves, counting the extended wave 5 inatead of 1" (p ). In this spe lal ease we are only interested in the extension of ve 5, ag shown ‘a Figure 520 Fine 5-20. Extension a wine 5, Elliott alco cbserved » very special etse when he sid, “On rare ‘occasions an extended movement will be composed of 8 wave, all of ‘equal size" (p. 851 This is shay in Figure 5-21, Elliot made a very important aheeretion when he noticed, “Es nin wave Shave a double retraorpent" p88) Thar ao in Figure 5-22, If thet is one point considered the safe opportunity, this i the ‘one. only we hve the patience to we forit. Tis ease requves Wait ‘ng fr two eparate events 1, We must frat bo very lucky Co identity an extension in wae 6. 2. After ith ‘been identified, we mast wait for the double{8B WORKING WITH EXTENSIONS UN NY Figure 5-21 tended mement f 9 wane of equals, A picture book case for such x pattern isthe daily chart of the Japanene yon, shown in Figure 6-22, Tn this figure there ta perfoet Save count and the double re ‘racement, at foreasted by Bite If any of Eliot's patterns have Toreeasting valve, this is. Ett never mentioned anything about wing ine, ratio or entrylenit cles. After explaining Bote of ‘he tend chanel, we have added these mieaing ruled to ve defini ‘ive entry and ext point, wrwase M/0 Brie sie pies Figure 5-21 Daly japanese yen chr Som 6292 te 0792, era mane ofa ‘mos equal sing atloweds dole retrtcement of ana erecta Tend Channe! Eliot solved the problem ef identifying the end of the extension in ‘wave 8 by using the semilogarithmic hart Once the upper trendline is touched, the trend should reverse, ‘One of Eliot's mont important discoveries is reflected in the statement," When 6 waves upward have been completed Saves down ‘ill ll” (p12), He legen “Extensions may app in arpa a the impulses, ie, waver I. 3, oF 8, but never more than in one” {581 This means that once an extension in wave 5 ie identified, there it «strong indication thats trend change isd, This is shown in Figure 5-2690. + WORKING WITH EXTENSIONS In summary there ae thre eitaria which ear be found in the Blot concept that should identity wher che trend will change: 1. The extonsion in wave 5, 2, A penetration of the semilg trendline, 2. An ache torrection indicating the trend change But oven with these points Eliott til did not say “+ At what point to enter the market, + Where to place a stp les «+ Where to re-enber when the érade ie stoped out 1 Wher 20 tas profit, An investment siretogy exists oniy when all the pats work to gether, Eliott did for example, identify the appearance of the o-e Correction at the end of wave 5. But, is ita simple, double, or triple “complex corestion? The falling eeles ere intreduced to turn El Hott: concept nto useful trading testy. ‘Fibonacci Ratio When working withthe extension in wave 3, multiply the amplitude of ‘rave 1 bythe Fibonacc! rato 1.618 to get the prive goa fr the end a wave 8 Thi ie thown in Figure 5-25. Figure 5-24 The atio 1.618 oa ae of wave EXTENSIONS INVES «9 Figre 5-26. Theraio 1.610 inaredt cael the end of wae 5 with the tude om the began of wave 1 to the op of wave 3 ‘When working with the extension in wave 5, multiply the total amplitade fom te beginning of wave 1 tothe top af wave 3} y the Fi- Sanacieation 1.618 to get the price goal for the end af wave 5. This can be geen 9 Figure 5-26, ‘entry Rate Tn order to work with Ube extension in wave Bite necessary to identity that extension ax wel as the a correction. shart portion is entered baring ane tick below the valley formed by wave and 8, ‘the opposite af «buy signal) This is ilastrated in Figure 5-27, Figure 5-27 Se sat alter the end of 4 Sone cycle Ant the debe92+ WORKING WITH EXTENSIONS Stop-toss Rule Following the very conseretive approach provide by the entry rule, there is only a small chance thatthe poston wil be stopped ot, But tre cannot know whether the a b-e corecton that has been entered it {ring tote a normal, duble, or triple correction. To protect the posi- from: stp los i placed (or a shart) above the previous peak, formed betneen wave band wave e This is thown ia Figure 5-28 Re-Entry Signal ‘Shull the potion he stopped out, i can be reentered by fillowing the regular entry rule, as shown in Figure 8-2 Figure 5-29. should the posian be Mapped ot cam be re-entered flowing ‘he reget ety le USING THE OPTIONS MARKET Options on futures can be vsed as a valid stratagy in the extension af wave $ and wave 5F the total amplitude ofthe price swing inthe us tering atures contrac a big enouh, For example, in the Deutsche ‘mare, Swies franc, and Japanese jen the end of wave 3 or wave 5 ‘ula boat ast YO Full post70 00 to 80.00). When buying pot ‘ala the fllowing must be apple + Putsor call can he bought as an alternative town outright short or long futures positon ‘The sts price should be either “at the money" oe *in the money.” Pie keeps the premium to a reasonable level The exp tion date should be at leat three trading months «The option is liquidated when the profit target are reached, SUMMARY In this chepter. we discussed extensions in detail, The greatest prob lem is waiting for the end ofthe extension before entering a positon, ‘We diecuted Ub difference between an extension in wave 3 and wane - An investment at the end ofthe extension of wave Scan Beco Sere the safest entey pint af all, An ivestment at tho end of the bxteraion of wave 5 can be considered the safere point in the Eliott ancep, ithe strategies are combined with entry and exit rules. Tdentifying extensions was dlcwnsed in detail. een though | rules were defined that iltered out many af the situations within the Flot concept there i til room for eation, lot mentioned that there i nly one extension posible in a5 ware pattern, while e elso wrote, This tse fist ime in my versa ‘on tha Uwe extensions ever registered in one cyl” (0 p. 171 The statement that extentions only ecu in the direction of the rain trend becomes relative when Eliott writes, “Insofar as records re available, an extension has never eeeurred im the direction opp: site to the current main trend, therefore further developments will The to dine what the implication may be”. 18594+ WoRkiNG WITH EXTENSIONS Extensions happen in run-away markets. I i not posible to no in advance when they will occur They are exuberant pice aves which happen when investars oe speculators get ease BY murprse. Unexpected ceonamic data, crop reports, storage figures oF extreme weather forecasts ean cause “fast” markets with gap apenings and limit moves. Fear and greed, combined with stop orders, might increase the valaility ofa market, ‘The price goals canbe calculated withthe Fbonacei ratio 1618, Investing snc extensions is difficult, beaite postions ae cn trary tothe markot trend. Extensions and retracements are part of the overall Elliot Fibanacei concept. bath tarh at the same point an be considered safer ineestint MULTIPLE FIBONACCI PRICE TARGETS ‘The previous chapters have tried to show thatthe precalclated price targets based on the S-wave pattern are a god indication of where the trond wil ehange- Bot there are alo times when prises overthoat or A> nt rach the peice goal COMBINING DAILY 5-WAVE PATTERNS AND WEEKLY CORRECTION: By combining parts of the Elliott concep with Fibonacci ratio, we tried wo improve the overall investment approach. Historical intraday, Gail, Weebly, andor monthly charts were used to identity diferent ‘essen of the wave paterna nd the Fibonace atae, Using daly and weekly charts, this chapter wi combination of Eliott and Fibonacci applied te analyze the + The Somave pattern, + Extensions, and + Corrections +95 +96 + MULTIPLE FIBONACCI PRICE TARGETS Iitegrating Vee Spans Eliot recogniae the importance of integrating different time span when he wrote, "Te fast markts the daily rang isessotial and the hourly useful i'm aleaysessntial. On the contrary, when the daily range brenmes cbc, de aslo sped and lng dation of he swe, endensation into weekly range clarifies" p. 159), Figure 6-1 showe the integration of hourly, daily, and weekly data Et, p17) sae me @ uneoe Figate 6-1, Dow Jer Indusval average original litt daily chart rom Inclusion of Fibonacci While it seems that Eliott concentrated most of his eneray on the veave count, Fibonacei ratios now appear to be more important Eliott tried to integrate Fibonace int hi wave count when he wee, “Later ound that the basis of my discoveries was a Law af Nature known to the designers af the Great Pyramid of Gizeh which may have been co struct 5,000 years ap" (p42 "The Law of Nature to which Eliott in referring must be the F- bonacei summation serie with ita rato 1.618. Thi edhe Figure that ‘ean be found throughout the pyramid af Gizeh, mot the complex wave pattern in the Eliott concept. The way we read Elite’s work e that ‘he used the appeal of the Pibonsec summation series as a marketing tool But in al his analyses, he barely used the Fibonacci ratios. In ll Of Eliot’ original letters that were made availble tous, there wae ‘ot one buy er sell signal strictly generated fram the Fibonacci ratio ‘The better approach is 19 use the Fibonacci ration with the Elliot concept ta preclculate price targets. When the ratio 1.618 (62%) has priority oer the weve count, definitive trading rules ean be Aeyeloped. There should lao be a priority in the importance of the pace goal: 4. A625 weekly correction ie more important than the S-wave daily pattern, 2. A62% daily correction i more important than the Soave inte day pattern, Lrge, lngee term corrections have preference aver shortr-term shown in Figure 6-2. Figure 6-2 (a) 62% catection level ona wey chart Swine eyele on 2 ‘yeh.IHONUCCH PRICE TARGETS Whenever there is a 62 % correction on the weskly chart, ll the rules established in Chapter 4 Big weekly correction, for exam ple, 10 fll paints in dhe Swins rane‘ 60.00-70.09, will sstonatiet'y Iho a multi wwe cour on the daily chart. The combination of the weekly and daily chart has the flowing advantages: A 62% caret tiog on the weekly chart warns af a trend chang, and the integration ofthe daly chart helps to fine-tune the eatey signa ‘Sis Frane Example Weel Chart In the weekly cart of the Swiss frane Figure 5, he rice mv from points A 40 B was followed by a orrection of it ‘more than 62% All he roles deseribed in Chapter 4 canterning corre: ‘one yu have worked. A short position would have heen entered at 78.8 by adhering ta the entry rae For the purpose of review, the entry rule applied to “corrections tnd bg teend dbtngesis!Once the price targets are reached, buy ifthe Close is higher than the high of thelr da. ‘The price move from B to C was corrected by more than 623, Alb ‘the rules given fr ecrovtione wou have worked here aswel). Along pasion would hay heen entered a 68.20, according to the roles. aoa eS sas ae SAC ae 6 aH Fig 6-3 Wery Sie fae chat fom 08-09 (0.92. Se signa ters ‘COMBINING S.WAVE PATTERNS AND COREECTIONS + 99) Dai cht. Figure 6-4 shows the diy chart a hy {he ie when che 62 carertion nd Deas eth k the entry roe forthe S-wave patter, ie C ve to wat for wave a and wave b tae eanpleted, they weave Additonal requcements for sll goal are 1 A oinimum swing ste of 100 point fr the daily Swnafrane, 2 Acove that slower he wh tv yt cnt the “sing size, and : : 3. Acorretion of at least the minimum — ‘swing s2e 1100 points {the dally chart igure 6-4) there an eaniration 8 sell signal at the weekly 62% correction level, ‘. a at Nest at atin nmntetes Tn the wee St rae chee. Summary Ants This example shows the integration of dtly ‘sntey and exit rules deseribed in Chapter 41a weekly data withthe hows the weaken of100. MUUTIN FIBONACCI PRICE TARGETS the Blot concept and the improvement that ca be maddy intesrat ing simple bt necemaazy trading rule. the decison had been based only on the Sarave pattern of he daily chart, without en ety rae, we could have wold at 140.50. Un ter normal circumstances a correction could have been expected on the downside, But exactly the opposite happened ‘Mler the fact st was Clear that a very Fare Gane pablern ce curred, with nie almost tential wos, Once tage nine aves wore ‘ompleied, che anna strong coreetion finaly fllwed. Were the Snvestrs stil waiting when icame? “On rare ecasions an extended movernent will be composed 9 ‘waves all of equal sae” (Eliott, , 85). But i order ta bane the entry {ecision on Use wae count alone, we mast know the count in advance foe forecaat the move aed an the Eliott wave pattorns, How ean this bbe done? We never nin acc what patter wil develop ad Will therefore not ow oor market Plain fm Advance, ether ia a Up trend oF dowotrend, ‘This example questions another statement of Eliott, “Exten sons occu only anew territory of the eurrent eye. Tha is they do ‘ot acu i cortetins” (p55). The weekly Swi Fane chart elle forthe flowing inerprattion: The market inthe correction af he owe frm &6 Band the eXtension curred, ot in raw terry but within a erection ‘Some Elliot followers might totaly disagree with our wave count. Time wil show what hoppons. Reauce Elitt Aid no offer any ‘echnical roles that can be aplied to his concep, the dsr is open for independent analyte COMBINING EXTENSIONS AND CORRECTIONS ‘Bxtensions and corrections can be combined on intraday” daily, weekly, and monthly charts, The flloming example usne a weekly Deutsche ‘mak chart. "The safest entry points are where the Fibonacci peice goals are clase tagether If there in 4 price band (the range formed by price tala), the entry rule ewpplied when the fit Line a the prise bend se penetrated Tn the analysis ofthe weakly Devtashe mark chart the price sal forthe corrections are used frst flowed by the price gos for the extensions This is aber in Figure 3. COMBINING EXTENSIONS AND CORRECTIONS + 101, ‘uti ig atest Figure 6-5 Welly Oeatche mark chet om 08-091 0 pce targets of eens srr a 41. tepaton of ‘These are three major swings the chart 1, From 5025 t0 69.12, 2, From 49.120 64.01, and 3. Prom 64.01 to 65.25. Corrections Ta Chapter, corrections were dseribd in detait—then they happen ae what ook fr Tn the weehly Dstache mark chart 3 oe rection wa reached tree tines, a pointe A Ban © At ne an Bi the mat price went aligity ever the price aretn: whe he trend changed precisely t pont ©: Using the rales dled oe section he following sequence of ests would have scteee, + A masket entry fallin 3b entry rales lone or th igh the fow day for a buy si arhenpinee ne ial, vee verse fra sel eignall, * Biaher profit could have been taken A the profit tangs Drofita would have been fale Uxing 8 ca fralling tap102 + MULTE FIBONACCH PRICE TARGETS Extensions Continng wth the rales previously defined in Chapter 4 extensions cana a intend tobe eee ot ps Da . Ain te main ent le ha etenson gol bl Sapo eahy ote reprint ram enerng 26 eA pa Btn mare pret Tented ce ag end ofthe extension and then turned around, SUMMARY In the weekly chat ofthe Deutsche mark, the enalsis shows: re each, a or + Bvery te the preclelated pie targets : teen change lowed er medny sho afer whether he pe tre fr extensor are "ns are move tmoran thre, bch shu be waged = rection is “Shp a ing tm tin tn ‘ine soi om he ny ae ihc te ge + ote ting rales wre rene Aan htt Trelmtrd Ugo profit target a ta ‘he investor. 1 stops, whichever is preferred by [Asan additional sestegy, the entry rule cin be changes to wait fort ete eben Caen nt aie cana wee par be rege 7 TIME ANALysIs Darin th Elitt/ibqnacel seminars, held bythe author in 1989 in Pei States, we intadiced «trading concept siely mene Fibonact tne anal. Toy this cameos Uae i emptied. The patormance profile hes hot thas Tecan shown that Flbooaci ration area rele and coisa {orn arabs and shouldbe integrated ita an eestnest stance, panes atios can be applied to ay commodity or tne een ‘lot intredueed the Fibonace acre, 44, 2,9.8, 818,21. 54,99, 246 SIRE Tn series ery nel in ening and anorng every Sag aM the extent ofeach movement, and when ued ineonieeees Tub the Weve Principle i also useful in orecating the eee {ds in various parade af ime, day, weeks, manthes ee ene he fing Cement ax an independent vie, however, continues be he, Ean when attempts are made to apply any Known rule ofeocureee {end duration” (Etat, p 190, Eliott used the Fbonaes sequence asa timing device aa flows transta sted one day more chan nimber in the rages te “Zen et then last uni the neet higher number For seeps yn sak centinued for 4 days, it must then lat at nat 8 dase eek 8 days, it must then conti fru ene 18 dane104 + TOME ANAL og had problem making this rule work, Because the nom bers in the sequence ate too static, Hamer, working with the ratio [L618 in combination With ake and valleys ie very diffrent from Blot time analyse 1 makes the applietion Ayan, Contrary ta Eliot, insted of us the specie umber inthe summation serie (e€,5, 5,8). for ime analysis the ratio 1.618, Sind the reverse ratio 0.618 wil he used, We will show hat the ratio 1618 can be ased independently, that i, without the wave count to rake time analysis posible TIME GOAL DAYS ‘Time goo days are thse days in the future upon which a price event will occur. To be able to anticipate day of which prices wil achieve ‘en ohjetve, or reverse direction, would be mtep forward in forecast ‘To caleslate ime gna day, we draw won the work othe Greek ‘athematician Euclid, who seved the problem of relating the Golden Section ta stenight line. (See Appendix Ain Figure 1-4, the line AB oflength Li divided into two szments by pont C. Let the lengths OF AC and CB be 2 and b, respectively. FC ie & point uch that Leg =a:b, then Cia the Golden Section AB. The ratio Le or 2:3 is Called the Golson ratio. In other words, point divides the line AB ‘nto two parts in auch away thatthe ratios of thove parts is 1.618 and ose. ‘Dur time naysin it hated on the findings of Eucla I there is tne way ta hnk Nature's Law, exprested through the Fibonaes ratio 11618, with market sovings, then it should be the way ia described in Figure 7-1 aleaatin ot aime goal day hy xing he tng tween pnt A TIMEGONL OAS + 105 Look at the peas, A and Bin Figuee 7-1 Ue in Figure 7-1. Using the distance from to Bin days anytime unit etn be used), map that stance by the Bbonaet ratio 2,528 (0 forecat the resulting value ©. which ceuts on day BA 1eIeTR Ay Ci called ime goat day. Thi che day on which the market ren ‘is expected to change direction. 7 This geometric aprach has the tratage af foceting rather than lageing the mare: therefor, aon can be entered eed a thetic bn eran afer nao concep is dyna, which lows Yo adjt wo the lange son ‘swings of the market, Be = ‘When refering othe faecas ig of ie als there ir inten to t ndiate that the price wil be high eine when the NOD te resshe.Iican be ether na Thee foal ay any Treaners tend ange an event athe tine the gal reache. Thi hw nF a [In . WwW Figure 7-2 4 A ine oa day, the pice mayb igh EU ee ol da the ah) at ne a,106 + TIME ANALYSIS ‘Using Fiburaci ratios, timing of abjectives can be measured on intraday, day, weakly, or moot ear, “TRADING USING TIME ANALYSIS “Three parts of the time analysis most work perfectly together to eet the best ponible reste These factors are + Piker sae, + Time gal days (PEDS), and + hte, stopdoas, and re-entry rales, Jost as with the trad signal fr extensions and corrections an investor mnt wait ua clear ting signal s determined before xorg the market. The waiting the coughest pat of erading, for {he sal soaps cme when they are Teast expected. At te tine of asians the media uften recommends the opposite trade. Becatse thielechnique recess change af direction the trader must be Dee pared to + Buy when the price low, and «Sell when the pices high ‘The following sections will anawer the questions, “What is high?" and "What low?” What tc Swing? [After suing is price movement of a minimum size in one dict. Bach commodity has tx own speciadminimam criteria, or fitr. The filter sive fors commodity varies or weekly, daly, and intraday charts. does not ebange once ii identified. Tel be eee later that the number of trades generated using ‘this techaigoe is dieetly proportional tothe filter size. Ifthe filter ‘ing eto omall there are too many signals snd frequent whipsaw frauen sideways markets. I the minimum swing sae is fo lara, there are very few signal and same important tend moves are likely tobe misted TRADING USING TIME ANALYSIS + 107 nce hn re li hun he mil a very ulin rending marta Insdewords maketh psa ‘ould be wry omted. Examples the mini ite eno se tral emediis sve shown blow. Thore values wove renee ‘nd 30a put of sonar ater on “The Gar Seeaon” Carre ating fa ato pos, sow tat hee ion “et changed ona ation mae ence, tte gures shold bbe consistent over time. 7 — ae en a) ‘vie Fane ty 10) 100 weekly “oo 20 Deutsche mate aay 100 100 laparese yen aay ‘wo 100 sweetly «0 200 Bes gound duly 200 200 — 00 00 ing 200 06 100 20 Soybeans 0 2 Wheet 20 25 ts 6 1% Cocoa aay 80 20 Cotter ny 00 a0 Pek elie 200 200 Swing Highs and Lows (Once the minimum swing fitar as baen ientiied on a daily eat, he filter swing is analyzed every day using a four-step procedare a6108+ WME ANALYSIS ci fn 008 ofthe minimam awing sae, eho Desstiche aoe has been cet a 100 point, then lok for & ove im to the highest high ote Figure Sip mare 1100 points fram the lowes igre 7-3 Te conn x igh oon, we net minim ung Sep 2, The minimum swing size must be confimed: Once the mini ser wing ite has been reached, the clove must be higher thas the ae ta day which exceed Ue mnioam swing sie for = NE ph shown in Figure 7-4 FE Rtrengsee ae = he 1 igure 7-4 To con 9 Sn ‘mum swing se the lve hat be ger than thei step 3. On dai chars lok for a lose which sewer han thee of Se? yon dn to confirm the high day (vice ware fer Tow ay 85 ae ee rigare 7b. This sep isnot necessary on weekly chart be see fhe mung sive alt i bigger than on the daily charts and cra ne re Serene ofa confirmation woul be too retreive TRADING USING TIME ANAISIS + 109 en a \ nly Seon ! od ysl 1 ges 75. Tent 2 Whe ne rae figure 7-6 Te con a wing ih re 1 be 3 minima se cjpote dream am tiie gh mm atin Step 4 Look fora minimum swing sie sep ae size n the opponite direction, 08 8 fling thve fue sep, the re fur sep, te tks and wally ae etal Used ih ae ede oid te te ul dyn hoe or ‘Tia may seen complicated, but they are not. The abjective is to Tit he .. filter swings. To do this, there must be some rest c tions that reduce “noise,” or there: 80 me ef ‘would be unable to anglyze them. eed Tolowing te ur step procure the peak and valleys can be mane daily Bestche mak tart gure 77 Ovce the110+ TIMEANALIS Pirary Figue 7-7 ny Dewsche mat chart rm 02.92 10 07.5.The high nd ows Fe ey RAE to pak san aly 1 to aly 6, Source Wea mea Research, me) minimum ning site is determine, the Far-step procedure is the same Tor every pret and every chert whether weekly daily inradsy Exception: No Minimum Filter Size ina Strong Trend Locking at the daily Deutsshe mark chet, both a ong wideways move fda wey strong uptrend can be sen ip June through July, 1992, Droyng the strony uptrend there was no move chat qualified forthe ea thigh” or slow.” based an the procedure established to identify peaks of valleys. “a standand swing high sad low must occur atleast every 15 day taney do not vccur with Ube frequeney, the TGDs are so far wpart that fe market swings ean no Tanger be captured In addition, lack Grime goel days significantly increases evading risk, Without a earty objective to indicate where the markt wil change direction, Dostions are held longer, and there willbe arger equity swings. Com- Pater testing shows tha the best performance orcurs with TGDs ind Bite wih alow no mare than 1S days apart seams this pablem, whenever the market trends for seus 15 days without a tintmam filter ving, we se a smaller one, We i Sry aclect the largest swing that securred within the past 16 days TRADING USING TIME ANALYSIS. +111 gre 7-8 wing om ho 031 da ta ai ing ‘easure frm the highest high and les low, Figure 7-8 demon ‘eaten thie method. Iti mare impertant to maine te frequency of ‘TGDs than tobe commited toa speifie minima sein it ‘tv figure shows tho prolem thet might occur tn a trending mart Afters 10 pana std and shen {he eft ide ofthe char. Low M,high hi and lw #2 are dete tere are 21 dae betwee high #1 anton #2 Appling the ral forthe smal fier sie in trending mask, lok ft the biggest fring between the igh Hand hele #2 Tsering ated te {meen points Pl and P2 in Figure 7 The new time oal dy ean be ‘neste busing the tance H1-P2, da Fig 7-9 The integration oa smaller fier oving.412 + Me ANALYSIS etuening tothe daly Deutsche mark chart, the smaller swing sine canbe found in exnetly the ame way. The smaller swing high i bested at peak 6 andthe smaller sting lw at valley 6, 8 seen in Fig- tore Ta "This is the complete procedure fr establishing TGDs in strong market trends. i ~~ in } ial oh nt fe Guoaiciwdnastow: fare igure 7-10. Daly Deuiche mark from 0292 to 07-92 Smale owing te ‘GEIS tim pent snd acy (Sources TradeStation, Omega Reseach Inc) Exception: Too Many Mirimues Filter Swings ‘The previou section redefined the minimum ewing ie when there seein wandard teas Ph oposite ete alse exists Too many ‘rne ys no fede, Thon cl loin ‘Tose with signe bher an normal vl. a shown nF TIETAT Shane hips tha att mi iter, ae oat "punter and eewing own ae at $a "Phin the ease mt, dle he swing which has & soon the hind dy the igo te ith dy bed on the allow Merc muse eo loot tre dap bree he high nls Picotutngr ht ates the minimum ning ler et a bath tp ant bts fermatinn Sacesfl ime ey one correct detention of pes sd ally FREAD TS Sar henn by histor testing but this MORE ON THE STRUCTURE OF TIME COAL DAYS. +113 ey oo many mini fie sings. ‘minimum filter, for example, 100 basis points inthe Deutache ark, ‘only the start to Finding the correct peaks and valleys Review ofthe Procedure ‘The four-step procedure that was developed to analy the pens and valleys is hase ona nism swing size. This aaifies mont market ‘tuations. Aawe hae sen, there ae also exceptions Ina str bl (Gr bear market, there are many times when @ minimus «wing ize foes not secur. Withoot a swing of minimum size within 18 days, the trading analysis becomes unasisfactory. Smaller swings #7 inte {rated to aolve this problem. The cane with too many swings Was 8- ‘thor problem. This ean happen in periade of very erotic price ‘movement, This situation can also be lve by eaablishing & prose {Sore which eliminates some of the noise, MORE ON THE STRUCTURE OF TIME GOAL DAYS ‘When we look ata chart of any time span we lok at the price swings. Wer sce big ones and amall ones, These swings rarev represent the wave structure defined inthe Eliott concep, bosnuve mast ma et patterns are “irregular” Av discussed earlier, thous irrogolar ‘market patterns are the result of complex correction and extensions ‘Working with TGDs des not require the use of wave count. Tn this analysis i is wot important whether there is an wetrend, down trend, or aideways marke. The Fibonacci ratio L618 i appli rectly to well-defined market swings.[Atte time the TGDs are caleulate, we never naw whet the market price wil be high or low atthe poiota where the TGDs are Feached, Tecan be either ane, ATTGD forecast turning point, Our ob 1 Sell if he market pce i high when a TOD i cached, oF «Duy i te market price is low when 2 TOD is reached. By using the last two highs, the TOD can be projected, aa shown sn the Figure 7-12. Figere 7-32. (a) Using to vali is the price canbe low whe ‘ached () wing tonsa isthe pit can be igh when MORE ON THESTRUCTURE OF TMEGOAL OAS. + 115 Hen Mh ba fare 73.) Usa two alll, the pc cam be igh whe {Neches eg tw slow the pce can bel hn resche. ‘The suine calculation performed using the two most recent highs, can be applied co the Sen most recent awing lows. The reruls are shown in Figures 7-13, Familiariation with these four combinations wil allow an wn- oretanding ef what happens ta the resulta when the TGD ealeuts ‘ona using highe/bigh® end lwa/lowe ae combined, fn the best case, "TGDe calculated from highs/highs or lons/lows coincide the same day, But thats ideal Most ily, the TGDs are interspersed The realise case is when a few TGDe appear elose together, forming time band or time Barrier. When multiple TGDs seinede, there ie116 + THMEANAUSS ‘higher probability that che market will tora fr either & shorter correction ot a complete trend reversal. TGDs caleulated fro daily dats are more reliable than intraday result; Weekly data takes proce ‘dence over daily data. Thors i ear nolae using longer term data Figure T=14 shows the Integration of TGDs sing higha highs and lows ew. Figye 7-14 the came metres re reached by caleating TED fom igh! ‘ih room Probleme may occur in the investoent decision when the only svailable ime: goal caoulatons result in TGDs which donot fll near fe snother. This may happen when the difleent time signale are ‘based on the caleolatione ofthe last te highs andthe Inst wo lows Figure 7-16 deseibes this situation. Tn Figure 7-16 the time interval from HT to H2 produces the time gon 13. The time span Li to? gives the time geal 2. A short pistion muat be entered when prices reach 27, hecaune itis leery a high price. We cannot yet know what wil hapgen when tne goal 3 reached, but iteanoo! influence the trae based A abort i en tered at 3, end a stoples is placed above the high acarding tothe entry cule If the pacton 1b sapped out, another shart may be set 'tL3 the price el tthe seme level at waa at 9 flowing he ‘eentry rl it i at a cleerly low price, a ew long poritlon ¥en tered necarding tothe ruloe MORE ON THE STRUCTURE OF HME GOAL OAYS = 117 a 1 s 1 Prag {gure 7-15, Dileen tie urge ae reaches by cleltngYGDs hom high? gh or ow om ‘Analyzing Time Goal Lays Based on Highs/Highs and Lows/tows ‘The basic us of time goal days shold be ele. In & normal marke, ‘he distance betwen tay highs or two lows ie ultiplied by the ratio 11618 to get the TGD. Ye start the process of working with the tine sal concep, iat ask the question, Is there filter swing high or low?” Ifthe answer is yes, “Are we ata tine goal day?” ‘The application of TEDe varies bared on its proximity to » peak or valle: In the normal sequence of event, the market wil: + Produce a swing satstying the minimum filter value + Pass a time goal day + Mate high a low forthe current pre ave. + Give an entry signal TGDs Occuring before Fat Peak or Valey. In the mst frequent sit lstion, @ peak or valley has not yet been seen when the TED rwathed. The lcation ofthe subsequent peak or valley is pot relevant to the basic trading approach (eee Figure 7-16),118 + TIME ANAS @ Jil pret! ty (al lea toe Figure 7-16. (211 occurs efor the pas TGD occas tp TDs One Day ste 2 Pea or Valley. ‘There are many sitvations where the TED overshot the peaks o vellys. Ths may wo unnoticed; hem and on this day the le still was natin effect, wait fr the etry rule (entey rules dot in this chapter) to enter Ube market, Ht |: pest Figure 7-17" TED occurs one day ate pak TODs Move Than One Ouy after 3 Pak or Valley. Whenever a TGD is more than one da after the pack or valley, the situation becomes en Crain, If ne minitom ewing hes securred, the TGD a ignored (eee Figure 7-18), MORE ON THE STRUCTURE OF TIME COA DAYS +119 ‘pure 7-18 TED acct more than one day fer pea Trading Example. The fo dentfying peaks and wall i procedure works for every pret ‘and every char, whether intraday, daly or weekly. The daily Deuteche ‘mark chart in Figure 2-19 shows the peaks and vty that should be identified wring this method edible ie 7-19 a peasant (Sov: ado, Ones Resech120 + TIME ANALISS With theighs and lows established the TGDs can be caleulated susing th distanee between Ube highs and the distance between the lowe For easier reference ll high are marked even numbers and all Joe with odd numbers. Only the Pibonacs est L618 was used ‘The high TGDs were ealeulated in the flowing sequence: ‘The distance from high #1 to high #2 times 1.618 ~ TGD A “The distance fromm high A2 to high 43 times 1.618 = TGD B ‘The distance from high M3 to high #4 times 1.618 = TaD C "The ow TGDs wore caleulated in similar sequence +The distance from law #1 to low #2 times 1.618 = TDG The distance from low #2 t low AS Uines L618 = TOD Hf 1 The distance frm low #9 to low #4 timew L618 = TGD 1 Figure 7-20 shows the peaks, valleys, and the eslelated TGDs, AP sad ae ale hate fevoatengtvcstan: saa wi Sane oe Figure 7-20 The caleltion of TODt and buy and sell sgn, (Sure ‘destin, Oey Research, ne) TGDs Using Larger Filter Swings Large Miter swings may occur many times on weekly chart, Forex ample, whenever thor is ting of 10 ful pote 1,000 basis poets) {in the Deutsche mark, the peaks and valleys are combined i all four ‘ways to produce TDGs based on higha/highs, low/ows, hihs!lows, fd loweshighs. The method ie demonstrated in Figure 7-21, the weekly Deutache mak chart = , eat ee a eae ora mm 5924 wer 6 ast Tigue 7-21, Welly Deutsche marcha from 07-89 0792 Buy a sl ig- als generated wit he time anal (Sure: TradeStation, Omg Heese, REVIEW ‘This chapter showed how important itis vo produce the TGDs which integrate with the time frame ofthe analysis, I also showed what ‘happens when a TGD is reached. ILconfirms the power that lies in this snalysia, but also demonstrated ow much aceurery and discipline it tale to iallow the rate. ‘The ocurrence ofthe TOD in relationship to the developing peak ‘or valley was mportant. Whenever a TGD fell more than one day eter2+ TIME ANALYSIS «peak or valley, it was ignored, provided a minimm swing hax not cccurred. ‘In strong market, there may be intervals of 15 days in which » wing does nt satisfy the minimum filer erivria needed to calculate [A TGD. In thie cane, a combination ofthe previous highs/ows o lows! hgh can be used to generate the TGDs needed. ‘On weekly chars, tere may be ver largo swings which produce “TGs that are mathe away To al Un problem, the combination of Ihighs/lows and lwa/ highs wa lao sed. For example Full 10-point ‘wing (60.00 60.00) inthe Deutsche mark is conaldered big, [ADDITIONAL RULES Normal Entry Role Aw short position is entered ung the following stepe: ‘Pins, prices must move up by mote then the minimum requieed ‘Then, e TOD is passed, and 1 Lat, we sll onthe cle when the casing price is below the low ofthe highest day. ‘This entry aequenee is shown in Figure 7-2 entry rule follows the same procedure 2, The normal bay = be oy sgt tae sem ty 7 x a cia etn ‘Additional Entry Re [An addtional entry rule should give us the chance to enter the market when there isa very song move. Tn this case we wot ta be imerted before the market loses. For the additional entry rule, el signal it 8 follows (and shown im Figure 7-23); + Atus the minimum swing up hasbeen satisfied, and + After TGD has been passed, then + Sell when the price breaks the previous 4 lows Figae 7-22, Adon etry re, ‘The additional buy entry re ie ‘+ After the minimum ating down has baen satisfied, ond + After a TOD hae bon passed, then + Buy when pric break the 4 previous highs Stop-oss Rule {A stop lass should always be entered atthe same time asthe trade eo try, One elective way af placing a top Toes i to work with a price square (see Chapter 3, Figure 3-14), On the daily chart the tide of the aquare isthe distance of five business days. On a week chet, the sid eth distance of five wonks eee Figure 7-26,124 + TMEANALSIS on pce ‘One week in ime topped out, it may be re-entered ifenaat in the normal etry rule, and the market didnot make fn upward move satisfying the sing iter size. This can be seen in Figure 7-28. Figure 7-25. Reanty ul Whenever a short postion is stopped out, a re-entry occurs when market conditions satisfy the normal entry rule, and the market did rot male a dowrward mave natin'ying the sring Hier sz SUMMARY Eliott wrote of timing, “The length of waves may vary, but not the numberof waves, The numbers of this series (Fibonacci nequence] are {sellin timing the waren, both advancing and declining” (p. 129). suwnany 6125 [A move that extend ize heyond three days ahold not reverse until five days are reached. A mave that exceeds five daye should last ‘ight days. A trend of nine day should not finish before thirteon da, fd soon. This basic structare of calculating trend changes la the ‘ame for hours, daily, weekly, and monthly data, Each one ofthese anes an example ofthe Fibonace! ratio, and the basi for tne goal aye Our approach to timing ia focused only on the Fibonacci ratio 1.618, Ice very mechanical and seems to werk in both sideways and trending markets. While Eliot's approach is very stati our analyis ‘ery dynamic "The eresont difference between thie and strategies introduced previnly ir that inthis concept we are imested most of the ie, ‘This concep is closely elated to Nature's Law, expressed through the Fibenaee ato 1.618. Thie means the TED concept hae forecasting valve: it anticipates price changes rather than following after them. “This distinguishes it frm many other trading methods. The uniae ‘combination o swing sie, tie goal day, and entry rules makes i pox ‘ible to pinpoint tops and bottoms. In edition, dhs concept i dynam, lowing it to adjust to bigger and smaller market moves.COMBINING PRICE AND TIME ‘This chapter analyzes whether aignala, based on a combination of price and time, wll make erading sefer and more profitable. “Timing Js the mst essential element, What to buY is important, when to buy js more important. Investment markete progressively foretll Useir own future. Observation of waver indicate the next movement af the ‘market by their patterns whore beginning and ending are susceptible to dfinito and conclusive analyin” (Bile, p 84. As mentgned be- fare there dees not seem tobe any evidene that Eliott provided me: chanical roles to forecast pice moves ne prt of hi eoneape. Dut by Tacusing on the Fihonacci ratio 1.638, ie possible to ealeulate and forecast price and tine goals. Now we will combine Unem int one analysis. or the purpoce of demonstration, eekly chart willbe sed ‘The came prineple can be applied to oth daly and intraday data CONCEPT OF COMBINING PRICE AND TIME Step 1. the Correction In this method, wave count is dieregarded. If there ie 8 minim ‘ving of for ceample, 10 points (60.00~70,00) in the Dewtach mark128+ COMBINING PCE AND TIME Figure 1-4. 62% carecton pie tre ae Figure 8-1), wait fora correction of leat 62° of the tata ame plitude af the previous awing fom pat 4 a 8. This technique was (escribed in detail in Chaptar 4 Step 2, The Extension Extensions wre deseribed in detail in a previo chapter. An exten ‘Yon can be meaeured inthe direction ofthe main trend by multiply ing uve total amplitude tee 1 by 1.618 aa shown in Figure 8-2 (the unin swing saci ered) o, a8 part of the cacection by mt plying the total amplitude of wave a by 1.818, a in Figure 8-3 Figure 8-2 The ed ofan extricate by aig the ati 1.618 CONCEPT OF COMBINING PRICE AND TIME + 129, Figure 8-3, The end of 2 con ‘nee so the coecton 1.618 and the amp of Step 3. Timing ‘To calculate time, identify two peaks valleys and entity the dis: tance between the two by the fatio L618. Ths step is doetibed in completely in Chapter 7, An example of TGD based on two valley ie ‘Shown in igure 8-4 "The result ofembining the price gla and time goals calculated ‘with Fibonacci ratio 1618 are target pointe where both strategies vind, -4 The caleaation of tine ga day sing two valleys andthe tio120. + COMBINING PRICE AND TIME ‘A BRITISH POUND EXAMPLE ‘The British pound weekly chart will he weed as an example of sambining pri and ime. In thie example there are five major trend ‘hangee marked at points A,B, C,D, dE indicated im Figure 8-5. ‘This chart alan shows the buy and ell signala genecated from the cules using extensions and corrections in previous chapters \ ont ae vm \, Bla oaapn mrt ne 58920 wee Aut DIES ‘vung pice trp calesog win e2% Cerio dei sg he Tai 18 Sauce adesaton Ome Betcha) Trading Signals Based on Extensions and Corections Using the price goals calculated from extensions and corrections the following trading procedure wil occur. uy Sigs Fein The swing From point A to point was flowed bya correction of ore than 62%. Thre waa ula an extension 1.618 times the amplitude of the swing fram point #1 co point #2, Price {dropped lwer than the 625 corection and turned exactly a the price ABRITISH POUND BAAMPLE «131 ‘goal precleulated for the extension, lang postion was st following the entry rule after the trend change at pint Buy ¥ ‘Sel Sige ote Point D. There was a 62% correction ofthe ating fom. Point B to point C; however, Ue price target for the extenion was not reached. ell signal was generated ater the trend changed a tll point #2 uy Signal after Point. There was anather 62% correction ofthe swing from point to point D. A buy signal oecorrd ater the trend changed ‘nt poinc Bin pln #3 Trading Signals Based on Time Anahsis ‘The same weskly British pound chart (Figure 8-5) will now be used to demonstrate buy and sll signal based on time analyeia In these xamples, different numbers are ssed to mark peak abd valle Sel Sina afte Peak #4, The awing from low 9 Lo high #4 full the ‘minim filter requirement. The distance frm lo #1 to low #2 Lilie by 1.618 gives the time goal day before peak #4, Sell signal #1 ‘ceurred on tho clase below the low tthe highest day ‘Sel Sigal after Peak #6. A very large swing ie formed frm low 98 19 high 46 Apply one a the exceptions for weekly chart, by multiplying the distance fram high #4 ta lw #3 by 1618 to get the time ge! day before peal #6, ‘Sel Sigal after Peak 48. Another big swing formed by the move from lw #7 to high #8, using another exception for Uhe meskly chart ‘Multiply the distance from high 46 to low #7 by 1.618 to tet the tie fal day before poak #8. Sell signal M2 appenre onthe cleat below the low ofthe highest day ‘The trades shown in Figure 8-6 were all generated in th a: avence given for sell ignal #1. "The time goal days which preceded the Signal canbe easily identified.“ete STAT sia 80 wae Al ML Figre 8-6 Weety Bish pon chart fom 08:09 10872 Buy and sl i fi lg the tne sea th tne gals ay and ry tle, ure ‘aden Ome Research ne) SUMMARY {we compare the signals in Figure 8-8 generated by pre with those in Figure 8-6 which were the produce of time, it ean be sid + There eno particular order inthe signals Trade resulting fom ‘extensions can aceur before or after thate bed yn earretion, “The technique of working with time goa! days is very different from that of ing extensions or eorreetion. By using ime goal days, we holds market posit most ofthe ime, Beeaune the a jective js to stay cloe to the trend, the result ie that there are ‘more trades in sideways periods than in trending markate 1 The time goal signals, and signals based on 62% corrections co Jneiied with all major trend ehangoe withia the tat period. Al ‘though this feature was notated in the trading steategy, FotTers Introwing presiblities for improving performance. THE LOGARITHMIC SPIRAL ‘The logarithmic spre provides the link between price atime anal yt. Lis the answer to long search fara solution fo foreasting bath rice and time. The logarithiie spiral ia called the most beantifa of mathematical curves. twas briefly discussed in Chapter 1. This p- ral has occurred for millions of years nature. It is the oly mathe ‘matical curve to fallow the patern of krowth expressed tn the apira mirabilis, commonly called the nautihis shell Two segments of the spiral may be different in size hut notin thape, The epra ic without 8 terminal point, Figure 9-1 shows tha, a8 the size of the chambers increase in the proportion of the Fibonacci rato 1618, its shape re Figure 9-1 Logue pl shown in he main hl,I there is any chance of linking human iehavior, expressed in the price swings of socks end commodities, with Nature Law ee rotted ie the nautilus shell, the Igarithmie spiral should be the "ones aston. Any pint onthe spiral represents the optimum price ‘ime relations, ‘The most challenging part of the spiral i a ee it work sn ox treme market situations, then behstoral patterns ae stronges The tock market crash in October 1987 y such an example. While very ‘ther method af seaiysis soem to fall, the coreect spiral slates the fottom of the move preciely aee Figure 9-2 ‘With the center ofthe spiral point andthe starting pont at, ‘the spcal was penetrated by the S&P price at point CT wil be shown Inter that points A end Bare very definitive and could have been se lected by any iwestor using the rales explained inthis chnpte ‘THE CONCEPT OF THE SPIRAL i eazy to understand and conceptually simple to apy tothe markets, But, becatse identifies turning points, the trading ial eae NETRA Tate sw ma ms HSC 290: MEST RTE A tech at pinch con the pal tpt 8 nah tag st fom ide: eoben Facer heats eae} TMECONCHET OF ME SPIRAL = 135 equre that postions be taken counter to the current price trend (ie selling when the pric is hight that vequtes exceptional diciglive oe the part ofthe erader to execute the rgnale But icon peor nn ith the correct centr charen the spruean identity turning plo ie the markets with an accuracy ever Seen beform This is role Deck bra ampcoach, nor an overated eomputerind system, but «vert Ine ppliedt commodity price movement. Market Symmetry ‘The logarithmic spiral shows that there i stunning symmetry in the rice pattern af commodity charts The exitence of Un symmetey roves hat market moves are not rendom, but alow a clear behav eal Pattern. These forces which direct the price moves als allow the In ‘weitr the opportunity opr. Its oly eceenary to turn these pin ‘ible int trading rules. The weekly erade ol chart see Figure 936 another eample ofthe remarkable timing posuiic ening the eral, By placing the center of che spiral at point A and the sarting Point atthe spiral went precisely through te lat point € and Point D, and slo touched the highs at pints and‘Using the weekly crude wl ehart as en example, the ymmetry af any chart can be found cae tbe correct cantar ofthe spiral i dant- ‘ed. This enter can be ether inthe mide ofthe market pattera oF tune ofthe extreme points highs or lows). The ee of ether daily fr week chars doesnot affect the accuracy ofthe spiral Te joa a= Iikely chat this rane principle will werk on intraday char; howeser, the inerease in nuige males the ceter ofthe spiral more difficult to locate, ad the profit margins ten to Become very narrow Bute of Alteration ‘The rule of alternation ite socond important rule (aftr the Fibe sce rat) which shows chat Nature's Law cam be applied to price pat {erns ip earmoditieg Tai law iy best decribed by the example of & sunflower es given ty Jay Hambiage, “In the sunlawer to seta of fequiangular spirals are superimposed or intertwined, ane Being right handed and the other laf banded spiral ith each floret iling & Aaal rae by belonging to oth eptale" Practica! Applications of Dy ‘namic Symmetry Ham, New York: Doter Puiations, 1970, pp. 28, 291. This formation ia shown in Figure 4, Eliote knew aboot the rule of alternation. Perales st pos sible for hi to eam that be ela Forecast Fotune price maver based Flgce 4. The rl of aenation shoo te won Figure 9-5 Weekly cre chart rm 07-09 4006-82 The ale afalenation Sa EE 7 oa fire 9-12 Spl une ole with cei pit ad te string (lpi) wey pohly char a 07-8910 98 pe tae Sick enc at pot Wt at pint Rp Trp at pt ‘Sent tober ace etn Chica Case 2. Inthe daily soybean char the enter ofthe spiral is at B and the siacting point at A. The apiral 4 rorned counterclockwise. The trend changed when the pice pencrated the speal a D This shown in Figure 3-18. MORE ON THE STRUCTURE OF THE SPIRAL + 145 13, a Sia tr contrclchwie, start a poll A center Pet daly soybcan chan om 1-3 tO. pa tars con ‘ie center at polt start of poi A price age tft D Sune” Raber Fiche nse es CCowe3In the dity Swise rane chart the center ofthe apiral is at snd the starting point is at C. The eral curne clockwise The trend ‘hanged when the price penetrated the spiral at point D. The shawn {Figure o-14 ON seme Wis Se essai ae or apn Bsr 3 pin C ‘Swi ran chart tom 1291 t 06-92 Spelt coc, Ser at pol pe fre at pow Sure” Robert Fhe146 + THE Locate SPL CCase4._ In the weekly Swiss frane chart the center of the spiral iat point 2, and the starting point is C The spirale Larsedcounterlock Wise, The diectian af the teend changed when the price penetrated he spiral at point 2. This is shown in Figure 9-15, \ * afer a i nt ae ac aie w 5 Figwe 9-18.) Spiral trme counerclchle, center at point Bart at Although years of sad show that turning the spiral counter clockwise gives beter cverall reste than turning it locke, Both ‘options are sill necessary to aniey the rule of alternation Stang Points or the Spiele an Upttend. The spiral centers choses {am the three points A, B, and Cave the some pans shown fr the Aowatrend, only in reverse In tate. ther ae for options turn the pal ceekerite, and for options to turn she spiral counterlockie ‘These opionn are shawn in Figure 9-6ach As With the dawateend, is posible Louse al eight options to find evry top and bottom, bat the best results were achieved by using the canter at point B. There Fone examples wil be mite to: MORE ON THE STRUCTURE OF THESPIRAL + 147 1. (Y ~— Fire 9-166 ot cise with iter a > Va VA/ iy \ “ ¢ 5 NN?“The center of the pi at point ‘The starting point at either A or C, and ‘Turning the epital either clckwiue or counteelckwise, “These four apsone are sua in the follwing examples: Case 1. In the daily soybean chart the center of the spiral i at point B, andthe starting paint eat A. Te spiral turns clockwise. The trend changed when the pce pontested th spiel at point D, ax seen sn Figure 9-17 Figure 9-17 (a) Spt rns clchwie, cele pot 8, art at pint A: {Dh diy sytean chart rm g)92 100 93 ring pi tit A tap BSc ae ace CCowe2_ Inthe weekly British pound chart the enter of the spiral at Band the starting point a! A, The spiral ix turned courtersackwise ‘Thetrend changed when the price penetrated the apral gt past D. Tas Ss shown in Figure 9-18 MORE ON THE STRUCTURE OF THE SPuEAC +149 == : ¢ a) nl CY) Saasgreseergecnreeretcereente oY See a > gre 938 pa a tr Pe ed ea al fara ragplnalr pees he wee Case. Inthe weely Teeaeury bond chart the center of the spiel is 44.6, and the stating pont ia at. The spiral tarna clockwise. The ‘irection of the trend changed when the price penetrated the pial at is shown in Figure 9-19, {9 pat wens aca, ceter a polt 19nd chan wom 0 en Frtbertecuch Chee nt150 + THELOGARITHNE seiRat Case 4. Ta the weekly crude oil chat the center ofthe airal isa 2, land the starting point is at C. The spiral turns counterclockwise, The trend changed when the price peratrated the spiral at point D. Thies shown in Figure 9-20, WwW. Taped o Figoe 9-20.) Spiral turn counterclockwise ene a poi tring polt [pin (0 wel crude char hom 0749 1.0792. Spl trn cee AT the cases are conceptually the come because they have a 3- swing pattern. Chapter 4 deseibed the idntifiation af the 3-swing pattern part of the Eliot Findings on corrections. These swings can frequently he fnd at trend changes and are highly reliable ‘The apical eannet be drawn without a Sewing pattern, which happens only there isa trend change in the form ofa strong V-ture ‘This manna thal after @ along upswing, the market reverses with @ very strong downswing and no corertien. ‘Appling the spiral to any ater wave, for example wave or ave 4 does nat change the concept Tony confirms the turning point lead {stablishod by enather spiral To keep the picture complete, Figures 9- 21 end 8-22 show spirals drawn (rum wave 3 and wave 4, eapectively ‘On the daily Swiss feane chart (Figure 0-21) the center of the spinal eat point A. The starting pot point B atthe end of wave igure 921 Dy wis ane chat om 1% 0622S ts dc wise cener at pnt A sarting pin pint, rice target pa © (Sources bart Fach eco Cicge nt cet ‘The trend dirttion changes when the price penetrates the spiral at pint C. In this ease only the swing ze from A to i oced ‘On the wen crud ol char (Figure 9-22) the enter ofthe si ral ia at A. The starting point i Bat the and of wave 4. The spiral ic tered counterelackwiae. "The trend changed when the sir wax pen trated at poist C Figure 9-22. Weekly creo chart rm 07-89 07:2, Spiral tus counter clockwise cere al pint A stating pata pont rice are plat © {Somer Rober Facer Recrch Cegn)152+ THELocAmHANE srRAL WORKING WITH THE SPIRAL Bach tine we begin an analysis sing the spiral ite necessary to ak ‘he following questions Stop |. Te there a3-swing pattern that satisfies the minimums swing Step 2. lave there been two ful otations around the centr of the spiral, and has rng 2, as measured frm Use center, been penetrated? Seep 3. Has th enay rule boon satistied (as discusted in Chapter 6, “Bxtensions of Wave 37? All tne steps muat be anewored "Yes" to have wala spiral signal The analysis of spirale effers the option of choosing between iferent apiral rings. Bven when the correct center end starting point is known, sin also necessary to know al which spiral ring the ‘market will turn The flowing sections discuss the different opal ings Spiral Ring 1 [Athi time no rules have ben offered for nvesting when spiral ig 1 penetrated, Ring Tan be of sme importance when working with big {wing rnas.Wcatnot be used with smal ings, beeaee it can often be ‘confsed with nose and three lacks reliability Spiral Ring 2 ‘The us of spiral rng ? overlaps the analsie af extensions decribed in Chapter 6 Inboth cases the seme minimum wing sie sed, and the same entry and exit rales are used ‘The difference between the techniques isin the target points where the signal entries acu. The use af extensions limits entries to price targets based only en the Fibonacci ratie 1618, The spiral lecates a target which ea combination of bath price and time. This sida another dimension to the analysis, and makes it even more “unique, When the corect ara is chozen the results are much mate WORKING WITH THE SPIRAL + 159 ‘To become me far with the spiral analss, igure 9-23 shows tree conaceoie signa in the atte weekly portly char. In all three cases: Lee “There is a t-swing pattern, + Spiral ring 2s penetrated, and "The entry rule in Chapter 6, “Extension of Wave 8," case 1, is sed ‘Case 1. In this weekly pork belly chart the Sawing pattern was marked A,B, and C.The entero the spiralis at point B. The starting point iv at C. The opral turns counterclockwise. Once ring 2 of the spirals penetrated at eine D, we lac for the entry rule tbe fied. sel signal occurs when the 2-week low is penetrated Figure 9-23. Welty pork bees cae (om 08.891 07-92 Spiral tues coun: leclckwise, center st point 8 stare pant at plat. pce Pint Dounce Haber fscer Revere Cage)Case 2. Using the came weekly pork belly chart there i sgeond 3 swing pettern marked with the points A, B. and C. The center of the Spiral sat point 2. The starting points at A. The spiral turns coun tercackwise, The trend changed when the pice penetrated the spiral Bi point D. A long position ta entered shen the 2-wele high is Bene> trated, a8 shown in Bigure B24 Ay fh) Figwe 9-24. Weel po bel ferlchwise, center fi, pt 0 Source: Haber! Fl Case Again, the weekly por billy charé shows a third Sawing pattern marked with points AB, and C¢see Figure 9-25), The center ‘ofthe spiral ie at print C. The starting poi is at B. The spiral turne ‘ounterslckwine, The trend changed when Use price penetanted ring 2 ofthe spiral at point D. A short position is set wean the previous 2 ‘wook low i penetrate. nmin tne ee ee igure 9.25 Wecly pork belies chart rom 0.896792. spiro ferockwise, center st poi Cy staring point a pont pie fret pi eorcer Raber fecha Research Cape) WORKING WITH THESPIRAL = 155 After three cases exemplifying how the apral works on a weekly por belly chart, jis til necessary to give examples a diferent prod ‘Sete inorder to show hat the spiral isnt lived to sbetal prodete ime frames. On the daily SAP 500 Figure 9-26) there ia Sawing. pattern indicated by points A,B, and C. "The ceter ofthe spiral sat point A; the starting point eB. The spiral tras clockwise, The trend Changed when the S&P price penetrated ving 2a he spial a pint D, ‘Along position i et when the previous Seay high wa broken “Tk atl m ify . er Hoge 9.26 uy SA rt yO 67.2, ‘Source: Robt Fischer Rewearch, Chicago) urns cache, Cn the weekly sybean chart (Figure 9-27) there is another swing atlern given by points A.B, and C. The cote of the spiral ix ft pont A. The staring pont B. The spiral turns counterclockwise ‘The rend changed when the soybean price penetrated the second ring “i figure 9-27 Mealy soybean chat rom 07: locos, center at pint starting an ot (ouresRanet Fach Research, Che ot Bs ce target at156 + THE LOGARITHMIC SPIRAL ofthe spiral at point D. A short position was entered when the pre fs 2a own broken, ‘The weekly Treasury bond chart (Figure 9-28) indiesos a 3 wing patern at ‘The starting paint is C. The spiral taens clockwise, The deeetion of the trend changed when ring 2 of the apial was penetrated at point D. {A short positon is entered shen the previous 2swel low i brn gare 9-28. Weel) TSY bond chart rom 07-8910 0792 Spiral turns clock ‘weer ctner at git, starting pine at pont, rice targets pin Source: Rober Facer Revere 280) Splat Ring 3 Ite not often that the third ring ofthe pica same direction asthe major tend. But when trend change should fallow, The same entry and ext role that have already been decribed in Chapter vo examples fellow to show what might e expected when ring 3 is penatrated ‘On the meekly British pound chare (Pigure 9-29) the Seeing ‘pattern i given by the points A.B, and C. The center ofthe spiral AA. The starting point i B. The spiral tarne counterclockwise, The frond changed when the British pound price penetrated ring 3 at point DA short puiton wa set when the vallay ofthe abe forma ‘on wes broken a pint INGWITH THE SPIRAL = 157 yon Toe ty y sana an UT ICN 80> iT 4B Ms pun carr 07-091 07-92. pl uns coun. string pit tpt 8 price ret at pit. (Source: bert Facher Reach, Che) ‘The daily S&P 500 chart Figure 9-80) gives a swing patern at A,B ard. The center ofthe spiral ie B The starting point i A ‘The spiral turns evsterclockwise, Th trend changed when the price penetrated ring dat D.A short positon was sot won the low of the {be formation is broken at point. se rmn “elas Sitaram mes mee sa figure 420 Daly SAP chart ram 09.91 to 03:92 Spiral lens counterlok tne cnlr at pin 8, sartng pont toi A. pie are at peal. (Satie Ret Packer Beware Cig)1s + THELOGARITHMIC srRAt Spina Ring 4 A penetration a ring 4 inthe continuing tend direction mes! vecar even Tess alten thin any oles ting penetration. But it does happen, tnd should indicate a dramatic trend change. "Those are moves Such as the stack market cllape of Ostcber 1987, o extremely long creney trends. They ate the timate price targets. Wher ring ie pene trated the point of penetration can be used as an entry signal, There ino need ta wait fora confirmation. The stop les fr the currencies shouldbe 100 bass points. The rentry rule, and use ofa railing stop fare the same ar desribed in Chapter 6. Two examples fll using ally and weekly charts, showing the trend changes when ring 4 penetrated "The weekly SAP 500 chart show the 3-awing pattern at A,B, and Ctege Figure 3-0), The center of the spiral i B. The starting point is C. The spiral tarns courtersickwite. The trend changed then ring 4 the apral was broken at point D. Ang ponition ean be entered at Dard a stop nas of 400 points placed concurrent, mh x Figure 931 Weel SAP char fom 0-86 10: pital tre counercack- wie cener at pont. tari pln at pant pce tage 3 Pal Ds (Sources Robert Fischer Reser, Chea) ‘The daily wins frane chart (Figure 9-32) hana S-awing at AB, and C. The center ofthe spital is B. The starting point eA. Te eieal ‘turns counterclckwige The major trend changed when ring 4 was penetrated at D. Alon pasitin was et at D along witha stop ase of 100 pnts Figure 9-22. aly Swi ane carom 12:91 6-92. Spite cater ‘ecte, center 2 pois srting pint at pois! A pice tare nt Beare haben Fischer Rserth, Chap. Integration of Weekly and Daly Spirals ‘The epial analysis chooldinereate in reliability when turning pints occur atthe same place sing different spirals: To show the power of he spiral, Figure 9-99 dees two different Swis fre time frames tw identify the some turning pint hy applying two diffrent centers and starting points onthe weeks chart, and two diferent enters ard Starting points on the daily chart, Inall for easea the major turning point could have been den tified, This is shown in Figures 9-33a,,€, and igre 9-294. Weebly Swiss an chart rm 7-890 0792 Spl ms cou lerctckuac, center tpt: ating pant ot pint pe target a point Source: Rabat Fhe Research chic)160 THE LOGARITHMIC Sra / Figure 9-398 Woey Ss rnc char 10791907. Spinal ars clos se center at pin’ A, starting. point a plat, price target bm (Sources Ror Fischer Reser eng sas mwa. aaa 3.0) Rate TRL Fare 9-22¢ aly Suis rn ht rom 129 10 6925p ‘Set Sot tp ay pl pe spe ‘Soret chr noch Chae) suMMaRy © 161 4 ly M \ Davarbeandenn manfaanka: sss rie.) MLD 39807. CANT 8 R= Figure 9-394 Oily Sw fame chart from 12-9140 06-2 Spia urs lak tues center at pnt Cy staring pnt st pol, price target at pam & ‘Source: mover Fischer Research, Chap) SUMMARY ‘The logarithmic apiral i the lnk between the Fibonacci summation series nd the worl of Nara, It eth only mathematial form that “express the growth pattern aren in the nauiias shel ‘Using computer program to produce the logeithmie spiral, we ‘an finda stunning aymmetey nny weekly or daily chart The sevet {find the center af the spiral. Once this a dane, i bacames very ‘Maly that turning points in the market can he forecasted accurately "This forecasting ability ie based onthe rule of alternation. Eliott Aiseovere this poenamenan and integrated i ito is concept. The si the perfect tol to prove the imprtance ofthis ule, ‘This work is only the begianing of naw wave of price analysis: st the resales of nr imited research are too relitle to be neciden tal. We are able to selet eight possibilities which pinpsint every im portant high and low inthe hundreds of charis analyned, The best ‘verall resulta can be found using only four of the options, and promising start,Appendix A THE GOLDEN SECTION CoMPASS ‘Tho Gaiden Section Compase was intendeod at sminara given by the author i 1993. tis an ndispenssble ton for every svestor with a” interest n Fibonacel It sale very cany to use ‘The Golden Setion Compass nthe translation ofthe Pibonace summation serie into an investanent tool Aw with a caliper, ite points can bedrawa clase together or opened wiler Figure AD. The three legs always remain saparatad according tothe Fibonacet rato, ‘hus a dynamic edaption tothe eyele © alwaye possible. This i the teal to apply the ratios 0618 and 1618 to any chart analysis inte fdued in this boc, with the escopton ofthe xpral which noeds to be senerated on a computer. twill help with + Corrections + Bxtensions, and + Time anaPlease write to Robert Fischer, 555 W, Madison St, Tower #1, Ste. 1612, Chicas, Il 60661, i you have an interest 1 weguiring Golden Section Compasa Appendix B SPIRAL EQUATION AND CoMPUTER PROGRAM After the seminar, he Logarithmic Spiral was fully camputer- aed, For iuvestors who are iterested i the equation, the following formulae give the necesary deta ‘Basie Spiral Equation or two radi For a golden spiral, rand x) would be the ratio When rand sare separated by 2 where ae Stt Prom the sbove relation, we have an166 + aPveNon@ which gives monde For investors who want to computerie the spiral, the flowing ces ‘ment out of or computer program will make i easy ¢o work. Tvestars who are interested in our software package should contact Robert Fischer, 555 W. Madison Dr, Tower #1, Suite 1612, (Cea, TL 6065 INDEX Atvernation,rale of, 136-197 ‘Analysis ime, 103-295 Broskout atratogy, 54-55 British pound chart 57, 68, 86, 130-199, 149,157 computer test run, 66-67 ‘example, 62-63, Combining, 96-102, 227-192 feaneept, 127-129) extensions and corrections, 100102 patterns and corrections, 95-100 Computer test run, 66-67 Corrections, 48-71, 95-102 Tooge-term, 53| short-term, 34-67, soe of, 50-52 trend changes, 68-70 (Crude ofl charts, 150, 191 Cyetieal pattern, 25, Deutsche mark chart, 68 10, 1 Divine Propertion, 2-6 Dow donee 30 Industeials, 51, 58,84, 96 ot: Diography. 11 concept of, 1-26 corrections, 18 ‘extensions, 17-18 Torecasting, 22-26 rarket patterns, 14-20 Natures Law and, 12 Rule of Alteration, timing, 126-125 wave principle, 11-24 line, logarithms, 10Enteyenit points, 25, 85,58 122-128 rule, 65 Eulid, 7 Extensions, 17-18, 28-92 ‘efintion, 73 Abowntcend, 74 five (Shwave, 86-92 sptions, 98 theee(ab-wave, 76-86 Upteends, 73 iter swings, 121 Five (Gharave pattern, 25-44, ‘35-02 extension, 87-92 ive have swing amplitude, 30-22, 39 ‘confirmation, 30 end, 28-331 identifying. 25-26 reiting, 26-29 ae, 30 Prats Porecasting value, 25,46 Geometry, 6-10 Goal days, 104-108 ‘analyzing, 227-121 strvetore, 13-117 olden Mes, {Golden ratio, 104 Golden Section, 2 4, 188-164 Invest, when nat 0, 48-50 “Jepanese yen chart 36, 82, 188 Kepler, 2 Logarithmic spiral, 8-10 132-161 Options, 40-49, 7, 98 Phi,2 Plante and the ibonacei ratio, Pork belly exams, 144,159, 186 Price and time, 127-132 Price movements, 73-99, See Extensions. Price targets multiple, 95-102 Primary market eye, 47 Profittngget rule, 38-39, 55-56, 61,84 Pyramia Gish, 2-4 Mexican, 4-5 Ratio of Whirling Squates,2 Ratio, Fibonacci, 18-19, Reniry vue, 35, 61, 82-83 Rotation of spiral, 198, 42-151 Rule of Alternation, 2-3 Roles, eliable, 46-47 Shecrewort, 5-6 Soybean chart, 77, 145, 148, 155, logarithmic, 8-10, 195-161, 165-165 concept, 138 rotation, 159, 2-161 ule of alternation, 196-197 ting sie, 140-142 syminetry, 195-186 Shir oe three (Shawing pattern, 149 working wih, 152-161 ‘Stop ass rule, 36-37, 57, 60-61 suce9, 123-124 Summation series, -2 ‘Swing breakout 85-56 Swing sie amplitude, 30-92, 33, breakout, 64-85, maximum, 4 minimum 48 Swiss frane chart, 32,98, 9, 145, 148, 151,159,160, 161 Three rave sing, 48-49 ‘corrections, 8-09 entry rule 58-60 extensions, 70-86 pattern, 58-67 efit arget rue, 61 + 169 short-term apprcach, 62-64 topes rue, 60-61 trading example, 62-63 ‘Timo analysts, 108-126 sal dass, 104-106, Puls, additional, 122-225, ‘Time and price, 197-192 ‘Teeding signals, 87-88, 62-69, ‘Trading, using time analysis, 106-113 ‘Trailing stops, 89-40, 86-86 Trend chanral. 25-26 Telansles, 45 ‘TSV bond chart, 149, 166 Wave, elongated, 45-46 Tigzags, 48