CONTENTS
FOREWORD ACKNOWLEDGMENTS INTRODUCTION
xi xiii
1
CHAPTER
1
UNDERSTANDING
HOW FIBONACCI WORKS
11
SECTION I
CHAPTER
THE MOST IMPORTANT FIBONACCI TOOLS
HOW TO FIND IMPORTANT SUPPORT AND RESISTANCE LEVELS WITH FIBONACCI USING FIBZONES TO IDENTIFY HIGHPROBABILITY REVERSALS
15
2
3
17
CHAPTER
43
ix
x
Contents
SECTION II
CHAPTER
MY FAVORITE FIBONACCI STRATEGIES
How To Enter Trends Using The Trend Trigger Strategy
55
4 5 6 7
59 67
CHAPTER CHAPTER
THE REFLECTION REVERSAL METHOD TRADING PULLBACKS USING THE TRIPLE
CROWN STRATEGY CHAPTER TWOSTEP PATTERNS (TSP)
Capture Strong Trends With The Symmetrical TSP Enter Pullbacks Using The Gartley TSP Find Powerful Reversals With The Butterfly TSP
83 97
100 111 123
CHAPTERS CHAPTER CHAPTER
HEISENBERG 200
137 153 165
9
SHARK ATTACK
10 AIR POCKETS
SECTION III IT BOILS DOWN TO PROPER EXECUTION
CHAPTER CHAPTER
189
191
11
ENTRY PATTERNS: HOW TO ENTER THE TRADE MANAGEMENT: IDENTIFYING AND
12 RISK
MANAGING
BIBLIOGRAPHY ABOUT THE AUTHOR
THE KEY AREAS OF RISK CONTROL
211
219 221
f


~~
INTRODUCTION
When I first started trading 12 years ago, I was looking for the secret answer to trading. What was the one indicator,the one method, the one guru, that could tell me when to buy and sell? To find it, I spent thousands of hours and dollars on books on the subject of technical analysis. I had myself tutored directly and indirectly by some extremely successful traders who have been in the thick of this business for years. From my initial exposure to the market, to the present day, this 12year journey has been filled with reward, humility, excitement, disappointment, and hardknock education. Early on, my trading was very volatile and unpredictable. Much of that rollercoaster ride was due to the fact that I was making highly charged emotional trading decisions. I was floating from one trading system to another. I had no plan of attack. Fortunately, it was this frustrating experience that became the driving force behind my desire to create a wellthoughtout trading plan. I am excited to say that what I have learned with Fibonacci analysis over the years has become my "holy grail." With this methodology, I have a plan of attack before each market day's open and can execute every trade with confidence. Sure I have losses and draw downs like every trader. But I have the confidence that over a reasonable sample size, I will be profitable.
So, when I was approached about writing a book on the trading strategies I use with Fibonacci,I was, naturally, excited. It is my honor to share with you the fruits of my
labor.The information I'm about to share with you is extremely exciting to me.
1
2
Introduction
Not a trading day goes by that I am not applying Fibonacci analysis to the markets and. just observe some of the opportunities this analysis presents on a daily basis. I'll take a couple of chapters later on to walk you through those details. for now. let's take a peek at a few examples of Fibonacci at work and the potential decisionmaking power that Fibonacci puts in the hands of a trader. Now.
. Don't get caught up in the specifics or math of these charts. watching markets conform to my Fibonacci work. in turn. For now.
Fibonacci price support alerted us to one of these highpotential reversal zones between 60 and 65.~~A
Fibonacci alerts us to a
potential reversal.9ijS ~ll. we are able to project price zones where there is a high probability of a trend reversal occurring.000
65..com
By properly applying Fibonacci to price charts of stocks and commodities.
~ ~1M
~ . the Biotechnology HOLDRs (BBH) was in a solid twoyear downtrend and was trading down around $65.~
70.000
cTraders.861 Ret 2.+
Introduction
3
.ool) .550
_~_I&_t14+__
+
.618
1
:::S.000
155TD 53.~=+===gHbd~:. For example..60% 65.400.
. 75. this represents tremendous profit opportunity. To the trader.fp\~bt
6Q.
30 days later.000
t===========IjjI!lI~f@~ll~
Apr
As the next example will show.8Eol Ret 2. creating opportunity to profit by selling short a stock.
.4. Not bad for a market that had essentially been trending down for the last two years. the BBH is up 420/0.4
Introduction
Over the next couple of months.s &2.S.800 App 1.321
____ 2~
E. Fibonacci also alerts us to where price will likely reverse to the downside.E. future. the BBH traded up over 27 points or 42%. or commodity.18 Exp is i.
1E.
272 28.808 App 1.376 Ret 0382 28.I knew Fibonacci analysis was accurate.000
.898 Ret 1. At the $26 level.
L
Fibonacci projects a 1potential downside reversal. Not only were we looking for a reversal to the downside.20.00% 16. ~{c~\\
OTD
+
Objective >
13.That's a 64% upside move.226 Ret 1.J. ~ ~
28. Fibonacci alerted us to the probability of a reversal to the downside.000 Exp 1.00 per share to a high on August 15. 2002. but this seemed like an aggressive target. but Fibonacci ratios had calculated a final price objective down around $13.000 27.618 26..272
0.Over the course of five weeks.613
.399 Ret 1.22. this stock had rallied from a low of $16..+
Introduction
5
Below is a chart of Myriad Genetics (MYGN).J__::". of 26.
.22(.272
._
28.450
MYGN loses nearly 50% of its value in 5 weeks. but within a few short weeks it actually hit our profit objective. Who would have imagined that a stock that was up 63% trading at $26 would be trading at half of that value in just a few short weeks? I guess Fibonacci did!
_________ 
'c.B98 Ret
1.399

26.000 Exp Ret l.618 App 1.6
Introduction
As you can see below.382 Ret 28.808 App 1.37G 0.
Iftttt 1ft ftl
1=1'13.G18
2&.
Ret 1. Not only did MYGN reverse and go down when Fibonacci told us it would.272
2B...000
27.000 1. the accuracy of this analysis can be downright scary.
.618 R 49...&18 
11t
....
Fibonacci projects an opportunity to go long.... Below we are looking at a 60minute chart of eBay (each bar represents 60 minutes of price activity).... This stock has sold off over 4 points in four days...618 49........
~8:i~~ His ~~!
49..
I
1====::::1..943Ret1...685 et1.... Fibonacci not only kept me in my seat but identified a key price support zone where there was a high probability that it would reverse.... It has been my experience and observation that the exact same analysis can be applied to almost any time frame as long as sufficient volume and data exists to create a measurable price bar........618 R
1
49.Introduction
7
I've shown you a couple of examples on daily charts.367 et1....... Most investors were heading for the exits..832 pp A 1........
.18 49.f.f.47f.85 Ret 1.18
1
+ 24 Bars
·8. ·4.18 49.3f. or 6%. They occur in stocks. They exist on weekly. And this analysis can be used and applied by daytraders.
1
4'9. commodities. and futures contracts.943 Ret 1.
e8ay trades up over 3 points the next day.224. It would take at least three years at your local bank (at 2003rates) to net those kind of returns in a savings account.f.8
Introduction
The very next day. and longterm traders alike.
it
Trading opportunities like this one and the previous examples exist every day with Fibonacci. daily.f.18% 50. over six hours. swing traders. eBay traded up over 3 points.7 Ret 1. and intraday charts.18 49.f.832 App 1.
Section I: The Most Important Fibonacci Tools
Chapter 2: How To Find Important Support And Resistance Levels With FibonacciNext I will lay the foundation for the rest of the book by teaching you the basic stepbystep process that is common to all of the strategies that I will be teaching. I will show you how. I will teach you how to use Fibonacci in order to enter the powerful reversals that occur fromthese fakeout moves.
Section II: My Favorite Fibonacci Strategies
Chapter 4: How To Enter Trends Using The Trend Trigger StrategyHere. enter the initial pullbacks of newly formed trends and trade major reversalsin all time frames. for the remainder of this book let me focus on teaching you how Fibonacci works and how you can apply it to your own trading. FibZones will provide you with a way of using multiple Fibonacci relationships to find reversals that have a higherthannormal probability of occurring. Chapter 6: Trading Pullbacks Using The Triple Crown StrategyThis is my favorite pullback strategy.Introduction
9
I could go on with many more examples to show you how Fibonacci can help you identify trading opportunities in both stocks and futures and for different time frames. Here is what you will learn as we work together chapterbychapter: Chapter 1: Understanding How Fibonacci WorksIn this chapter. Chapter 3: Using FibZones To Identify HighProbability ReversalsYou will then learn about FibZones. through the use of certain Fibonacci ratios and certain swing patterns. I will
Chapter 5: The Reflection Reversal MethodNext." These three patterns will enable you to capture strong trends. I will explain what you need to understand about Fibonacci numbers in order to use them as a powerful tool in your trading.
. you will learn how repeating patterns in price can playa key role in helping you to identify the most powerful reversals. I will teach you how to determine when a violation of the widely watched 200day moving average is likely a fakeout. Chapter 8: Heisenberg 200In this strategy. teach you one of my favorite Fibonacci trendfollowing strategies. you can find excellent pullback trades at the beginning of a reversal or within a strong trend. Chapter 7: TwoStep Patterns (TSP)In this chapter I will teach you three variations on what I call "TwoStep Patterns. But instead.
10
Introduction
Chapter 9: Shark AttackThe next strategy I'll teach you is a special variation on doubletop and doublebottom patterns. By using Fibonacci Extensions, you will be able to identify major reversals that occur off the second bottom (or top) of this pattern. Chapter 10: Air PocketsIn this strategy, I will show you how to trade momentum moves that occur when a Fibonacci support or resistance zone is violated.
Section III: It Boils Down To Proper Execution
Chapter 11:Entry Patterns: How To Enter The TradeIn this chapter, I will focus on teaching you the best patterns to use in order to trigger entries into trades. These entry patterns can then be applied to any of the strategies that I teach you in this book. Chapter 12: Risk Management: Identifying And Managing The Key Areas Of Risk ControlFinally, I'll wrap up by teaching you the most important principles that enable you to achieve longterm trading success. Now let's get started!
CHAPTER
1
UNDERSTANDING HOW FIBONACCI WORKS
In this chapter, I will teach you the basics of Fibonaccinumbers and how they relate to
the financial markets and trading. Also, I will show you the most important Fibonacci numbers to use in the strategies I'll be teaching you. The Fibonacci numbers series and its unique properties was first written about by a mathematician named Leonardo de Pisa de Fibonacci (11701240). The series starts like this: 1123581321345589 . . . and goes on from there. Basically,the first two numbers are added to get the next number in the series. As you can see, this series goes on forever. What is fascinating about this number series is the ratio that is found when a number in the series is divided by the preceding number in the string (e.g., 8/5 or 55/34). This ratio, no matter where you go in the summation series, is right around 1.618. Over the years, this ratio, 1.618, has been mentioned in writings, essays, and speeches by some of the greatest minds in science and mathematics. Why? Because it is found in the structure of a universal assortment of phenomena in the physical world. This includes nature, architecture, geometry, music, our DNA, and most relevant to us ... the financial markets. My theory is that Fibonacci ratios represent the purest forms of measurement of mass human behavior. It is a barometer for human hope, fear, and greed. For trading purposes, in scientific terms, Fibonacci is the mathematical structure of the growth and decay of psychological interest in a stock, futures contract, or commodity. By understanding this structure, you can identify where the emotional shifts between euphoria and pessimism in the markets will come. That, in turn, can be used by you to identify trading opportunities. ...
THE KEY FIBONACCI RATIOS TO USE IN YOUR TRADING
In the next chapter, I will teach you how to use Fibonacci to find important support and resistance levels. I will show you how Fibonacci numbers are used in specific calculations to make these kinds of projections. What are the best Fibonacci numbers to use? Here they are. Thebasic Fibonacci ratios I use are 1.618 and .618.
13
14
Chapter 1
Besides these two numbers, other derivative ratios that I use in trading are: .382 .500 .786 1.000 1.272 2.618
= =
= =
.618 squared. Also, the ratio between alternate numbers in the Fibonacci sequence is 2.618 or its inverse, 0.382 divide the 2nd number by the 3rd in the Fibonacci sequence square root of .618 1.618 x .618 (also used simply for symmetry measurements)
= square root of 1.618
=
1.618 squared
We will soon discuss the specific ways in which these ratios are used. The important point here is to know which ratios are used and how they are derived. At this point, you should have at least a basic understanding of the background of Fibonacci and the ratios we'll be using. If you are interested in furthering your education in the history of the Golden Mean or Fibonacci, all you need is a computer and Internet connection. There are thousands of articles and materials on the subject. Have fun!
SECTION I
THE MOST IMPORTANT FIBONACCI TOOLS
15
.
CHAPTER
2
HOW TO FIND IMPORTANT SUPPORT AND RESISTANCE LEVELS WITH FIBONACCI
.
x
/'
A x
\. This concept will be the backbone of the rest of the book and will enable you to perform the following Fibonacci price studies. and calculate Fibonacci price levels. You will also be able to identify a FibZone which is simply my term for a combination of at least three Fibonacci price levels within a relatively tight range.
RETRACEMENTS
B
B A
EXTENSIONS
x
B
~/
I
A
x\.
\"
C
19
.
. the basic building
blocks of all the strategies that I will be teaching you.~\
.When you have completed this chapter.
c
PROJECTIONS
A·\
. you will be able to look at a chart. identify key highs and lows.
A swing high occurs when the current high has a lower high before and after it. Swing points are low or high points on a chart where price reverses direction. Rather than getting into a highly technical discussion of swing points.
. we must learn to identify key swing points. These are the key points used to calculate Fibonacci price levels. I am going to provide general guidelines to be followed in choosing these swing levels.20
Chapter 2
Before we can even think about calculating Fibonacci price support and resistance levels.
A swing low occurs when the current low has a higher low before and after it.
if the lows are relatively close in price. use the low furthest to the right in the consolidation area. if the highs are relatively close in price. For swing highs. use the high furthest to the right in the consolidation area.
.How To Find Important Support And Resistance Levels With Fibonacci
21
Use This One Question: What if there are multiple lows (or highs) relatively close to the same price due to a price consolidation range? Do I use all of them to calculate Fibonacci levels?
Use This One Not This One Answer: No For swing lows.
When calculating resistance. a swing low is not valid when there is a lower swing low to the right of it. a swing high is not valid when there is a higher swing high to the right of it.22
Chapter 2
Question: When is a swing point not valid to use?
Use This One
Use This One
Answer: When calculating support.
.
OCU
300CU
28. we are in an uptrend and the stock has just started to make a move to the downside (A) over the last three days. Just apply our general rules discussed earlier. This is the exact opposite for finding resistance in a downtrend (one swing low and multiple swing high points).00J
~

32. To do this I need to identify a swing high (A) and multiple swing low points (B). It is the consolidation areas where swing points are most difficult to determine.OCU
In the case of this chart.
.How To Find Important Support And Resistance Levels With Fibonacci
23
CREATING FIBONACCI LEVELS
Let's look at a few charts to get a feel for what to look for:
r(A)
1\1"1111
Here are tricky areas
36. Please note that when we are calculating support levels there is only one swing high and multiple swing lows. It will be my goal to calculate a price support zone with enough strength to stop the price action from going down and reverse it back up to continue the trend that has been in place.
000
23000
22. so I used the one furthest to the right on the chart.
25.. you may ask why I wouldn't use both of those swing points.
11)]000
I = invalid swing pt. These are the swings to be used to calculate Fibonacci price resistance.000
I
To calculate price resistance zones find the last swing low point along with multiple swing high points. In (1) and (2) below.000
26
13
20
27
Oct
.GOO
24. I look for swing high points (B) to use along with the current swing low (A).. This was a situation where the swing high points were close in price.
SBe 0·0
. Once a swing low (A) is made in a downtrending stock.000
)I
~(A)
19
20.
1
= valid swing pt.000
26.000
I~(~
t
(1)
27.
12l·000
28.24
Chapter 2
Below is a stock in a downtrend.000
21.
How To Find Important Support And Resistance Levels With Fibonacci
25
STRATEGY Q&A
Question: How many swing points do you use to calculate your Fibonacci levels? Answer: I'll go back as many as eight consecutive swing points. I believe there are four swing points that carry the most weight. A
c
Rule of Thumb: Step back and look at the whole chart in a general way. shift to a daily chart. The significant swing points WILL stand out. Second (B) is the swing point made immediately before reversing into the trend that is in place. Question: Are certain swing points more significant than others? Answer: If a trend is in progress. The first (A) is the swing point that was just made. The more you do this analysis the quicker you will be at picking up the swing paints and calculating the price levels. I suggest if you want to go back any further. Beyond that it would be wise to shift to a higher time frame chart to analyze support and resistance. if you are studying a 3Dminute chart and have gone back eight swing points. The third and fourth (C. So.
. It's not rocket science and should not be a stumbling block to learning to calculate Fibonacci price levels. D) are the last two swing points made in the direction of the trend before forming swing point A (see illustration).
When price reverses direction from A to B. In a sense it is "recapturing" a portion of the move that was just made. the current trend is defined as X:A.618.. we will be calculating key areas of price support and resistance.
Retracements
First let's take a look at a picture of a retracement:
A
'
. . Through the use of these four price studies.50. extensions.382. .786
. Do not get hung up on the terminology as we will define each of these graphically to give you a solid visualization of what each means.
\\ . The Fibonacci ratios I use to calculate retracement levels are:
. projections..
. and ..
RETRACEMENTS
B
B
x A
A retracement is simply a move in the opposite direction of the current trend. it is "retracing" or recapturing a portion of the move from X to A. and expansions. we can move on to the various types of Fibonacci price studies I use.. In the illustrations above. There are four types of Fibonacci price studies: retracements.26
Chapter 2
FIBONACCI PRICE STUDIES
Now that we have established how critical it is to the calculation of Fibonacci price levels to identify the key highs and lows on a chart.
First.1).64
$10.00
this range by each Fibonacci ratio: Ratio 0. When the move from X to A is up and price starts to go down (as in Figure 1.36 $15.How To Find Important Support And Resistance Levels With Fibonacci
27
RESISTANCE A RETRACEMENTS
B
B
x SUPPORT A
Retracements can be used to calculate support or resistance.00 $12.618 0.382 0.500 0. Let's say X is $10 and A is $30. retracements are used to calculate support for B.72
. let's calculate what the range of X to A is: Price @ A: $30 Price @ X: $10 Range Next let's multiply
= $20.786 Points
$ 7.
00 $17.00 $12.72
. A $ 30..64 $10.382 0.00 $ 30.786
Points
Pt.00 $10.
x
SUPPORT
//
A
Finally.64 $ 20.. A
$ 7. The price levels in the table above represent Fibonacci price support decisions.00 $10. The exact same analysis can be done for Figure 1.36 $15.618 0.This will provide you with Fibonacci retracement levels:
Fibonacci Retracement Levels
Ratio 0...64.00
$ 7.00.2 to calculate retracement levels acting as resistance..64 $10.....
B
.2.00 $ 30.
x
\
RESISTANCE
RETRACEMENTS
.28
Chapter 2
A
. In Figure 1..36 $ 25.500 0.618 retracement of swing X:A.... instead of subtracting from A.00
$17. This time.. if I were to ask you for the . . the answer would be $17.
/ .72
$10. which is $30.72
$ 22.00 $ 22.
. we would add to A to determine price resistance levels:
Fibonacci Retracement Levels
Ratio 0.00 $10. X is 30 and A is 10.
.00 $ 30.28
So.00 $12.786
Points
Pt.618 0.36 $15.
B
.500 0. take the number (points) from each ratio and subtract it from A.64 $14...382 0.36 $ 20..
if I were to ask you what the .
15Jan03 21. you would answer
So.786 = 19.900.90.52
OTD
+
0.382 = . So.786 retracement 16.11% 17 0
1
X
.
. we could calculate the Fibonacci retracement levels that might act as support and stop the downside movement.500 = . A reversal to the downside began. Over the next 17 trading sessions JCOM traded up to (A) which was a high of 21.88 of X:A is.380 41. Those levels are: .15.52. as soon as the key high (A) was established (with a lower high on each side).618 = .00%
The daily chart of JCOM above put in a key low (X) at 15.71 17. 6.46 18.88.How To Find Important Support And Resistance Levels With Fibonacci
29
Let's look at a couple of charts with retracements at work.95 16.
00%
•
X 55. the Fibonacci retracement levels are:
. Again.30
Chapter 2
Below is a chart in a downtrend that just put in a swing low (A).01
I !I~
)
II
II
A
II
f
45.000
OTD
0.39
Any time a stock is in a downtrend and has just completed a significant low point
(A).34 = 52.500 .06
= 50.382 . Based on the move from X to A. the goal is to determine how much the stock will "recapture" of the recent move down and where it has a likelihood to reverse and go back down.019. we can calculate Fibonacci retracement levels.618 .
2Dec02
55.95
. 0.786
= 49.20
= 51.
let's calculate what the range of X to A is: Price @ A: $30 Price @ X: $20 Range
= $10.1. First. It is "recapturing" a percentage of the previous move (X:A illustrated above)./
An extension is very similar to a retracement.How To Find Important Support And Resistance Levels With Fibonacci
31
Extensions
A RESISTANCE EXTENSIONS
8
l/
x
SUPPORT 8
.272 1.
x
A
. Let's assume X is $20 and A is $30 in Figure 2.618.272 and 1.72 $16.618 Points $12. The specific ratios I use for extensions are 1.18
. Basically. The difference between a retracement and an extension is that an extension recaptures more than 100% of the previous X:A move. Below is the process to determine Fibonacci extension levels. B will go beyond X.00
Next let's multiply this range by each Fibonacci ratio: Ratio 1.
618
Points $12. Let's look at Figure 2.72 $ 36.72 $16. Instead of subtracting from A (like in Figure 2.82
Ratio 1. we will add to A to determine resistance: Fibonacci Extension Levels $ 32.2 where X is 30 and A is 20. if I were to ask what the 1.272 1.00 $ 30.272 extension level of swing X:A in Figure 2.618
Points $12.28. This will provide you with Fibonacci extension levels: Fibonacci Extension Levels $17. A $ 30. Now we can do the same type of analysis to determine resistance.272 1.1).32
Chapter 2
A RESISTANCE/
EXTENSIONS
X
B
SUPPORT
B
~/
X
/'
A
Finally.00
So. which is $30.1 was. you would answer 17.00.00 $ 20.28 $13.18
Ratio 1.72 $16. This is a support level.18
Pt.00
.18
Pt. take the number from each ratio and subtract it from A. A $ 20.
Those levels came in at: 1. which was a high of 80.618 = 68. as soon as the swing high (A) was established.95
.618. A reversal to the downside began.
80. we could calculate the Fibonacci extension levels that might act as support and stop the downside movement. So.33 1. The specific ratios we use are 1. extensions are basically retracements of greater than 100% of the X to A move. Remember.
A 80..10.890 9.41% 12TO
25Nov02
X
73.272 = 71..272 and 1.How To Find Important Support And Resistance Levels With Fibonacci
33
Let's look at a couple of charts with extensions at work. 6..21
The daily chart of IGT above put in a swing low point (X) at 73.100.10
. Over the next 12 trading sessions IGT traded up to (A).21.
272 extension level of swing X:A at 71.41%
rl! III)
t Ij
II!r )
73. 15.33 and did an immediate reversal and went up over 7 points in eight trading sessions.
1
°
II
!IIj
.34
Chapter 2
Check this out!
A
8o.
.21
I
IGT traded down to the 1.890 9._
111
X
l 7I
12ID
25N0v02 80.100.
4Nov02
78.000
2::i\1ov02 9. we could calculate the Fibonacciextension levels that might act as resistance and stop the upside movement.618. as soon as the low (A) was established._ 78. The specific ratios we use are 1.100. 0. extensions are basically retracements of greater than 100%of the X to A move.Those levels came in at: 1. Remember.6_
oro
0. which was a low of 73.618 = 81. Here we look to calculate resistance extension levels based on swing X:A.272and 1.40.272 = 79.21.40
I
I
A
II
3TD
73.How To Find Important Support And Resistance Levels With Fibonacci
35
Here is the same stock from a different perspective.60
.81 1.400. Over the next 12 trading sessions (IGT) traded down to (A).41% 12TD I
80. A reversal to the upside began.21+
t
The daily chart of (IGT) above put in a swing high (X) at 78.00%
"
x
. So.
Projections can be used to calculate support or resistance.618. let's calculate what the range of X to A is: Price @ A: $30 Price @ X: $40 Range
= $10
Next let's multiply this range by each Fibonacci ratio: Ratio 0. A = 30.618 1. The ratios used in this study are .000 1. B = 35.. projections measure the size of previous swings (X:A) in the same direction and project those swings from the current swing beginning at (B). 1. From the figures above.18
.00. To calculate a projection three points must already be established (X.618.18 $10. B). let's assume X = 40.00 $16.
//l
B
RESISTANCE
c
x
Now that we've covered retracements and extensions. the next Fibonacci study that I use is called a projection.. and 1.36
Chapter 2
Projections
c
B
PROJECTIONS A SUPPORT A
. A.. First.618 Points $ 6. For illustration purposes.
16 $ 45. if I were to ask you for the 1.. In Figure 3.
.//
B
RESISTANCE
C
Finally..18
Pt.18
Ratio
0.00 $ 35.00 $ 51.18 $10.82 $ 25..This will provide you with Fibonacci projection levels: Fibonacci Projection Levels $ 28.000 1. take the number from each ratio and subtract it from B.
A
SUPPORT
...00 $35.00. A is $40. B $ 35. This time instead of subtracting from point B.618 projection of swing X:A from B.2 to calculate projection levels acting as resistance.. B $ 35.82
Ratio
0..00 $16. X is $30.618
Points $ 6.618 1. which is $35.2.
.82. The exact same analysis can be done for Figure 3. we would add to B to determine price resistance levels: Fibonacci Projection Levels $ 41. The price levels in the table above represent Fibonacci price support decisions..00 $ 16.00 $18.
.000 1.00 $ 35.618 1.
A
.00 $ 35.16 $10.18
Pt.How To Find Important Support And Resistance Levels With Fibonacci
37
x
C
B
PROJECTIONS
.00
.618
Points $ 6.00
So. B is $35. the answer would be $18.
83
I
lIlt
It
lid
t
~t1
61.618) and each of the those numbers where then subtracted from swing B high of 64.830) 3.02 4.618
1.78
11
Hll f II HI
II
j II
Above is an example of a price projection on the daily chart of Johnson & Johnson ONJ).000
= 62. 1. 0. 1.72
1.11 points.18
.29 = 60.618.050
X
OlP
np
65.000
0.618 = 58.890.38
Chapter 2
25Mar02 65..83 to get the following projection support numbers:
.00.00%
24A. Swing X to A was measured for a total of 4. This range was multiplied by our Fibonacci ratios (.94%
64.89~
B 64.
431 ADD Q.64 1.43 1.618) and each of the those numbers were then added to swing B low of 13.How To Find Important Support And Resistance Levels With Fibonacci
39
1SOcto1 18.4 points.400 85.60%
12JD
Il!. 1.
21.8.618.640
App 1.000 = 21.~r
I
26.61E
f
\1
I
Illilll
OTO
I
12TD
B
13.618 = 18.24
t
~
Above is an example of a price projection on the daily chart of (QSFT). Swing X to A was measured for a total of 8.6IE
II
lj1llil
_. 1.831
App
I.100.24 to get the following projection resistance numbers: .83
.00(
llltll[
III
A
1810
18.618 = 26.00. This range was multiplied by our Fibonacci ratios (.
.... A).00.618 1..09
. To calculate an expansion only two points must be established (X.. expansions measuring swing X:A "expand" that swing further in the direction price is headed using the following Fibonacci ratios: .
C
EXPANSIONS
'
A
A SUPPORT
.•..
c
B
x
RESISTANCE
Price expansions are similar to projections with one small difference.40
Chapter 2
Expansions
x
8
.....000 1.. For illustration purposes. 1. Basically.618.. Instead of measuring swing X:A and projecting it from B.00 $ 8... First... . let's say X is 50 and A is 45 in Figure 4. These price levels will be labeled as (Exp) on the charts..1..09 $ 5..
.. B is not used in this study.. we project the values from A... .618
$ 3..618. let's calculate what the range of X to A is: Price Price
@
A: $45 @ X: $50
Range
= $5..00
Next let's multiply this range by each Fibonacci ratio:
Ratio Points
0... and 1..
00 $ 35.91
So.2.18
Pt.How To Find Important Support And Resistance Levels With Fibonacci
41
C
B
EXPANSIONS
A
A
SUPPORT
C
x
RESISTANCE
Finally. The price levels in the table above represent Fibonacci price support decisions.000 1.00
.618 expansion of swing X:A. the answer would be $41.2 to calculate projection levels acting as resistance. which is $35.91 $ 40.18
Ratio 0.00 $ 40.618
Points $ 3.00 $ 45.618 1.00
Fibonacci Expansion Level $ 41.
Ratio 0.618
Points $ 6.00 $ 56.00 $ 16. A $ 40.09 $ 5.09
Pt.00 $ 40. take the number from each ratio and subtract This will provide you with Fibonacci projection levels:
it from A.618 1.00 $ 36. This time instead of subtracting from A we would add to A.91.00. to determine price resistance levels: Fibonacci Expansion Level $46. and A is $40.00 $ 8.18 $ 10.000 1. In Figure 4. A $ 45. X is $30. The exact same analysis can be done for Figure 4.18 $ 50. if I were to ask you for the 0.


~42
Chapter 2
_ ~_
~ _

~
Expansions are a "confirming" Fibonacci study. It is through these Fibonacci price studies where areas of concentrated price levels will begin to appear. extensions. and projectionsshould be the first price studies applied to a chart. We also learned the specific Fibonacci ratios used in each of the following price studies and how to calculate each of these Fibonacci price studies: • Retracements • Extensions • Projections • Expansions Mastering these price studies will be essential to your success with the strategies in this book.
. This simply means that the other three studiesretracements. It is imperative to be able to pull up a blank chart and calculate the Fibonacciprice levels. Then utilize this price study to confirm a potential price support or resistance zone. Those concentrated zones are the focus of the next chapter.
REVIEW
In this chapter we learned general guidelines on how to spot significant highs and
lows on a chart that will assist us in calculating Fibonacci price support and resistance levels.
CHAPTER
3
USING FIBZONES TO IDENTIFY HIGHPROBABILITY REVERSALS
43
.
If a FibZone occurs above the current price. I have coined a unique phrase to describe a notsounique general concept.WHAT IS A FIBZONE?
Now that we have reviewed the various methods to create Fibonacci price levels." "price zones.41
21Aug02
39T£
1'9.000
I
II ill!
I
:::
'9 16
I
16. FibZone: A relatively tight range of price where a confluence of any combination of at least three Fibonacci price retracements.000
t
28
Jul
12
19
23
30
Sep
13
12.000
IIII!
15. and if a FibZone is below the current price. it is resistance. I have coined the phrase "FibZone" to represent these areas. or expansions occur. others call "confluence.000
17.350 13.000
10.75013.250 lOcW2 27 Oct
Chart created b
Dvnamic Trader (c) 19962001
45
. it is support.8." "clusters.000
1IIIIllt
FibZone
Ill!
24TD
14.960
13.
•
CHKPDD J
3<xt2002
13.41
).6&0
19. Later. it is time to shift gears from theory into strategy. or futures contract hitting a Fibonacci price support or resistance zone. extensions.000
13. projections." etc. you will find that I have defined specific types of FibZones that do carry a unique and different characteristic to the runofthemill "zone. Below is the definition of a FibZone. What I call a FibZone.GS3 App 0. Almost all of the strategies I trade are based on a stock.618
I!:iji~~ t~ti
12. ·6.000
12. commodity.000
11.030.780.000
1[11111
I'
18." Below is a perfect example of a Support FibZone .
Jui
12. The goal now is to create one or multiple Support FibZones where AOL will likely stop declining and reverse up to continue the current uptrend. the first step is to identify the key high and low points.
~l
13. 2002.000
~.260
t
14.
STEP #1: Identify Key High and Low Points
16.000
~frtl ~
8. Price has just made a swing high point on December 2.000
10.46
Chapter3
Let's walk through an example of how to build a FibZone.540
Dec
t
. To do that. Below is a daily chart of AOL.000
t
Aug
10.000
1.
70
High
= 17. then delete the Fibonacci price level.000
14.618 10.000
15. as it has been "violated" and is no longer a valid support leveL
STEP #2: Calculate RETRACEMENT levels using swing low points identified in this uptrend and the current swing high point. 295 Ret 0. If the current price on the chart is already below a retracement level.786
16.
~/~/l
13. So.211 Ret 0. let's measure from the July 2002 low to the December 2002 high and calculate the various retracement levels. we can begin to apply our Fibonacci price studies.667 Ret 0.89)
.500 12.000
t~
+
8. The first Fibonacci price study to apply is a retracement.700 Dec
+
(Swing Points: Low
= 8.Using FibZones To Identify HighProbability Reversals
47
Now that the key points are determined.
89)
.26
High
= 17.185
Ret 1. as we have a higher swing low point we will use to calculate additional retracement levels using the October 9 low of 10.272
(Swing Points:
Low
= 10.89.): Calculate RETRACEMENTlevels using swing low points identified in this uptrend.48
Chapter 3
This is a continuation of Step #2. As you can see.26 and the December 2 high of 17. A zone is beginning to form.
STEP #2 (cont. there are now a couple of price levels starting to group together.
I
8.
272 1
(Swing Points:
Low
= 14.54
High = 17.272 and 1.89)
.47.540
Ret . with the low point from November 20 at a higher level than the current price. Can you see a zone forming?
STEP #3: Calculate EXTENSION levels using swing low points that are higher than current price up to the current swing high. I am concerned with the 1.
9. Remember.618 Ret
+ 8.618 extension levels that come in at 13. So.
120 2.185 14.Using FibZones To Identify HighProbability Reversals
49
Now let's shift to calculating extension levels. respectively. an extension is simply a retracement greater than 100%.62 and 12.
89.5 points from 17.39.80 Low
= 10. In this trend up.50
Chapter 3
Now let's apply a Projection study.
[\\

9.5 points.120 Ret 2. Opposite for downtrends.89)
. This simply means subtract 4. Project this decline from the current December 2 swing high point of 17.272
03
(Swing Points:
High: 14. 0.26
High = 17. there has been one countertrend decline from August 22 to October 9 that was 4.000
~.
STEP #4: Calculate PROJECTION levels by measuring previous declines (in an uptrend) and subtract the size of those declines from the current high point.89 and we have a projection or "symmetry" level at 13.
22Aug02 1\800.618

8185 Ret 1.
and projections have been calculated. How does this provide you with an edge? The key is to remember that you should never trade on the basis of a FibZone alone. I will teach them to you in Chapter 11.Using FibZones To Identify HighProbability Reversals
51
IDENTIFYING A FIBZONE
Here is your new Support FibZone that will be used to look for long trades. You will notice that the range of the FibZone in the chart below is spanning a 2 point range.
. we did not need to calculate EXPANSION levels. I apply several different entry patterns to the Fibonacci strategies that you will learn in this book. Note that due to the nature of this chart. This applies no matter how many Fibonacci levels are calculated for a specific price level. it should be done after the retracements. If this study can be performed. extensions. You should only trade when you have a legitimate entry pattern within the FibZone.
AOL traded deep into our Support FibZone.000
16.000
14.470 ~12. 3.000
7.00over a couple of weeks of activity.211 11. but reversed around 12.618 0 Ret .786 0
12.893
Ret 1.000
Nt12.20and rallied up to almost $16.52
Chapter 3
Just to play out this example.390 27.
18.000
15.618 Ret .!.260
t
. This would have been a 27% gain for someone who identified an entry pattern within a Support FibZone.
15Jan03 15.650.65%
.
A tight price area with a large number of price levels represents a trading opportunity. though. for trading
purposes.
Question: What Fibonacci ratio is the most important in a FibZone? Answer: A couple of the strategies 1 discuss have specific ratios that must be present. No study is necessarily better than another.as the
number of price levels that occur in a FibZone increase. then I will delete that price level. a FibZone can be very wide. Many times the zone is closer to 5% in the width of the price of the stock or commodity. and Expansions. If a price level is hanging out all by itself on the chart with no other Fibonaccilevels around it to create a FibZone. For example. it needs at least three Fibonacci price levels. I wouldn't want a FibZone on a $40 stock to be much more than 4 points deep. I just want to see a confluence of Fibonacci price levels (1 don't care which ones) in a relatively tight range. as you have read. the more important that FibZone becomes.
Question: How big can a FibZone be? Answer: Depending on the chart.
Question: After running the Fibonacci studies on a chart. I try to find charts that provide FibZones that are no more than 10%of the price of the security from the low price to the high price of the zone. One page is no problem. Projections. do you remove any Fibonacci levels from the chart?
of
the
Answer: Yes. But as each additional page is added to the stack. 1 am
simply looking for groups of Fibonacci ratios concentrated in a small price range.
These are specific types of FibZones. I continue to go back to the focus of the FibZone. it becomes more difficult to tear them in half. 1 equate it to ripping one piece of paper in half or trying to rip a phone book in half.Using FibZones To Identify HighProbability Reversals
53
STRATEGY Q&A
Question: Does the size
of the FibZone
matter?
Answer: To qualify as a zone.
. there are four basic Fibonacci studies: Retracements. Yes.
Question: Which Fibonacci studies are better? Answer: Well. However. Generally speaking.
Extensions. I am not looking for a specific ratio.
Remember.. A decision point. That will be the focus of most of the rest of this book. the key to knowing what zone to trade against will be based on what you use for a "trigger. is a tool that assists the trader in finding support and resistance levels. oscillators. that you will use to determine the internals of the market you are looking at and when to actually take a trade. I personally use Dynamic Trader. be able to do each study we mentioned earlier. as well as perform other technical studies. a high point is confirmed when a lower high is made on each side of the high. Fibonacci. indicators. So.54
Chapter 3
Question: Sometimes there is more than one zone after running these studies. Whatever program you consider. how do you decide which one to trade against? Answer: FibZones simply provide decision points in a particular market. So. Question: When is a zone recalculated?
Answer: In an uptrend. I think you need to be able to delete lines/price levels that you don't need. a new resistance zone is calculated when the current swing low point is violated and a new lower low point is made. it is necessary to have certain patterns. and the ability to make notes on the charts. I personally also require a program that allows me to convert a bar chart to candlesticks. etc. In a downtrend. that's it. a new support zone is calculated when the current high is violated and a new high point is made." After those decision zones are on the chart.
. and manipulate the chart with relative ease. Question: What software programs do you recommend using to calculate these FibZones?
Answer: There seems to be a new software program coming out every day to address Fibonacci. and a low point is confirmed when a higher low is made on each side. by definition. I believe it is the most comprehensive Fibonacci tool on the market right now.
SECTION II
MY FAVORITE FIBONACCI STRATEGIES
55
.
After we walk through all the strategies. please make these two assumptions: 1. I will follow up with a discussion and list of the pattern triggers I use to enter trades in Chapter 11. Whenever I refer to entries as I teach you my strategies. I am referring to one of the patterns in Chapter 11.SPECIAL NOTE BEFORE I TEACH YOU MY FIBONACCI TRADING STRATEGIES
Before I begin teaching you my trading strategies in the following chapters. and it is in the price action against this FibZone where I look for entries. 2. That means you wait for a trigger before entering a long or short position. Always use a pattern or some other form of trigger to enter a trade. I want to state emphatically that you must always wait for confirmation before taking a trade. For the purposes of this book.
57
. All of the strategies we'll be discussing involve a stock hitting a FibZone.
CHAPTER
4
HOW TO ENTER TRENDS USING THE TREND TRIGGER STRATEGY
59
.
. .
. . The basic assumption here is that we are trading with the trend and that a normal and natural pullback is occurring. '. . and this pullback will stop somewhere in our FibZone and reverse direction.(3)
(4)
(5)
(1)
60
. . .
•
(6)
.STRATEGY #1: TREND TRIGGER
Trend Trigger is probably the simplest way to trade with FibZones.
. . . .
At this point. calculate the . The current bar low must at least touch the top of the FibZone. . trail your stop loss to reduce risk. 4. There must be at least two higher swing high points and at least one higher swing low point.How To Enter Trends Using The Trend Trigger Strategy
61
Rules For Buys (Sells Are Reversed)
1. 5. do not take the trade until price drops deep enough into the zone to meet your money management stop loss rules. This assumes your money management rules will allow you to risk the entire zone.272 extension hightolow swing made into our FibZone. look for an entry pattern to get you into the trade.50 and . This structurally confirms we are trading with the immediate trend. The final objective of a Trend Trigger trade is the 1. 2. These levels will serve as profit objectives. a stop loss order should be placed just below the FibZone. Once you are filled. range.50.618 retracement Once these profits are booked.618. of the
. If not.272 extension of the hightolow swing into the Support FibZone. or reduce the number of shares or contracts to be purchased. The first profittaking area is between the . and 1. 6. 3. Once a swing low point is determined against the FibZone.
3. and I'm long at 32. I also move my stop to breakeven. The initial stop is placed just below the zone around 31. At this point. We have identified two higher swing high points with at least one higher swing low point.47.57 and 35. 2.50 and . which are the . Price touches the Support FibZone.00. which is the 1.60 based on the trigger I use.618 retracement levels.618 retracement levels of the hightolow swing into support. 5. 4. The final objective on the trade is 38.50 and . With a swing low in place. 6.62
Chapter 4
(4)
Trend Trigger Example: Long
1.272 extension of the hightolow swing into the Support FibZone. Profits are taken on half the position between 34.
. we calculate the .16.
50 and . 4. I take partial profits between 25. After making a swing high.
We identify two higher swing high points and a higher swing low point.06. Price goes lower into the zone over the next couple of days. 5.272 extension of the hightolow swing into support. Our initial stop loss order is placed just below the zone around 23. price comes down and touches our zone at 24.
2.575Ret .80. which is where we take a long position.
(4)
(2)
(3)
Trend Trigger Example: Long
1.618 retracement of the hightolow swing into support.00 and immediately trail my stop to reduce risk. 3. The final objective. We calculate the .
. which is the 1. is hit and I take the last portion of the long off around 28. 6.How To Enter Trends Using The Trend Trigger Strategy
63
(1)
(5)
+25. then reverses up out of the FibZone.57 and 26.63.
we can calculate the . 4. My stop is moved down to breakeven (especially on intra day trades). Two lower swing lows and at least one lower swing high have been identified.61S
~
=============
'l3S. That zone comes in from 927. we can calculate price resistance.618 937.50.
.nR~tO. so I go short at 927.How To Enter Trends Using The Trend Trigger Strategy
65
J
f
(3)
941.272 extension of the lowtohigh swing into resistance is hit at 897. Once a swing high is made into the FibZone. My stop is at 942.618 retracement of the lowtohigh swing into our Resistance FibZone. Price hits our first target and half the position is taken off around 916. 6. These price levels are 916.5 points of risk.50 and . Price rallies up and touches the Resistance FibZone.I)OO
Trend Trigger Example: Short
1.SOAppl.50.50. The final objective at the 1.'36 Ret 0.00.50 and 913. Once the second swing low is made.50941.75. 3. 5.00. 2. That's 14.
However. I've found that a strong ADX reading is an excellent scanning tool. Risking too much on one trade will come back to haunt you. the ADXline is upsloping and not downsloping. but trade fewer shares or contracts to keep your risk in line with your money management rules. and avoid placing stops at round numbers or levels too close to the current market price. Question: How long do you typically hold these trades? Answer: That is always dictated by the market.
. the stronger the trend. So. then please don't take it. If I find myself looking at a chart where price has hit our zone and it continues to print bars that hover around the FibZone. This just means the reading is continuing to go higher and the trend is getting stronger. Question: Are there any confirming indicators to use with this strategy? Answer: By definition. We are trying to identify pullbacks into FibZones. The other choice is to still take the trade. Question: Where do you place the stop after hitting the first objective? Answer: Ideally a stop can be placed at your original entry price so that risk can be completely eliminated from the trade. Ideally. If your money management rules don't allow you to take the trade. this is supposed to be a "trend following" strategy. Be aware of the volatility of the stock. the better the opportunity. then I often scratch the trade. there are situations where moving the stops to that level will get you prematurely stopped out of the trade. as well as a nice confirming indicator. It has been my observation that the best trades bounce immediately out of a FibZone and become profitable quickly. I would use a 14period ADX of 20 or greater.66
Chapter 4
STRATEGY Q&A
Question: What if a Trend Trigger trade comes up and the FibZone is too large and I am unable to put a stop below the FibZone and risk that much? Answer: Don't take the trade until the stock drops lower into the FibZone (for longs). Downsloping means the trend is losing strength.
CHAPTERS
THE REFLECTION REVERSAL METHOD
67
.
1'02 May Jun
Chart created b
D namicTrader c 19962001
Above is a daily chart of Verizon Wireless (VZ). Let's look at a couple of examples. and Directional Indicator (01). Symmetry: When the current market swing is similar in relation to price and/or time with the previous market swing. Those concepts are Symmetry.000 . Let's quickly review each of these concepts.x02
Feb Mar Apr
29A
t
36.
68
.000
6F. VZ sells off more than 7 points over a few weeks with very little countertrend movement. or symmetry. we will look at a few examples of Reflection in action. This illustrates the power of price symmetry. which matched the previous rally that ended March 4. After VZ completed a 6 point rally on May 28. After our review.Here is a strategy that should lay to rest any doubt you may have about order in the markets. Average Directional Index (ADX). 2002. With this kind of similarity. 2002. there is a high likelihood for price to reverse direction. Reflection is a strategy that combines three concepts with our FibZones.
4Mar02
'"
6PTS
PRICE SYMMETRY
6PTS
38.
Symmetry that occurs on the time axis can be a precursor to powerful reversals as well.
. The illustration above is a daily chart of the retailer Target (TGT). 2002. the stock climbed over 5 points in a few days. the previous countertrend decline was also six days. in the markets. After the January 15 low was put in. Coincidentally (or not). not only exists on the price axis. the market had just completed a sixday selloff from high to low.The Reflection Reversal Method
69
TIME SYMMETRY
TRADING DAYS
GTD
+
GTD
+
18 25
19962001
Symmetry. That's over 10%in one week's time. but also on the time axis. On January 15.
. it simply states how strong a trend is. we are looking at the Directional Indicator of the past 21 bars.. Again... There is a Positive Directional Indicator (+DI). The DI and ADX originate from Welles Wilder's book New Concepts In Technical Trading Systems written in 1978. the trend is up. The third and final ingredient to our Reflection strategy is the Average Directional Index (ADX). Readings above 60 are rare. The dotted line represents a Negative Directional Indicator (DI) and the solid line represents the Positive Directional Indicator (+DI).000
1
36.000
Feb DI21'. be it up or down. I have added the DI study to the bottom of the chart.
4Ma..J\f' . When the +DI is above the DI..td
2"1A . but NOT whether that trend is up or down. .
"
f~
38. This is an oscillator that moves between 0 and 100 and tells the chart reader how strong the current trend is. the trend is down. When the DI is above the +DI. which measures the force of a downtrend.s~/ff\~h"" Y~ t~l~h
Mar Apr
AI1\
'"
PRICE SYMMETRY
6 pis
r lW1. Readings below 20 indicate a weak trend and readings above 35 represent a strong trend. which measures the force of an uptrend and a Negative Directional Indicator (DI)..70
Chapter 5
Next we have the Directional Indicator (DI).
.
.02
1 "~flfIf~ ~\l
j
May Jun
Pt1~\. For our study purposes.. the ADX does not tell you the direction of the trend. Most charting software packages combine the DI and ADX into one study. On the chart of Verizon (VZ) below..o2
6 pts
~j_
.
PRICE SYMMETRY
Let's summarize. For the Reflection strategy. In our studies. a reading of 35 signifies a strong trend.The Reflection ReversalMethod
71
Below is a chart with the ADX study at the bottom. we will be looking at Symmetry.
. and Average Directional Index against our FibZones. let me teach you the rules for long and short trades. Now that we have established what each ingredient looks like. we will be using an eightperiod ADX with our reference line at 50. Directional Indicator. ADX readings of 50 and 60 are rare and typically represent a shortterm blowoff in the trend. As mentioned earlier.
818 Ret 1.156 14.000
OTD
1
19Mat'99 39.0.609 Ret 0.
ttl
38.500
(6)
..100 Ret 0..5.688.51% 8TD
1~
(1) 0
40..618 37.
~I+H~I
+++.688.
lFeb99
32.....500.... It is this symmetry that triggers powerful reversals..272
(7)
1'1:.. 10.to intermediateterm trends using the ADX and DI that are in the process of pulling back into a FibZone.. The kicker here is that we are looking for the pullback to be symmetrical in time or price with the previous countertrend swing..72
Chapter 5
STRATEGY #2: REFLECTION
The goal with this strategy is to find strong short...%9 2GTD
1
6Apt'99 40.
trail the stop to breakeven.618 retracement of high point C to low point D made into our Support FibZone. 5. At this point. find the previous significant countertrend decline. Measure the amount of time that countertrend lasted and the number of points it declined from high to low. Due to the combination of indicators that the Reflection Strategy uses. and the low point of this countertrend rally will be labeled B. One addition that we will add to our normal Fibonacci analysis is measuring the size of Swing A:B from #4 and projecting that price rally from swing high point C. This will establish the price symmetry point and help us to focus on a specific Support FibZone to look for a trade against.
.
2. Using retracements.
Rules For Buys (Shorts Are Reversed):
1. The first objective on this trade is between the . look to buy on a trade above the previous day's high.50 and . 7. projections. 10. this will give us a stock that is strongly trending and is trending up based on the +DI oscillator reading. The final objective is the 1. from point C. extensions. 9. I will use an actual chart (shown on the previous page) of real price action instead. Once price hits our Support FibZone. Fibonacci price support levels based on the high point C calculate
6.272 extension of high point C to low point D made into the Support FibZone. 8. Between the ADX and +DI. and expansions. The initial stop will be just below the Support FibZone. I illustrate strategies using a diagram." the 21period DI should show the +DI line above the DI line. This swing point will be labeled "C" 3. or as close to breakeven as you can get based on the price action.The Reflection Reversal Method
73
Note: In other chapters. At swing point "C. The high point will be labeled A. After #1 is complete. wait for a swing high point to form. After items 1 through 3 have been established. 4. The eightperiod ADX must cross above 50.
260 Ret 1.272
.74
Chapter 5
(6)
84.
5. That price level comes in at 82. A stop is placed immediately below the Support FibZone.272.39. 10. which happens to fall within our Support FibZone. or to the swing low point made into the Support FibZone. It is labeled A:B with A being the high point. A long trade is entered on a trade above the previous bar's high AFTER hitting the Support FibZone. we can label the low point into the Support FibZone as point D. Note that an optional money management technique once the 1. However.272 extension of swing C:D.87. With the high point in place. This zone comes in from 82. That way it allows you to potentially participate in a much larger move.50 and . This is called the Symmetry level. it is. it is time to calculate Fibonacci price levels and construct a Support FibZone. 3. Now we can calculate the . is hit at 84. The downside is that you could give up gains as well. The eightperiod ADX crosses above 50. A swing high point is formed just under $84. so we can continue with the setup. The only action item here would be to trail the stop to higher levels. 8.26 for an approximately 1 point gain in three hours of trading. but it does keep you in a winning trade. Our entry in this scenario was 83. The final objective. but it is critical to identify the amount of time and the size of the previous decline. 2. Now go back to the previous countertrend decline.272 level is hit would be to trail the stop to the previous bar's low. which is the 1. This is typically where we take partial profits and trail up our stop. Remember our measurement from #4? Let's take that 1. confirm that the 21period +DI is above the DI line. In this case. This point will be labeled point C.3 point decline and project it from the point C high. Price hits our FibZone and begins to reverse. We'll come back to this.78. 4. This countertrend move was three bars (each bar was 60 minutes) and a total of 1. if it develops. so I do not take any profits there. 9. 6. 7.
. Once price starts to reverse to the upside.22 to 82. ideally to breakeven. this is a scenario that often occurs on lower time frames where there really isn't a gain to lock in at this point.3 points. At point C.The Reflection Reversal Method
75
Reflection Long Example
1. I wait to take the entire position off at the 1.618 retracement of the move from C to D.
2~.507 Ret lob 18 25.618
ltt
II" .76
Chapter 5
(10)
34.930 App 1.257 Ret 1.500
'11
(5)
\
27.272
rt c l
\
1
~~
6..&10 Ret 0.320 Ret 0.97% 25 ·6.786 26.000
13TD ·20.96
(7 )
2 6.79& Ret 0.0 pts
(9)
30..6~0
t
o
ti:J<8J
.
.
!II4..15
(7)....618
0
(10)
.~."I+II!tf>~iU1
(6)
(~1Itq A
(2)
~'"..
36._
.
:~
42... .n... /
~
.
_ .
..233 Ret 0... .78
Chapter 5
(8)
13.6
PTSJt .
The Reflection Reversal Method
79
Now. This swing point will be labeled "c. referring to the chart on the previous page . The first objective on this trade is between the ." 3. Once price hits our Resistance FibZone. 5. wait for a swing point low to form.
. or as dose to breakeven as you can get.618 retracement of low point C to high point D made into our Resistance FibZone. extensions.50 and . calculate
6. Between the ADX and DI this will give us a stock that is strongly trending and is trending down based on the DI oscillator reading. After #1 is complete. Using retracements.. 7. find the previous significant countertrend rally. The low point will be labeled A. After items 1 through 3 have been established. 8. This will establish the price symmetry point and help us to focus on a specific Resistance FibZone to look for a trade against. and expansions. At this point. 2.272 extension of low point C to high point D made into the Resistance FibZone. 9. 4. trail the stop to breakeven. projections. At swing point "C" the 21period DI should show the DI line above the +DI line. 10. from point C. Fibonacci price resistance levels based on low point C. One addition that we will add to our normal Fibonacci analysis is measuring the size of Swing A:B from #4 and projecting that price rally from swing low point C. Measure the amount of time that countertrend lasted and the number of points it rallied from low to high. The initial stop will be just above the Resistance FibZone. based on price action. and the high point of this countertrend rally will be labeled B.. look to short on a trade below the previous day's low. The eightperiod ADX must cross above 50.
Rules For Shorts (Buys Are Reversed):
1. The final objective is the 1.
<I4SRet 1. 5.500 32.516 Ret 0.618
:1
28.270 15.250 Ret 0. %2 Ret 0.560.272
(10)
.37% 17TD
l
(4)
IT]
(a)
~U~9~~IB:~9~
D
37.618
35.786
3~:~~ ~@l ij :§8~
~s:~~~~W:tm 3502+(7)
A (6)
33.5<14Ret 0.80
Chapter 5
4Mar02 3~.
.41.50 and .14. The eightperiod ADX crosses above 50. we can label the high point into the Resistance FibZone as point D. At point C confirm that the 21period DI is above the +DI line.02.272 extension of swing CD. So. 5.3 points.82. but it is critical to identify the amount of time and size of the previous rally. With the high point in place. This zone comes in from 35. This is called the Symmetry level. with A being the low point.41 to 38. 8. A swing low point is formed at 30. Now. In this case it is. 4.00 for a 2 point gain and a stop is trailed down to either a previous swing high point or breakeven. A short trade is entered on a trade below the previous bar's low AFTER hitting the Resistance FibZone. This point will be labeled point C. This is where we take partial profits and trail our stop.5 point gain. is hit at 28. 6. Price hits our FibZone and begins to reverse. Now we can calculate the .618 retracement of the move from C to D. it is time to calculate Fibonacci price levels and construct a Resistance FibZone. That price level comes in right around $35. Above it is labeled A:B. Remember our measurement from #4? Let's take that 5. which is the 1.3 point rally and project it from the point C low. This countertrend move was 17 days and 5. 2. A stop is placed immediately above the Resistance FibZone. so we can continue with the setup. half the position is covered around 33. Our entry in this scenario was 35. 9. go back to the previous countertrend rally of significance. which happens to fall right at our Resistance FibZone. 7. Once price starts to reverse to the downside.44 for approximately a 6. 10. 3. We'll come back to this. The final objective.The Reflection Reversal Method
81
Reflection Short Example
1.
50 and . there is no software that can scan for price symmetry. but I eliminated losses. I
do know that some software programs are working on perfecting the time symmetry scan. I not only added some "base hits" of profits to my bottom line. When I started taking profits and trailing stops at this level.
Question: Why do you take partial profits between the . Sure.82
Chapter 5
STRATEGY Q&A
Question: Is there a mechanical way to scan for symmetry? Answer: To my knowledge. I found that stocks or commodities would reverse at
this level and many times stop me out for a loss.618 retracement levels? Answer: Trading this strategy. That's trading!
. That's one of the reasons I like these strategies. They are not easily put into a box. there are cases where I get stopped out prematurely and price keeps moving in the direction I wanted. Then occasionally I would hit a home run on the last half of a trade that kept moving in my direction.
CHAPTER
6
TRADING PULLBACKS USING THE TRIPLE CROWN STRATEGY
83
.
+... (4)
L.. A Triple Crown is comprised of three Fibonacci price ratios which occur in this specific order:
.... I have found a combination of Fibonacci price levels based on a specific set of swing high and low points that are combined to create what is one of my favorite strategies...._L.. the Triple Crown.......786 .....618 It is a specific combination of these three Fibonacci retracement levels that identify potentially powerful reversal areas in any tradable market with liquidity.
There are three swing points that we need to be concerned with in this strategy from which the ratios are derived.50 .......786 ..... In the case of looking for long trades.50 .........
.... we identify the most recent swing high point and the two most recent swing low points....STRATEGY #3: TRIPLE CROWN
After analyzing thousands upon thousands of Support and Resistance FibZones and analyzing what the characteristics were of those FibZones that provided some of the most powerful trading opportunities.............618 (3)
>
The Triple Crown
(2).......
Swing Point: C
~
(1)
......~" Swing Point: B
Zone
"
..._ / Swing Point: A
___.....
only if you make new highs do you move the stop to the previous bar's low. At the same time. B. 2. 8.. which is labeled point D (because A. . first calculate the .618.272extension of Swing CD.Trading Pullbacks Using The Triple Crown Strategy
85
Rules For Buys (Shorts Are Reversed)
1. the order from the top of the zone to the bottom is .50 and . If the order of the Fibonacciratios are "valid.. So. 9. Once it does hit the TCZ. When this Fibonacciprice level is hit (which. 7. and now we wait for price to come down and touch our TCZ. we can calculate the 1. Once the swing point is made into the TCZ. 4. but the idea is to give the trade room to breathe. Again. and C are the swing points used to calculate the original TCZ). our Trailing Stop Plan takes effect: • Place a stop on half of the position at the higher of the previous bar low or the original entry price (breakeven). 785. but not to be foolish and tum a winner into a loser.618 of low point A to high point C. There are only three Fibonacci ratios we need in this strategy. Label the low point closest to point C as point "B. A stock has formed a swing high point with a bar on each side with a lower high. Identify the two previous low points that are below the current bar's low. means the trade is working for us). Initial stops are just below the TCZ for long trades. As a higher high is made. This allows for potential home run trades and gives room for some volatility.50 and . This price level serves as a trigger to initiate the trailing stop game plan. by the way. Label this point C. calculate the . 5. continue to trail the first half stop to the previous bar's low.
.618.786 retracement must fall between the . place the stop at the original entry (breakeven). 6. • Start trailing the last half of the position at swing low points as price moves up. So. the . Once the first half of the position is stopped out ." The swing low that is lower than B will be labeled "A.786 retracement of low point B to high point C. To be a valid Triple Crown Zone (TCZ)." then we have a TCZ. I look to buy above the previous bar's high. There is more subjectivity and discretion to this stop." 3.50. • On the other half.
650 Ret 0.95
81. we also have a symmetry level at 77. In fact.500
l§. 4. and I'm looking to buy above the previous bar's high.80.618 retracement of A to C and the . a long trade is initiated just above 79. Go back and label the previous two swing low points A and B. High point C is identified. we have identified a TCZ. The initial stop on this trade will be just below 77.f~§~~t .
.786 retracement of B to C.11.il~1i §
(3)
Triple Crown Long Example:
1.86
Chapter 6
A = 76.575 Rd 1.272
78.50 and . In this case.50 B = 77. After calculating the . 3.53 C = 80. 2.80 D = 77.80 to strengthen our TCZ. Price hits the TCZ. 5.
This goes on for quite a few bars.15
Triple Crown Long Example:
6. 9. In this case. it is time to calculate the 1. Price then makes a higher swing low point at 86.272 ratio price level is touched.91.80 0=77.11.272 extension of the C high to the 0 low. I first trail the stop up to 84. This final stop placement is a bit more subjective. We are now focused on actively managing half of the position. Over 7 points of lockedin gain.50 B = 77. 7. That comes in at 81.00.
.48 after the 1.53 C = 80.15 where I am ultimately stopped out of the final portion. but still give the stock room to run. and half of the trade is finally stopped out at 87. as we want to trail it up to a previous swing low point.95
86.Trading Pullbacks Using The Triple Crown Strategy
87
A = 76. continue trailing half of the position's stop up to the previous bar's high.57. 8. Now let's tum our focus to the stop that is sitting down at breakeven around 79. As higher highs are made. Once low point 0 is established and price starts to reverse up out of the TCZ. Trail the stop on half of the position to the previous bar's low at 80. The other half of the trade moves to breakeven.
50 and .786 retracement of B to C. 4. In this case.786 is slightly above the .40
!.50. After calculating the .618 retracement of A to C and the .840
(0)
(3)
\
(5)
(Al
Triple Crown Long Example:
1. 5. tit [Ill Itl ~:l t
11111
8:s~1l
APD l. The initial stop on this trade will be just below 50. a long trade is initiated just above 55.90 C = 59. we have identified a TCZ.88
Chapter 6
A = 45. and I'm looking to buy above the previous bar's high. but when it is within pennies like this AND we have a symmetry level at 51. 3. I will consider it a valid TCZ.79 B = 50.84. Price hits the TCZ. Go back and label the previous two swing low points A and B.00
(1)~
(el
tl
11!~~n~
55.98.ooe
(4)
=='1I'===========sHas~~!
'===========51.
.B2 55.
2. The .40. High point C is identified.38 0=52.
90 after the 1.272 is hit.5 point profit on half.Trading Pullbacks Using The Triple Crown Strategy
89
(B)
Triple Crown Long Example:
6.
.35.38. it is time to calculate the 1. but still give the stock room to run. This final stop placement is a bit more subjective.90 for a 3. S. I first trail the stop up to 55. The other half of the trade moves to breakeven. Price then makes a higher swing low point at 57.272 extension of the C high to the 0 low. so I move it up. Now let's turn our focus to the stop that is sitting down at breakeven around 55. That comes in at 61.272 ratio price level is touched.82 when the first half of the trade is stopped out. As soon as the 1. 9.23. We are now focused on actively managing half of the position. Once low point 0 is established and price starts to reverse up out of the TCZ. Trail the stop on half of the position to the previous bar's low at 58. In this case.as we want to trail it up to a previous swing low point. price reverses and half the position is stopped out at 58. Then a final higher swing low is made at 58. where I am ultimately stopped out of the final half of the position. 7.40.
786
4. After calculating the .r~J \1 \~f~n'(4)
f
(1) •
(C)
~1~ ) ?~'O
(====2) ============1 ====================::~:~:. of A to C and the .75. Go back and label the previous two swing high points A and B.75 on this fiveminute chart. The initial stop on this trade will be just above 849.

.250 649. and I'm looking to short below the previous bar's low.25 B = 850.
.618 retracement retracement of B to C we have identified a TCZ. 2. Low point C is identified.50 and .75 D = 849. In this case. ::: ~:~!
~. 3. a short trade is initiated just below 847.250
(~)
650._

~




_ _


~





_
90
Chapter 6
652. Price hits the TCZ.25
A = 852.25 C = 845. 5.so
~
845.250
~
~
(5)
~.25
Triple Crown Short Example:
1.wo~o .
I trail down three more times from 841. Now let's shift to trailing the last half of the stop down.
8.75. then to 840.250
CAl
J
=r.25
Triple Crown Short Example:
6. 7.:===============~4§:ag6~~iR§8
e49.272 extension of the C low to the 0 high.
.25 B = 850. and I'm able to trail half my stop as we make new lows down to 843. Price continues down. so the whole position's stop is We are now focused on actively managing half S&P 500 futures make new lows.767RetO. Once high point D is established and price starts to reverse down out of the TCZ. Trail the stop on half of the that would be the same as moved down to breakeven. of the position as the Emini position to the previous bar's high.25 C = 845.25 to 837. In this case.Trading Pullbacks Using The Triple Crown Strategy
91
SSt. where I'm stopped out of half the position for a 7. our entry point. That's $600 per contract from a fiveminute chart.250 84 .75 D = 849.250
852. it is time to calculate the 1. and finally to 835. where I'm stopped out of the last half for a 12 point profit.151
A = 852. It looks like the swing point at 843 is a good swing to use.75 point gain on a fiveminute chart. then to 842. That comes in at 844.25.75. 9.
a short trade is initiated just below 45.86.786 retracement of B to C. 4. we have identified a TCZ with a symmetry price level at 46.50 and .J.
.26 D = 46. 3.400
.00e
A
51.92
Chapter 6
44.500 46.991]7.19 on this daily chart.J.89 C = 41. S. .
2. . Go back and label the previous two swing high points A and B.618 47.255 Ret 0. and I'm looking to short below the previous bar's low.600 Ret 0. Price hits the TCZ.786 46.J.618 retracement of A to C and the .52
=
Triple Crown Short Example:
1.
47.95 B = 48.
39.06 to strengthen our zone. After calculating the . Low point C is identified. The initial stop on this trade will be just above 47.430 42.060 ApD 1.J.500
.863 Ret 0. In this case.
272
(7) (6)
A = 51. Now let's shift to trailing the last half of the stop down.50 and finally to 30.99 to 37. It looks like the swing point at 44.817 "+1.272 extension of the C low to the D high.70 to 39. Once high point D is established and price starts to reverse down out of the TCZ. 7.95 B = 48.26 0=46. The trailing stop did its job in this case and allowed us to capture a much larger profit.Trading Pullbacks Using The Triple Crown Strategy
93
(8)
(8)
39. Unfortunately on the first half of the trade.43 is a good swing to use. The stop is trailed down three additional times from 41.43 where I'm stopped out of the last half for over 15 points of profit. price reverses back up against the
short position.5 points of profit.52
Triple Crown Short Example:
6. That's the goalto put ourselves in the position to participate in a move like this one. and we are stopped out at 42.40 for over 2. As soon as this stop is activated. we need to focus on the other half of the position with a stop at breakeven and move it down.19.81.
B.
.89 C = 41. That comes in at 39. it is time to calculate the 1. 9. Once QQQ trades down through the 1. trail the stop on half of the position to the previous bar's high.272 level. and move the other half of the position's stop to breakeven at 45.
Why? • Risk is defined and relatively tight. You only have to look at three swing points and use three Fibonacci ratios. Triangles. • When these trades work out. I have noticed that it also identifies other solid patterns like Cup & Handles. and the list goes on. which many times yield great reversal opportunities. You'll be pleasantly surprised. • The Triple Crown identifies many different patterns and market conditions that set up for reversal. they REALLY work out! With our stop strategy. • It is simple to calculate. This translates to small losses on losing trades. Bottom line: This specific Fibonacci price zone is very important! Spend some time with this Zone and watch it work. it allows these profits to run and compound. The TCZ identifies consolidating areas that are set to explode.
. It identifies Head and Shoulders pullbacks to the neckline.94
Chapter 6
This is definitely a favorite strategy of mine.
I give it one chance and one chance only.
. So. So I started holding the entire position for longer periods of time. Then I could tum off the screens and let the charts do what they may. it quite often creates a momentum
move in the direction in which the zone was broken.
Question: How did you come up with the trailing strategy? Answer: I was taking profits way too early on trades that would just make tremendous moves out of these zones. I am a simple guy. after some hit and miss. but at least I'm in the trade for a potential home run. Then I found that in choppy markets. I was losing more. When a TCZ is broken. A second dip through the zone is all she wrote. Another requirement is that price cannot go higher than the high or lower than the low made past the TCZ. If it looks like it has not violated the zone by too much. I would likely agree. I get stopped out at breakeven.Trading Pullbacks Using The Triple Crown Strategy
95
STRATEGY Q&A
Question: How far below the TCZ do you allow price to go to still consider the zone valid? Answer: The situation where this arises most is an intraday move that slightly violates the Zone. I came up with this money management strategy that would put some money in my pocket relatively quickly and take my stop to breakeven. and worst case (assuming no crazy gap moves).
Question:
If this Zone
is so critical. what happens when it is broken?
Answer: Great question.
CHAPTER
7
TWOSTEP PATTERNS (TSP)
.
In this chapter I first want to give a general description of the twostep pattern and how it ties into what is called the Theory of Parallel Channels. The name "two step" comes from the fact that there are two swings that move.0. All of these patterns create powerful trading opportunities because it is a pattern that takes advantage of "weak hands" and a "don't miss the boat" mentality exhibited by the masses. There are three variations of this pattern that we will discuss in detail.800
I
1\
C
4 Bars
0
ly1
l' 4MIO. Secondly.770
+
14. ·0.
3•8OO
3•6OO
l'
43.II'l:
~
44. r. I will describe in detail three specific types of twostep patterns (TSPs) that I use to trade with against FibZones.&90.000 40(13:50
chert created by Dynamic Trader c 19962001
.400
14.<160.550 4Oc14:40
4.0._oo
"10.770
6 B~r3 "IOc15:00 4B. The first part of the pattern is Swing A:B. which finds price trading beyond swing point B to make a new high or low.000
1~
A
OSars
r.0. or "step.200
44.
II
Bullish TSP
II
M5FT 51
Bearish TSP
i~O~t1l? fri
r~." in the same direction.14:20 44. The second move in this pattern is a small pullback in the opposite direction of swing A:B to point C.600
4.STRATEGY #4: TWOSTEP PATTERNS (TSP)
The best way to understand a TSP is to look at a picture of it. Then the third and final move is swing CD.680.
On the flipside. when price moves up from C to 0 and makes a new high. The reason it is called a Bearish T5P is because we anticipate price going down from point D. So the logical place for price to trade after hitting point 0 is to make a similar move down like it did from B to C. What differentiates our three TSP patterns is the size of each of these steps: A to Band C to D. the trend is down and the channel that price is trading in is down.
TwoStep Patterns (TSP)
99
A basic twostep pattern looks like charts (1) and (2) below
Bearish TSP
(1)
A A
A to B = Step #1 C to 0 = Step #2
The concept behind a twostep pattern is that price trades within a channel in the direction of the trend. in the case of a Bearish TSP. it is hitting
a form of support. when D hits the channel. it is hitting a new high at the top of a channel that acts as resistance on price. and price is likely to trade up and retrace a percentage of the C to D move and most likely go up a similar point size of the move from B to C. We will discuss these differences and characteristics in detail. So. looking at the example of the Bullish TSP. For example.
..
We take the general twostep pattern and give definition to each step.
A
Bullish TSP
o
t
(6)
.100
Chapter 7
Capture Strong Trends With The Symmetrical TSP
Now that we have defined what a twostep pattern is. The size of the move from A to B is equal to the size of the move from C to D. The equation is A:B = C:D. we can dig into a few variations of this basic pattern. The first is called a Symmetrical TSP.
Ideally. price again reverses to the downside. This swing will be labeled B:C. Price must now trade below point B. Once point C is established.TwoStep Patterns (TSP)
101
Rules For Buys (Shorts Are Reversed)
1. After low point B is violated. it is "all clear" to look for opportunities to take a long trade.) For the example.
.618 extensions of swing AD. 4." 5. the swing down from A to B is measured and projected from point C to determine what we will call the "Symmetry Level. 6. point C must not exceed the . a Support FibZone is calculated and defined. Second.272and 1. A swing down is made that will be labeled A:B. Initial stops on these trades will be below the Support FibZone. First.786 retracement of swing A:B. the trigger will be a trade above the previous bar's high. 2. we will look for price to stop going down based on two items. Once the requirements of the setup are met and price trades down to the "symmetry level" within the Support FibZone. The objective on these setups falls within the 1. 3. (See Chapter 11 for discussion on possible entry techniques. A pullback in the opposite direction of swing A:B is then made. 7.
228 Ret r.410 App 1. 2. 4. it's time to look for an opportunity to go long and for price to reverse to the upside.102
Chapter 7
A
Symmetrical Swings AS = CD
c
(3)
A
===========~=t= 'l:t(4) to B = 5 pts =5
pts
27. High point C does not exceed A. Price rallies from B to C.
. The move from A to B was 5 points. With three other Fibonacci price levels around our symmetry level. After establishing point C. That price level is 27.s rs
'3
le.
Sep
13
27 19962001
Chart created
Symmetrical TSP Setup:
1. A move down from A to B. From point C. we project a 5 point decline.41. 3. I call this the symmetry level.000
~~:ll~~~l~:~~~
C to D

o
zs . price reverses down and goes below B.
7. 6.TwoStep Patterns (TSP)
103

3S.750.E. Initial stop was placed just below the Support FibZone around 26.272 and 1.iS
35. The long trade was taken around $28.618 extension of swing A:D.E.22S Ret 1. Verizon (VZ) traded up almost 50%. or 11 points. Trade objective was between the 1. Those prices were 35.272
A to 8 C to 0
=5
=
pts 5 pts

D
2E.95 to 38..20.464 Ret i. 0.46. 5..
.iB
OTt
2E.000
'\(6)
1
Symmetrical TSP Result:
The result of this symmetrical twostep was quite powerfuL In 16 days.959 Ret 1.
price reverses down and goes below B. That price level is 14. High point C does not exceed A. From point C. I call this the symmetry level. we project a 1. After establishing point C.18
13.104
Chapter 7
(1)
I
o
13. where CD is symmetrical with A:B.500
8
15
Symmetrical TSP Setup:
1.804 Ret 0. A move down from A to B.500
3.000
2. With five other Fibonacci price levels (Support FibZone) around our symmetry level. 4.6 point decline. 3.
. it's time to look for an opportunity to go long and for price to reverse to the upside.6. 2.25.6 points. The move from A to B was about 1. Price rallies from B to C.
804 Ret 0.70. 7.
.02 to 17. Boston Scientific jumps higher at the open.777 Ret 1.TwoStep Patterns (TSP)
105
(7)
<. A long trade was taken around $15. 6.618
f
17.618 extension of swing A:D.272 and 1.77. 5. Notice the day after point D is formed.618
\(6)
Jan 12
Symmetrical TSP Result:
The result of this symmetrical two step was also quite powerful.75 points.272
A
r
tf
~
B
~(5)
D
i~:i~~ ~~p~~
13 .
17. Initial stop was placed just below the Support FibZone around 13.50. Trade objective was between the 1. BSX traded up over 26% or 3.023 Ret 1. and in 9 days. Those prices were 17.
..106
Chapter 7
Let's reverse the scenario and look for short trade setups....(4)
/~///
//
(3)
A
..//~
////
o
>
~
...
Bearish TSP
(6)
.


..