Gene Nowell
Fibonacci Fan Fair
Fibonacci is a household word around trading rooms and trading pits these days. You may ask yourself, how could a middle ages Italian mathematician with his formulas and theories become so popular? The answer is simple. The theories he worked with obtain a high rate of accuracy in technical analysis. I am going to explain how I use some of the Fibonacci Ratios and show chart illustrations with them in action.
My favorite tool are the Fan Lines. I have devised a trading plan which incorporates these geometric wonders. I will also show the Fibonacci Ruler, and the Projections associated with it. And finally I will discuss briefly the "GOLDEN RATIO" and which part can be relied upon. Lets get started.
FIBONACCI FAN LINES: Please reference this first chart. To construct the fan lines, you must have two points of reference. There must be a distinct high and low on intra day, daily, weekly, or Monthly charts. These high and low points are "Market Symmetry" given to us from previous moves which will influence future market moves. These "Road maps to the Future" are a reliable source of support/resistance in future days ahead if referenced properly. I use GECKO SOFTWARE Track 'n Trade Pro 5.0 because it has all the tools I need to construct a good set of Fan Lines.
On the chart above I have found two points of reference and then I have drawn the Fibonacci Ruler (horizontal lines of support/resistance). These horizontal lines will later become reference points for the Fan Lines (angles) coming down from the high. Second I have drawn a vertical line from the reference low up to the high point horizontal line. These two simple techniques are all we need to obtain our reference points for drawing the fan lines. The intersecting points which are harmonically joined together by the high and low are circled on the chart.
In the second chart I started each angle down from the high and continued them out to the low point horizontal line. The importance of this will be shown later.
With price on the way up or on the way down the most important of these angles will always be the .618 Angle. One of the ways I can tell a markets strength or weakness is to watch how price reacts to this all important angle. If for the first time when price touches the .618 angle and price blows right past it without any correction it is usually a very strong market. However, price will almost always pullback to this angle some time in the future to find support or resistance.
In the third chart I have circled in blue three points labeled 1, 2 and 3where price touched the .618 angle. Notice at point 1 price blew right past the .618 angle. At point 2 you can see how it pulled back to touch it then found support and proceeded up again. The third time price touched the angle it found support again and then moved much higher.
If a trader has any kind insight, he or she can devise some kind of a good trading plan to make money just on this technique alone.
The last chart below has another very important aspect of these Fan Lines. Keep in mind these lines are support resistance which are not on a horizontal plain. They are on the geometric plain of market symmetry. They are also timing lines because they measure price in terms of time. Therefore, they can be used as timing points for change of trend.
As each line moves down from the high to the low point horizontal line, where the two intersect there is some kind of change in trend. This is either a minor or a significant change in trend. I have drawn violet colored arrows to show the reference points. You could do this exercise with any chart or time frame and find the law of the .618 angle will almost always be a part of price movement.
This Golden Ratio (.618) is a part of our universe and should not be ignored when doing technical analysis. If you have a different way to utilize this important number, please feel free to email me any time. colt@gannline. com. I wish you all good trading and Happy Trails.
Gene Nowell