To properly use Elliott wave analysis in investing and trading, you have to know it. We constantly bring you new educational resources, and below, you see an excerpt from one of them: EWI's 90-page trading eBook "How You Can Identify Turning Points Using Fibonacci."
In this intensive eBook, EWI Senior Tutorial Instructor Wayne Gorman shows you practical tools that help you formulate and execute your own trading strategy by combining wave analysis with Fibonacci relationships. Enjoy this excerpt from "Chapter 3: Amplitude Relationships."
Now, let's look at how to use Fibonacci ratios and multiples in forecasting. We see Fibonacci relationships both in time and amplitude.
Retracements – Corrective Waves
[On the left,] we see a diagram of wave 1 followed by wave 2. It is common for second waves to retrace .618 of wave 1. We will also be looking for .786 [and] .5 retracements, but .618 is common. On the right, fourth waves will commonly retrace a smaller percentage: .382 of wave 3, or we might also see something like .236.
Now, [let's] turn to a chart of the S&P 500 from August 2004 to April 2005. We have waves 1, 2, 3, 4 and 5. Wave 2 is an expanded flat. Wave 4 is a zigzag. Let's look at the retracements that waves 2 and 4 make.
We see that wave 2 makes a deep retracement. It comes close to .618. [The exact] .618 is 1087.75, and the S&P low is 1090.19.
We see that wave 4 makes a shallow retracement of wave 3. It goes just beyond the .382 retracement. .382 is 1169.1, and wave 4 actually bottoms at 1163.75.
Fibonacci Time Dividers
We also see Fibonacci dividers with respect to time. This is a chart of the DJIA from 1932 to 2000. The end of wave III (or the beginning of IV) it divides the entire time or duration into two equal parts, 50% by 50%; notice that both parts are equal to a Fibonacci number of 34 years.
This is the Dow from the 1974 low up to the 2000 high (for Cycle-degree Elliott wave V). The end of wave 3 (or the beginning of wave 4) divides the entire time into two parts, each equaling a Fibonacci 13 years.
- How the "Golden Ratio" can help you tap into "golden" trading opportunities
- The most important Fibonacci relationships to watch for
- How to project valuable time and price targets using Fibonacci "dividers"
- How to use Fibonacci time periods to anticipate trend reversals
- How Fibonacci relationships can help add confidence to your wave count
- How to formulate your own low-risk entry strategy
- Techniques to help you set and properly manage risk-limiting stops
- How to put it all together and generate your own high-confidence trading strategies
- And MORE!