Elliott Wave International | World's Largest Market Forecasting Firm Since 1979
Please Login
 
 | What's My Password?
EWI
Market Wrap

Sign up to get Market Watch delivered free in the EWI Independent.
Edit my current email notification | Email this article to a friend | Printer Friendly

How Fibonacci Numbers Govern Market Prices and Timing
9/2/2010 12:00:00 PM

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.
 

Here's what else you learn from this intensive 90-page trading eBook "How You Can Identify Turning Points Using Fibonacci" by EWI Senior Tutorial Instructor Wayne Gorman:
 
  • 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! 

 
Send me Email Alerts of Free Updates
from Elliott Wave International!


* confirmation popup window

Featured Educational Resource

 
Get your copy of SafeWealth's NEW 200-page manual now!

SafeWealth GuideBookExperts can tell you how to accumulate wealth. But few can show you how to protect your wealth.
Learn More>>

 
Press Room
IN THE MEDIA
Browse Recent Media Articles that Mention EWI or Feature EWI Analysts

As the markets enter what Bob Prechter calls "the point of recognition," we notice that mainstream media pundits who get it start to notice us, our analysts and our forecasts. You can browse dozens of recent media articles about EWI in the EWI Press Room.
 

|
|
|
|
|
|
|
|
|
|
The Elliott Wave Principle is a detailed description of how financial markets behave. The description reveals that mass psychology swings from pessimism to optimism and back in a natural sequence, creating specific Elliott wave patterns in price movements. Each pattern has implications regarding the position of the market within its overall progression, past, present and future. The purpose of Elliott Wave International’s market-oriented publications is to outline the progress of markets in terms of the Wave Principle and to educate interested parties in the successful application of the Wave Principle. While a course of conduct regarding investments can be formulated from such application of the Wave Principle, at no time will Elliott Wave International make specific recommendations for any specific person, and at no time may a reader, caller or viewer be justified in inferring that any such advice is intended. Investing carries risk of losses, and trading futures or options is especially risky because these instruments are highly leveraged, and traders can lose more than their initial margin funds. Information provided by Elliott Wave International is expressed in good faith, but it is not guaranteed. The market service that never makes mistakes does not exist. Long-term success trading or investing in the markets demands recognition of the fact that error and uncertainty are part of any effort to assess future probabilities. Please ask your broker or your advisor to explain all risks to you before making any trading and investing decisions.