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1.618 Projection Summary

The 1.618 is a very peculiar Fibonacci number because of the extreme that it represents. When I see a stock in a 1.618 price move, I must be thinking that it is in an extreme price area that could potentially reverse very soon. Personally, my general rule about the 1.618 is: if a stock has rallied above a 1.618 projection from a considerable prior decline, it is overbought; ifa stock has sold off past a 1.618 projection on the downside, it is oversold. By thinking in these terms, I have trained myself to automatically respond to these situations. I prepare myself to buy below a 1.618 projection and I prepare myself to sell above a 1.618 projection. Even if I hear an incredible amount of information in the media that suggests otherwise, I execute my trades when these 1.618 conditions exist.

It takes some time to truly be able to think in these terms and execute your trades according to these rules, especially when the media feeds you information that is contrary to what the projection is indicating. It will probably require several actual experiences of seeing how the 1.618 projections accurately gauge the price action. After you personally witness such situations, you will trust what the Fibonacci projection is saying more than any news item.



Primary Fibonacci Numbers Summary

As the chart examples demonstrated, the primary numbers, 0.618, 0.786, 1.27 and 1.618, are crucial in gauging market action. These specific areas can indicate a great deal regarding the price action of a stock. Also, they can serve to identify potential trading opportunities within a market that leads you to believe otherwise.

I urge that you master the primary numbers. It takes practical experience to develop "a feel for the numbers." Once you have witnessed some real market examples ofthe numbers in action," it will become easier to identify which numbers are the most significant, and you will improve your trade executions.

i i i I I I i i i



The Secondary Numbers

There are several other numbers that are related to the Fibonacci sequence, which I consider to possess "harmonic" qualities. Although there are many numbers that can be derived from the Fibonacci sequence, which are used for stock chart analysis, I do not incorporate all of them. I believe that the ones that I list are the most important to define valid harmonic setups.

0.382,0.50,1.00, 2.0,2.24, 2.618,3.14

It is important to emphasize that these numbers should serve to complement the potential reversal zone that possess other primary Fibonacci numbers and clear geometric pattems. They are effective numbers in gauging price action, although they are not as vital as the primary numbers.

The most important aspect of these numbers is to be aware of their existence. I will show you several illustrations and examples of simple projections that will help you to train your eye to identify these numbers in the same manner as the primary numbers. In the next section, there will be several examples of the secondary numbers that demonstrates their effective use, especially in complex pattems.

Although these numbers are important in determining harmonic setups, I suggest just a basic review of this secfion. You can skim through the illustrations and chart examples to familiarize yourself with these numbers.



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