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45 Again, you might be wondering why the exact AB=CD was not a valid execution point? The AB leg was 26 7/8 points. Projecting this distance from point results in the completion of the pattem at 76 1/8. Clearly, when the stock hit this area, the price action was quite strong, due to the bullish gap on the open and the extremely large price bar on the day it hit this area. These waming signals would have kept you from taking the trade. Even ifyou waited a day, the price action continued higher, which also indicated that the stock was strong. The altemate projection of 1.27 AB=CD was calculated at 83 3/8. This calculation was complemented by the 2.618 projection of the leg at 85 1/4. So, when Gateway reached this area, it was in another potential reversal zone that indicated a selling opportunity. Unlike the time when the stock hit the exact ABCD, this stock started to reverse at the alternate projection, and it provided some clear reversal signs. The stock began to breakdown, as evidenced by the reversal price bars and developed a bearish continuation pattem oflower lows and lower highs. So, if you waited a day, the following price action indicated that a reversal was occurring. The stock gapped down three days after the reversal was complete, which definitely signaled that a bearish trend was intact. These altemative projections usually will not be as good of an indicator as the equivalent AB=CD. But, they are effective harmonic calculations when the AB=CD has been clearly exceeded. It is very common to utilize the 1.27 or the 1.618 to project the CD completion point to clarify potential reversal zones. In particular, these altemate projections are extremely useful when combined with other significant Fibonacci projections. .618 or .786 of AB = CD Another altemate projection of the AB=CD pattem is to utilize the .618 or .786 of the AB leg to determine the CD completion point. These situations occur when the AB leg possesses an extreme price move, yet the pattem still possesses two symmetrical price legs. Although these pattems are fairly uncommon, they do occur. The completion of the shortened CD price leg is determined by multiplying .618 or .786 of the AB leg and projecting that distance from point C. Similar to the 1.27 or 1.618 projections, the .618 or .786 altemate calculation of the AB
leg should be used only when there is a distinct pattem and other Fibonacci projections occurring within a specific area. Bullish Alternate .618 or .786 AB=CD In a bullish altemate calculation, the .618 or .786 are useful to determine a potential reversal zone, especially when the AB leg has declined sharply. As I mentioned before, I like to use only the .786 projection of AB for the CD leg. Furthermore, there must be a primary Fibonacci number, usually a 1.27 that converges in the same area. .618ab=cd .786ab=cd ab=cd d bullish .618 or .786 ab = cd buy at point d! Similar to the 1.27 or the 1.618 altemate projections, the .618 or the .786 should be used only in conjunction with other harmonic calculations. Lets look at an example.
The following monthly chart of First Data Corp. formed a very distinct pattem that reversed almost exactly at the .786 projection of the AB leg. The setup possessed two harmonic numbers that converged just below 20. The .786 altemate calculation of the AB leg was projected to complete at 19 1/2. This area coincided with a 1.618 projection of the leg at 18 3/16. The area provided significant support, as the stock reversed less than 1/4 point shy of the altemate projection at 19 3/4. HRST DATA CORP. (FDC): MONTHLY A BULLISH .786AB=CD 52 50 48 46 44 42 40 38 36 34 32 30 2S 26 24 22 20 IS lOO SO ©BlgCharts. com II97FMflMJJFI SONDSSFMAM JJFIS0ND99Fn fiMJJFI This is a very interesting chart, especially since the pattem was so distinct and it developed over a twoyear period. Although the exact AB=CD would have been an even clearer setup, the altemate calculation defined the reversal area quite well. You could have waited for some definitive reversal signs before buying the stock. First Data Corp. provided excellent confirmation of the new uptrend, as the stock rallied higher for almost a year without breaking the prior months low. 68138148
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