back start next

[start] [1] [2] [3] [4] [5] [6] [7] [8] [9] [10] [11] [12] [13] [14] [15] [16] [17] [18] [19] [20] [21] [22] [23] [24] [25] [26] [27] [28] [29] [30] [31] [32] [33] [34] [35] [36] [37] [38] [39] [40] [41] [42] [43] [44] [45] [46] [47] [48] [49] [50] [51] [52] [53] [54] [55] [56] [57] [58] [59] [60] [61] [62] [63] [64] [65] [66] [67] [68] [69] [70] [71] [72] [73] [74] [75] [76] [77] [78] [79] [80] [81] [82] [ 83 ] [84] [85] [86] [87] [88] [89] [90] [91] [92] [93] [94] [95]

83

the Fibonacci numbers. This will help illustrate the price action within the potential reversal zone.

Preparing the trade in advance is essential to ensure a successful trade execution. However, when I say successful, I dont mean that every trade set-up is executed either. Since anything can happen in the stock market, it is important to prepare yourself for various possibilities. The preparation of pattem recognition and Fibonacci calculations identifies a potential set-up. But, the important factor in executing your plan is to determine whether or not the trade is valid.

It is essential to use the waming signs previously mentioned in this book. A successfiil execution is determined by the relevant market price action at the time the stock is trading in the reversal zone. For example, if a stock rallies strongly through a reversal zone, the trade set-up might not be as good of an opportunity as the numbers might suggest. Or, the stock might be heading for another potential reversal zone at another group of numbers. Therefore, it is important to gauge the price action of the stock within the reversal zone.

Although there are several software programs that are capable of calculating Fibonacci numbers, the tools required to utilize this methodology are very basic. The most important ingredient for this system is to find clear price charts that show accurate price action (without bad ticks).

Some Intemet services enable the user to exactly define prices by clicking on the price bar of a chart. Ifyou find yourself inaccurately "guess-timating" stock charts, I would suggest finding a good service that might cost you some money. However, it will definitely save you money in the long mn with more accurate calculations.

Another basic tool needed to calculate the numbers is a simple spreadsheet. A spreadsheet can be easily formatted with a few formulas that will calculate the range of numbers for the potential reversal zone. I suggest that you program your spreadsheet exactly as I have in the following example.

 Symbol .382 .618 .786 1.27 1.618 Input X Input =( - 3) = 4*.382 = 4*.618 = 4*.786 = 4*1.27 = 4*1.618 = 5+ 4 =B5+D4 = 5+ 4 =B5+F4 =B5+G4 Input =( 7- 7) = 8*.382 = 8*.618 = 8*.786 = 8*1.27 = 8*1.618 = 9+ 8 =B9+D8 = 9+ 8 =B9+F8 =B9+G8 Input =( 11- 11) = 11 = 12*.382 = 12*.618 = 12*.786 = 12*1.27 = 12*1.618 = 11 = 13+ 12 =B13+D12 = 13+ 12 =B13+F12 =B13+G12 = 11 Input D =( 15- 15) = 15 = 16*.382 = 16*.618 = 16*.786 = 16*1.27 = 16*1.618 = 15 = 17+ 16 =B17+D16 = 17+ 16 =B17+F16 =B17+G16 AB=CD 1.27AB=CD 1.618AB=CD = 11- 8 =B11-F8 =B11-G8

Although this spreadsheet may seem complex, it is actually quite simple to determine the "spread" of Fibonacci numbers. Also, you might be wondering why I included the 0.382 retracement in the calculations. I consider the 0.382 calculation as the first area to examine in a price move. Sometimes, I will substitute the 0.382 with the 0.50 retracement.

The beauty of this spreadsheet lies in the gamut of Fibonacci numbers that exist within the price moves. For example, if a pattem has been identified, I can easily compare each price leg to determine which Fibonacci number was the reversal point. In addition, I can quickly determine the area where the greatest number of Fibonacci calculations converges.

After you develop your eye to identify price pattems, the calculations to determine the potential reversal zone are very simple, as the spreadsheet demonstrates. If you can add, subtract, multiply and divide, you can determine the areas that have the highest probability for a reversal. So, if you like crunching numbers, these calculations will be very enjoyable. If not and you have the money to spend, I suggest that you invest in a software program. But, I do believe there is a great deal of benefit to doing the work by hand.

[start] [1] [2] [3] [4] [5] [6] [7] [8] [9] [10] [11] [12] [13] [14] [15] [16] [17] [18] [19] [20] [21] [22] [23] [24] [25] [26] [27] [28] [29] [30] [31] [32] [33] [34] [35] [36] [37] [38] [39] [40] [41] [42] [43] [44] [45] [46] [47] [48] [49] [50] [51] [52] [53] [54] [55] [56] [57] [58] [59] [60] [61] [62] [63] [64] [65] [66] [67] [68] [69] [70] [71] [72] [73] [74] [75] [76] [77] [78] [79] [80] [81] [82] [ 83 ] [84] [85] [86] [87] [88] [89] [90] [91] [92] [93] [94] [95]