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41 Trading By Tine Book - Part III CHAPTER 3 Market Symmetry There is a certain beauty and symmetry to the markets. Like ocean waves, the prices roll and undulate. If there were only some way to measure the next wave, I could have a pretty good idea of where a market might be going. I would be able to have an objective and I would know with greater accuracy where to place protective stops. There is a way to measure the symmetry of the market, and its so simple that almost everyone I know has walked right by it! They cant believe that it is so straightforward. Its too simple for most technicians. They want to make things complicated. They think its better to try to measure the market with parabolic wingbats, exponential whodaddies, and logarithmic whatchamacallits. I dont know exactiy how Fibonacci discovered his series of numbers, or for that matter what they may ail apply to. I dont even know if I pronounce his name right. I do know this - that there are six of his numbers that closely describe what happens in futures markets. Of those six, I have only shown four. A fifth is revealed later in the Manual, and the sixth only tends to confuse things and is sandwiched between two others. These numbers that I am talking about are expressed as percentages, and they are literally uncanny in the way that they coincide with what happens in the price action. The numbers are: 23.6%, 38.2%, 50%, 61.8%, and 100%. I use the 50% figure specifically as described in Part IV; otherwise I use it only generally because it falls between 38.2% and 61.8% and only tends to get in the way. However, others use the 50% exclusively and have great success with it. They have even written books about it. How Fibonacci Numbers Are Used ! Prices are almost always trending. Even when they are going sideways overall and are in a congestion phase, they stili go up and down. Sometimes the trading range is quite large, and significant trends can occur while the market is essentially going sideways. In actuality, every market is always in a trading range - between the ail-time highest high and the all-time lowest low. As the prices undulate up and down, there will invariably be retracements. These are to be expected and are normal. They are a sign of a healthy market. In a bear market, prices will rally and retrace to a point of resistance. In a bull, market prices wili decline and retrace to a point of support. Markets even do this in congestion phases -rallying to resistance and declining to support. The amazing thing is that most of the time they wil! rally or decline to 38.2%, 50%, or 61.8% of their previous swing. As I previously stated, it is easier to ignore the 50% retracement because it falls between the other two and is close enough to either that it falls within the tolerances of the 38.2% and 61.8% retracing action. I have seen the Fibonacci numbers used to describe the expansion of tree rings from the center of the core of the tree outward. What in the world does this have to do with markets? Im convinced that it has nothing directly to do with markets. However, lot of people think that it does. In fact, entire books have been written proclaiming this "great truth." That is good enough to make the Fibonacci ratios a good way to trade.
What we are witnessing is a self-fulfilling event taking place in the market. As long as people believe the markets will stop at these numbers, they probably will. I can therefore use these numbers to pretty much tell where the market will stop or at the least hesitate. I can use these numbers to take advantage of the situation. I have already shown several examples of how and when i use these Fibonacci numbers in the first two Parts of the Manual, so there is no need to go into that here. What i do want to cover is the weakness in the use of Fibonacci, and the fallacies about it that can cause great losses in the markets. Here are the greatest weaknesses of using Fibonacci numbers:
Trading By \ 1< - Part \\\ A market makes a retracement... / \ . / \./ < .382 expecting an up move, do you buy here? or wait and... / \ / \ / \ . / \/< .618 buy here? Or both? / Or neither? /\ / \ / \ / \ / \ < 1.00 What if the market comes here instead, now what do you do? I dont know the answer 1 /\ What if the market goes like this? / \ Where is this market going - up, down or / \ sideways? ? / .382>\<long? /\ / \ / \ . / .618>\<long?/ \ . . / \ / \/ \ / \/ ? Now what do you do? Again, I dont know the answer! But I sure would expect a trading range to follow.
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