hiprice2 = mean; end;

if wave - 5 then begin

if osc > Hi05C2 tnen nio5C2 = osc;

if mean > Iiiprice2 then h1price2 = mean;

end;

ITest for wave 5 becoming wave 31

if wave = 5 and hi05c2 > hiosc and ET - 1 then begin wave = 3; hiosc - hio5c2; hiprice = hiprice2; hiosc2 - -999; hiprice2 - -999; end;

(Identify a wave 3 down while in wave 51 if wave = 5 and ET = 1 then begin

wave = 3;

hiosc - -999;

hiprice = -999;

hiosc2 - -999;

hiprice2 = -999;

end;

{Return function value! EWO = wave;

CONSTRUCTIONS USING THE FIBONACCI RATIO

Harahus shows interestmg constructions using Fibonacci ratios; these are referred to as the golden rectangle, golden triangle, and golden spiral Although there is no doubt of their importance, the spplication to markets can be complicated. As a behavioral model, any technique is subject to gross inaccuracy at times. In using a method as sophisticated as the Elliott Wave Theory, it is necessary to select situstions that are representative examples of the phenomenon described by the FL sequence. Confirmstion of such action can only be found by carefijl monitoring and development of an awareness of the nature of the price motion important to the sjstem

Harus further introduced the rejular pentagon as a tool for measuring corrections. This geometric figure has the propertj that any diagonal is 1.618 times the length of a side, exactly a Fibonacci ratio.

By constructing a rejular pentagon so that the major trend falls along one diagonal (or one side), the other line connecting the comers of the pentagon will serve as support or resistance to price moves, in addition, the circumscribed and inscribed circle will serve as a measurement of support and/or resistance (Figure 14-13).

Harus further extends the charting techniques of the Elliott Wave Theory using circles and arcs, a technique previously seen in measuring retracements. A circle drawn from the top or bottom of a wave, representing the 38° o. 50° o, or 62o levels serves as a convenient measurement of either elspsed time or a price adjustment, either of which could occur within the bounds of the rules. Prices are expected to meet resistance at any attempt to penetrate the key circles formed about either A or in Figure 14-14.

The Elliott Wave Theory is highly regarded, although it is an odd combinstion of mathemstics and charl interpretstion bordering slightly on the mystic. Because it is primarily based on chart pattems it has been criticized as being too interpretive. The development of the ftflh wave receives the most comment-sometimes it never develops; at

other times, it must be extended into another subset of waves. In an analjsis by Merrill, it is shown that the median stock maifcet bull move has seven legs and the bear move has five legs; this may account for the need for the compound form of the Elliott wave. Those analysts who find

FIGURE 14-13 (a) Pentagon constracted from one

SILVER

I. (b) Pentagon constructed from one side.

FIGURE 14-14 Using circles to find support and resistance.

this study of interest should also read the worics of WD. Garni and Edson Gould, both of whom concentrated on mathematical approaches to charting.

Alternate Arc Measurement

In Chter 12 ("Charting Sjstems"), it was noted that, for the pu oses of finding reU-acement levels, Tom DeMari; identified the extent of a price move differently, in his approach, if the maricet is currently at a low, rather than jutting the distance of this drop from the most recent swing high, he chooses to look for the highest point that has occurred since the last time the maricet traded at this low level. He then applies his choice of ratios to isolate key rehacement levels. DeMark also uses this measurement from high to low to draw arcs identical to those shown in Figure 14-8 but limited to the Fibonacci ratio .618 and its complement .382.

FISCHERS GOLDEN SECTION COMPASS SYSTEM

Although there are many sjstems that use the Fibonacci ratios, Fischers Golden Section Compass (GSC) Sjstem is the only one based primarily on that concept .31 The sjstem is founded on the premise that human behavior reflects the Fibonacci ratios; the human decision-making process unconsciously selects points to act that appear to be the right time or the right price level. The behavior-based rules are combined with practical entry and stop-loss rules to eliminate those situations that do not properly develop.

Fischer is not alone in his observation of these pattems. Elliott, discussed in the previous sections, defined market cycles in five wave pattems with three wave corrections (Figure 14-15). In Natures Law, Elliott shows the complete market cycle 13 as:

" DelJarfc. Eetraciue yur Etefs/ Piitures ilTovember I995i Als . . 2 -i Deliirfc. The New science * Tecimical Analysis (J-lm Wiley & Sons, 1< 1)

r E.t.ert Fisclier, The CjH-leu Section Ciass Seminar (Fibonacci Tra.liug. Ltd, H.malton 5, Bemai-b, 1 E Fi r, 1 ci Appl i

and Srategies for Trains iljn, 4)ley & Sons, 1>»6)

Eobert Fisclier, Thei.lu Section ..mpass Seminar (Fibonacci Trading, 19S4)

FIGURE 14-15 Elliotts complete wave cycle.