Fibonacci

Filius Bonacci, or Leonardo of Pisa,

born in Pisa, Italy, in 1175 AD was called
the "greatest European mathematician
of the middle ages".
He was one of the first people to introduce the Hindu-Arabic
number system into Europe - the positional system we use
today - based on ten digits with its decimal point and a
symbol for zero:

1 2 3 4 5 6 7 8 9 0

The area of his work we are most interested in is the Fibonacci series,

In this series of numbers each term is the sum of the previous two terms.
That is, if we take 0 and add 1 to it we get 1, 1+1=2, 1+2=3, 2+3=5, etc.

We get the following series;

0,

1,

1,

2,

3,

5,

8,

13,

21,

34,

55,

89,

144, 233

..etc to infinity

What Filius found interesting was what happens when we divide one number
in the sequence into another number in the sequence.

The division of any two adjacent numbers gives the amazing Golden numbers
34 / 55 = 0.618

or inversely

55 /34 = 1.618.

We refer to these as Primary Ratios

A similar thing happens when you divide any one number into the number two
to the left and two to its right.

eg..34, 55, 89

34 / 89 = 0.382
These are Secondary Ratios

or inversely

89 /34 = 2.618.

You will see that after the eighth sequence that the numbers become consistent at
0.618, 1.618 and 0.382, 2.618

The numbers can be Negative

They dont have to start from Zero.

They can be two random numbers spaced well apart

And they still line line up around the 8th sequence

Primary Ratios
0.618

= Primary Retracement

1.618

= Primary Projection

There are also Harmonics and derivatives of these Ratios

Primary Derivatives
0.786

= square root of 0.618

0.886

= forth root of 0.618 and square root 0.786

1.13

= forth root of 1.618 and square root of 1.27

1.27

= square root of 1.618

Complimentary Derived Ratios used in Harmonic Trading

0.382

= 1-0.618 or 0.6182

0.50

= 0.7072 also represents 50%

0.707

= square root 0.50

1.414

= square root of 2.0 and inverse of 0.707 (1/0.707)

2.0

= 1+1

2.24

= square root of 5

2.618

= 1.6182 and inverse of 1/0.382

3.14

= Pi

3.618

= 1 + 2.618

It is not so much the numbers that are important

It is the difference between the numbers

and more important again it is the

Harmonics relationship of those differences.

.as you would have seen a few slides back where we started with
Two random numbers

The Ratios appear through out

Nature and the Solar Systems

The question for us though is

how do we use these numbers in
determining probability of future price?

In a trending Market we get swings of

Up trend Higher Highs and Higher Lows
Down trend Lower Highs and Lowers Lows

We use the ratios to measure the fractional or percentage

Retracements (B to C) of the Rally (A to B) to give a Projection for the
price Extension for a D point.

We use the ratios to measure the fractional or percentage

Retracements (B to C) of the Dip (A to B) to give a Projection for the
price Extension for a D point.

The combinations we are most interested in are

Retracement Ratio Projection - Extension

0.382

1.618 (2.618)

0.50

1.618 (2.24)

0.618

1.618

0.707

1.414

0.786

1.27

0.886

1.13

From these you can see that the smaller the price Retraces the higher it may
Extend.
It is also true that a 0.382 Retracement is likely to get to its 1.618 Extension in
a quicker time than a 0.886 Retracement will Extend to a 1.13 Projection.

But how do we know what Fib level will result in a Price Reversal
Warning..
Focussing on one indicator we can
mistakenly forget about the basics resulting in losses.

Remember that - Fib Retracement and Extension levels are Support and
Resistance levels. Using them on their own will leave you exposed.
For maximum affect Fibs MUST be used with other indicators;
Support and Resistance
Horizontal Support and Resistance lines,
Trend Lines,
Moving Averages (both SMA and EMA)

Candle Patterns and Psychology

The Pink Bearish down lines and Green Bullish up lines, show only two
possible, of many different scenarios in price movement. The price can go
anywhere.
However it highlights the connection between ABCD swings and Support,
Resistance and Trendlines.

Possible point for C at the POC of the

FIB lines and the Trendlines
0.50 Possibly but would require a very
sharp increase in price
0.382 looks more probable

Here we have a 0.382 Fib lining up with a Support/Resistance line & a

price reaction at a Point Of Convergence with a down Trendline

The Extension from C to D seldom is a straight move. This is where most

errors are made blindly expecting the D point to be pre determined.
Remembernothing is absolute.
Often the Extension will reverse
Direction at the 1.27 or 1.13
Always expect a reaction at each
Fib Ratio and Projection and
S/R and Trendline Breaks

Be mindful of Swing High and

Swing Low Support and
Resistance levels

The 1.27 level is often an indicator of a false channel break

Validation of Fib levels with other Fibs Fib Fishing

d
B b

Cc
a

On the AUD 60 minute chart you can see that the last up trend line was broken.
So we have drawn our down trend line and are now looking for trades on the short side.

lets zoom out then

You can see that we have identified 1 complete down price swing labeled ABCD in red
and have identified the A B in green of our second price swing.
We will use this green price swing to pull our Fib from B to A.

Pulling a Fib from B to A and we have identified a possible POC

with the down trend line and the 618 fib

Now pull another fib from B to the highest high on this chart which was our A
to see if we can identify a fib convergence.

As you can see we have 3 fib convergences.

From the top down they are 618 / 786, 50 / 618 and 382 / 50.
Ruling out the first convergence point leaves 2 possible areas the 50 / 618 and the 382 / 50
as the first one possible is the 50 / 618 area I am favoring this as my POC for 'C' to form.

As we are aware of all the convergence points and for the sake of clarity will remove all
lines except the Fib pull from the green B to A
Zooming out again to use some support and resistance lines to confirm your thoughts.

The Fib convergence with the 50 / 618, a down trend line and an excellent level of
resistance it looks like 0.7681 is the price area we are most interested in
IF however, the down trend line is broken then we will wait for a re-test of the back side of
that trend line.....

We have a decisive bullish candle followed by an indecisive candle which is 2 parts of

a Falling Star all we need now is a decisive bearish candle that closes down 50% of
the body of the decisive bullish candle
The high of this indecisive candle is 7678 and our POC is at 7681, only 3 pips away, if
we get a confirmation after the completion of the next candle we will enter the trade.

We now have a decisive bearish candle (in relation to the indecisive candle).

Entry on the beginning of the next candle @ 7672 we would have;

Stop Loss: 7693 (FS High of 7678 + 15 pips = 7693)
Risk: 21 pips
Limit 1: 7640 ( Risk = 21 x 1.5 = 32 pips).
Limit 2: 7629 (D = 1.618 = 7619 backed off 10 pips)
Potential reward:

Limit 1: 32 pips

Limit 2: 43 pips

Looking good so far.

Limit 1 has been achieved

Moved our stop to Entry on the balance of the trade and are now trading risk free while
our trade continues our way.

Limit 2 has now been achieved and the trade is closed.

Trade results:
Limit 1 achieved: 32 pips profit
Limit 2 achieved: 43 pips profit

Example of a Trend Line Break

We have pulled 3 sets of Fibs from the Blue 'B' high. You can see that we have a Fib
convergence with a 0.382, 0.50 and 0.786. This level is also a level of Support. Giving
us a potential 'C' (Blue 'C').
BUT as we have a Trend line break we then look at the potential down move,

so we will pull a Fib from the Blue 'C' low which we will now label red 'b' to the Blue 'B'
high which we will label red 'a'.
we will now wait to see if we get a reaction at one of the Fib levels......

You can now see we have a Shooting Star (4 pips from our 382).
It is also a previous level of resistance and also a perfect bounce off the backside of
the up trend line. We have a Backside of trend line bounce, a Fib 382, previous level of
Resistance, and a perfect Shooting Star, we now have our signal to go short.
Also note that we had Tweezer Tops at this level on the 30 minute chart.

Remember that the price often reacts at the 1.27

I have split my available equity and placed 2 limits
one Limit short of 1.27 @ 0.7654 - the other short of the 1.618 @ 0.7637

Notice the Trendline

Our Limit 1 has been achieved for a profit of 33 pips

We have now moved our stop to Entry / Break Even on the remainder of the trade

The next candle takes out Limit 2 completing our trade.

Trade results:
Entry:
Limit 1:
Limit 2:
Total profit:

7687
7654
Profit:
33 pips
7637
Profit:
50 pips
83 pips (in 2.5 hours)

Remember the Trendline

Notice after the red 'a b c d' down move is completed, the AUD managed to find good
support at the outer up trend line and provided a strong rally.
Point to note, is that the rally was inspired by the release of the Australian Federal
Budget...... Isn't it interesting that Technical Analysis showed what the market would do
prior to the release of the Budget.

The following information on Harmonic Patterns is taken with

permission from ..

All trends must end and eventually reverse

This is where Harmonic trading with Fib levels steps up.

At this point you are aware that you can pull Fibs in any time frame

Each time frame will have Fibs pulled in different directions

to each other

Within a single time frame you can apply Fibs in both directions

And this is when it gets very interesting

You will start to see patterns developing with retracements and

projections or reverse drawn fibs lining up with each other

You can see Trend Reversal points with more confidences

and not just Trend Continuations

The 5-0 pattern was the beginning of Harmonic Trading

The Bullish 5-0 starts at the 0 point, representing
an extended down leg to begin the pattern at X.
The initial point X acts as the low of this prior
substantial decline. After a quick reactive
bounce to the A point, the structure abruptly
continues the decline, only to find support
slightly past the prior low at X.
This is the failed wave 3 or wave 5 - in Elliot
Wave terms - that establishes the rest of the
structure.
However, the important limits from the Harmonic
Trading perspective requires that this X, A
extension be at least a 1.13 but not greater than
a 1.618.
After that impulsive failed wave is established, the BC leg rallies to at least a 1.618
extension of the AB length but it does not exceed 2.24.
Again, this tight range of 1.618-2.24 is a defining element of the structure. If the 1.618
limit is not reached, the structure is not a valid 5-0.

Butterfly Followed by a Gartley

We covered..
How Ratios and Projections are defined
The relationship between Retracements and Extensions/Projections
The importance of using Support, Resistance and Trendlines to
support Fib information
Always using Candle Psychology to confirm Trade decisions
Look for Fibs within larger Fibs Large ABCD and smaller abcd to
determine probability of one Fib level over another and to determine
the strength of a possible price move
Using Harmonics to have advanced knowledge of a possible Trend
Reversal
Most important
NOT to take anything as given or absolute.
You are trading Probability (not Predictions) so you will get some
wrong. Accept it and precondition your self for it.

Thank you

www.acceleratingperformance.com.au