Fibonacci and Elliott Wave

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Tuesday, 17th March 2009

ODL Securities

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Fibonacciand the

Elliott Wave

Euclid & The Golden Ratio

Who Was Euclid?

Who Was Euclid?

Lived in Alexandria circa 300 B.C.

Studied in Athens under Plato

Elements - a 13-volume mathematical textbook

Discovered the Golden Ratio

Euclid And The Golden Ratio

(Phi)


1.618

0.618








Fibonacci & The Golden Ratio

Who was Fibonacci?

Who was Fibonacci?

Born Leonardo da Pisa in 1175AD

Published the Liber Abaci in the 1200s

Introduced the decimal system to the West

Discovered the ‘Fibonacci Sequence’

So What?

Why is Fibonacci relevant today?

How would you trade this?

Begins with 0 and 1….

We then add the previous two numbers in order toget the next number in the sequence……..

0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, etc.

Fibonacci And The Golden Ratio

Mathematical Properties of the Sequence

0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, etc.

Divide any number by the one before it, e.g 55/34

The answer is always close to 1.618

Divide any number by the one after it, e.g 12/34

The answer is always close to 0.618


Further Properties of the Sequence

0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, etc.

The ratios of alternate numbers, e.g. 21/55

Approach a constant of 0.382


Further Properties of the Sequence

0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, etc.

The inverse ratios of alternate numbers, e.g. 55/21

Approach a constant of 2.618



0

0.3820.50.618

100161.8200261.8

1 / 0.618 = 1.618

1 / 1.618 = 0.618

0.618 x 0.618 = 0.382

SqRoot of 1.618 = 0.618

Inverse of 0.618 = 0.382

1.618 x 1.618 = 2.618

Fibonacci Ratios

Phi = 1.618

Reciprocal of Phi = 0.618

SqRoot of 1.618 = 1.272

SqRoot of 0.618 = 0.786

Reciprocal of 1.272 = 0.786

SqRoot of 5 = 2.236

Harmonic Fibonacci Ratios

Fibonacci Levels With Harmonics

Extensions %: 261.8223.6200161.81.272

Retracements %: 10078.661.85038.20

Fibonacci Retracements

Fibonacci Extensions

A Brief Introduction To Elliott Wave

Who Was Elliott?

Ralph Nelson Elliott

Born 1871 in Marysville, Kansas

In 1929, he became an invalid devoting himself to study ofthe stock market

Called the 1935 market bottom

Published Nature's Law - The Secret Of The Universe at theage of 75

Identified by Ralph Nelson Elliott during the 1930s

Elliott Wave Theory is a direct descendant of Dow Theory

Crowd behaviour trends and reverses in recognisable patterns

Elliott isolated thirteen ‘waves’ or patterns of directionalmovement

These waves are created by ‘crowd psychology’ which isforever shifting between optimism and pessimism

Elliott Wave is fractal in nature

The Elliott Wave

The complete eight-wave cycle comprises afive-wave impulse followed by a three-wave

correction

In a bull market, the five-wave impulse is upand the three-wave correction is down

In a bear market, the five-wave impulse is downand the three-wave correction is up

The Elliott Wave

Impulse

Wave

1

2

3

4

5

a

b

The Elliott Wave

c

1

2

3

4

5

a

b

Some Elliott Wave Rules

Wave 2 never retraces 100% of Wave 1

c

1

2

3

4

5

a

b


Wave 4 never overlaps Wave 1

c

1

2

3

4

5

a

b


Wave 3 is usually the longest but never the shortest

c

1

2

3

4

5

a

b


Waves 1 & 5 tend towards equality

c

1

2

3

4

5

a

b


Waves 2 & 4 tend towards equality

c

1

2

3

4

5

a

b


Triangles nearly always form in Wave 4

c

1

2

3

4

5

a

b


Wave 3 is usually the steepest and strongest

c

1

2

3

4

5

a

b


Wave 5 always has less momentum than Wave 3

c

Elliott WaveChannel Technique

Elliott Wave Channel Technique

Brent Crude Weekly Chart

Corrective

Wave

1

2

3

4

5

a

b

c


Waves a & c tend towards equality

1

2

3

4

5

a

b


Triangles nearly always form in Wave b

c

1

2

3

4

5

a

b

c


Wave c must exceed Wave a swing low

1

2

3

4

5

a

b

c


a-b-c correction confirmed when Wave b peak exceeded

Brent Crude Weekly Chart

5

a

b

c


The Fractal Nature Of

Elliott Wave

1

2

3

4

5

a

b

The Fractal Nature Of Elliott Wave

c1

2

3

4

5

1

2

3

4

5

a

b


c

1

2

3

4

5

1

2

3

4

5

a

b


c

b

ac

1

2

3

4

5

a

b

c



1

2

3

4

5

a

b

c


1

2

Fibonacci &Elliott Wave

Fibonacci & The Elliott Wave


38.2%50%61.8%78.6%

38.2%50%61.8%78.6%


Retracements

Extensions

Fibonacci & Elliott

In Action

FSTE100 Weekly Bars

FSTE100 Weekly Bars

FSTE100 Weekly Bars

FSTE100 Weekly Bars

FSTE100 Weekly Bars


FSTE100 Weekly Bars

The ElliottOscillator

The Elliott Oscillator

Similar formula to the MACD

A 5-period EMA* minus a 35-period EMA*

*Exponential Moving Average

1

2

3

4

5

a

b


Wave 5 always has less momentum than Wave 3

c

FSTE100 Weekly Bars

Wave 2 Wave 4

Fibonacci Finding The Bottom

FSTE100 May 2001 Weekly Bars

FSTE100 May 2001 Weekly Bars

Fibonacci Day Trading The DAX

Day Trading The DAX With Fibonacci













The Elliott Wave

Man’s progress does not occur randomly butrather in a ‘three steps forward, two stepsback’ fashion

Periods of setback are necessary for humanprogress

The Financial Market is a perfect reflection ofmass psychology

The Traders & Investors Club

Welcome to

Tuesday, 17th March 2009

ODL Securities

www.tradersandinvestorsclub.co.uk

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Fibonacci and Elliott Wave

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