Fibonacci and Elliott Wave

Welcome to
The Traders & Investors Club

ODL Securities
Tuesday, 17th March 2009
www.tradersandinvestorsclub.co.uk
Fibonacci
and 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?
Fibonacci And The Golden Ratio
Begins with 0 and 1….
We then add the previous two numbers in order to

get the next number in the sequence……..
0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, etc.

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

Fibonacci Ratios
0 1 / 0.618 = 1.618
0.382 1 / 1.618 = 0.618

0.5
0.618 0.618 x 0.618 = 0.382
100 SqRoot of 1.618 = 0.618

161.8
200 Inverse of 0.618 = 0.382
261.8
1.618 x 1.618 = 2.618
Harmonic 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
Fibonacci Levels With Harmonics
Extensions %: 261.8
223.6
200
161.8
1.272
Retracements %: 100
78.6
61.8
50
38.2
0
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 of

the stock market
Called the 1935 market bottom
Published Nature's Law - The Secret Of The Universe at the

age of 75
The Elliott Wave
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 directional

movement
These waves are created by ‘crowd psychology’ which is

forever shifting between optimism and pessimism
Elliott Wave is fractal in nature

The Elliott Wave
The complete eight-wave cycle comprises a

five-wave impulse followed by a three-wave
correction
In a bull market, the five-wave impulse is up

and the three-wave correction is down
In a bear market, the five-wave impulse is down

and the three-wave correction is up
Impulse
Wave
The Elliott Wave
b
3
a
4
1 c
2
Some Elliott Wave Rules
b
3
a
4
1 c
2
Wave 2 never retraces 100% of Wave 1
b
3
a
4
1 c
2
Wave 4 never overlaps Wave 1
b
3
a
4
1 c
2
Wave 3 is usually the longest but never the shortest
b
3
a
4
1 c
2
Waves 1 & 5 tend towards equality
b
3
a
4
1 c
2
Waves 2 & 4 tend towards equality
b
3
a
4
1 c
2
Triangles nearly always form in Wave 4
b
3
a
4
1 c
2
Wave 3 is usually the steepest and strongest
b
3
a
4
1 c
2
Wave 5 always has less momentum than Wave 3
Elliott Wave
Channel Technique
Elliott Wave Channel Technique
Brent Crude Weekly Chart
Corrective
Wave
b
3
a
4
1 c
2
Waves a & c tend towards equality
b
3
a
4
1 c
2
Triangles nearly always form in Wave b
b
3
a
4
1 c
2
Wave c must exceed Wave a swing low
b
3
a
4
1 c
2
a-b-c correction confirmed when Wave b peak exceeded
Brent Crude Weekly Chart

The Fractal Nature Of
Elliott Wave
The Fractal Nature Of Elliott Wave
b
3
5
3
a
4 4
1 1 c
2
2
5
2
b
3 1
4
3
5
a
4
1 c
2
b
3
b
a
c
a
4
1 c
2
b
3
a
4
1 c
2
1
5
b
3
a
4
1 c
2
2
Fibonacci &
Elliott Wave
Fibonacci & The Elliott Wave
Retracements
38.2%
50%
61.8%
78.6%
38.2%
50%
61.8%
78.6%
Extensions
Fibonacci & Elliott
In Action
FSTE100 Weekly Bars
FSTE100 Weekly Bars
FSTE100 Weekly Bars
FSTE100 Weekly Bars
FSTE100 Weekly Bars
FSTE100 Weekly Bars
The Elliott
Oscillator
The Elliott Oscillator
Similar formula to the MACD
A 5-period EMA* minus a 35-period EMA*
*Exponential Moving Average

b
3
a
4
1 c
2
Wave 5 always has less momentum than Wave 3
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 but

rather in a ‘three steps forward, two steps
back’ fashion
Periods of setback are necessary for human

progress
The Financial Market is a perfect reflection of

mass psychology
Welcome to
The Traders & Investors Club

ODL Securities
Tuesday, 17th March 2009
www.tradersandinvestorsclub.co.uk

Fibonacci and Elliott Wave

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Welcome to

The Traders & Investors Club

Lived in Alexandria circa 300 B.C.

Studied in Athens under Plato

Elements - a 13-volume mathematical textbook

Discovered the Golden Ratio

Born Leonardo da Pisa in 1175AD

Published the Liber Abaci in the 1200s

Introduced the decimal system to the West

Discovered the ‘Fibonacci Sequence’

Why is Fibonacci relevant today?

Begins with 0 and 1….

We then add the previous two numbers in order to

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

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

0.382 1 / 1.618 = 0.618

100 SqRoot of 1.618 = 0.618

Reciprocal of Phi = 0.618

SqRoot of 1.618 = 1.272

SqRoot of 0.618 = 0.786

Reciprocal of 1.272 = 0.786

Born 1871 in Marysville, Kansas

In 1929, he became an invalid devoting himself to study of

Called the 1935 market bottom

Published Nature's Law - The Secret Of The Universe at the

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 directional

These waves are created by ‘crowd psychology’ which is

Elliott Wave is fractal in nature

The complete eight-wave cycle comprises a

In a bull market, the five-wave impulse is up

In a bear market, the five-wave impulse is down

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

Similar formula to the MACD

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

*Exponential Moving Average

Man’s progress does not occur randomly but

Periods of setback are necessary for human

The Financial Market is a perfect reflection of

The Traders & Investors Club

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