Fibonacci and Gann Applications in Financial Markets

Application and Common Errors in Fibonacci Timelines 109
period. Interestingly, the 144th period at the end of the chart comes in just as the spread
is running out of steam after breaking out of a small bull channel. It is important to note
that in this particular chart there are some common behaviours apparent as the
Fibonacci timeline approaches and is passed and the spread moves from one behaviour
to that of many more consolidative and tighter ranges. This behaviour is also seen in
many of the previous examples but was not as pronounced.
As mentioned previously, the application of timescales fails to address the fact
that weekends are seen as non-trading days. Therein lies the problem. There is very
little to be gained after, say, the 10th vertical day (the 55th period) from the above
charts. In the very short term there is some usefulness, as can be seen from the above
examples, but major projections for a key day are not valid beyond there. However,
in the case of Fibonacci timescales when applied to weekly and longer period
charts, here this jury is still out. The problems associated with having weekends and
holidays not accounted for on the barchart are removed and the Fibonacci weeks
chart looks better in this case. However, I have to question the appropriateness of
looking at a weekly chart using Fibonacci timelines as an analysis tool as in many
cases (such as front month maturity futures contracts) there may not be a significant
price history unless some form of continuation chart is used. I would suggest that
using Fibonacci weekly timescales is better suited for Forex and equity analysis,
rather than more traditional futures contracts. Of course, yield analysis falls into the
former category, as seen above, as there is still a notional yield for fixed income
instruments whether there is a current price or not, as using the Friday close price
can give a theoretical value in yield for Saturday and Sunday.
The weeks pattern will now be dealt with in some detail using the following examples.
The weekly chart for the Schatz futures confirms the initial supposition that the
timelines cannot be used for more than predicting when interesting changes are about
to happen (see Figure 7.8). No locally significant high or low is picked out but the
timelines to predict when there is going to be a change in behaviour from bullish
recovery (see the October–November period in 2002 and where consolidation is
coming to an end in April 2003). There is very little additional information here.
Interestingly, the Bund weekly chart (Figure 7.9) is more useful than the daily chart
as again the turning points in behaviour are better signalled. Some are late, especially
the sharp change in direction from the highs in June 2003, and some early, as is the
case in October 2002, but here the pattern works well as a warning tool for analysts.
The failure to pick out key reversal weeks is not worrying if the pattern is only used
with its limited abilities and picking out highs and significant lows should be left for
other analysis methods. This is the same with the Bobl chart (Figure 7.10).
From the previous examples it can be seen that the placing of the origin is critical.
While it seems more natural to have the origin placed at a significant high or low, I feel
there is an argument needing to be addressed as to what happens on placing the origin