Fibonacci and Gann Applications in Financial Markets

Application and Common Errors in Fibonacci Timelines 119
Figure 7.21
In the trending FTSE-100 contract the tightening in the moving averages is an
excellent signal for sustained moves thereafter, especially in the October 2002 and
April 2003 area, whereas the July constriction in 2003 signals the end of the little
corrective move from the June high. This pattern is repeated in the case of the Shatz
contract chart of Figure 7.22, where the key periods are identified by the arrows.
It can be seen from the previous analysis that Fibonacci timescales can be of little
value when applied as a ‘pattern’ on a chart, but have some value in other kinds
of technical analysis, especially when the day count is applied to techniques requiring
‘days’ as the measure, such as moving averages, and to momentum studies such
as stochastics and RSI, but in both these latter uses a significant size of ‘day count’
has to be used. In my research I prefer to use 13 days for stochastics and RSIs with
occasionally 21 days for longer studies.
The following charts in Figures 7.23 and 7.24 show the FTSE-100 futures contract
with RSI and stochastic set at 13 periods and in the second example with 21 periods.
Notice that there is no confirming sell signal in the 13 day RSI chart. In Figure 7.26
the vertical lines are kept constant from Figure 7.25. The periods here are 21 days and
the signals in the stochastic chart are still good. When it comes to the 34 period chart
in Figure 7.27, the stochastic still gives the same trigger days but suffers much less
from violent swings, which is the case whenever stochastic periods are extended.
In the next three charts for the Schatz (Figures 7.28, 7.29 and 7.30), the same
principles and parameters are applied, but in this case there is a strong effect from