Fibonacci and Gann Applications in Financial Markets

128 Fibonacci and Gann Applications in Financial Markets
see a positive or a negative sloping pattern, and in some cases they even force a horizontal
neckline on to the pattern which will result in incorrect measurement of the
price breakout objective. This is particularly sad as experience shows that orthodox,
flat necklines are few and far between in the real world of trading.
The contemporary technical analyst uses as many tools of their trade as possible
in order to gather information about how price action is going to develop over various
timeframes. This can be a matter of a few hours to a few weeks and each
timescale has its own threats. For the analyst looking only a few hours hence, there
are few opportunities for major correction, unless there is a shock to the market. The
role of the hourly or intraday technical analyst is to ‘hold the hands’ of the trader
and to confirm that the current move will last ‘a little longer’. Whether this is a matter
of several hours or only few, this supportive role is critical. The intraday technical
analyst will use hourly stochastics and moving averages to signal a change in
market sentiment and act accordingly. Similar tools are used by analysts looking
further ahead, but their goal is slightly different as within the daily and weekly chart
moves prices are exposed to greater threats such as economic data releases and
political and other economic news threats. Even further out the longer term technical
analyst is exposed to changes within instruments under analysis, such as
changes to the basket within futures market analysis or stock splits and rights issues
in equity markets and, within my lifetime in the Forex market, currencies disappearing.
In the current environment of uncertainty, threats of a political nature are
often seen as catastrophic. Market shocks such as this are infrequent but nevertheless
when they do occur it causes panic and anxiety in the investment world. During
the 1980s and 1990s the UK was under constant threat from the Irish Republican
Army (IRA) and I remember that bombings and mortar attacks, especially on the
residence of the UK Prime Minister, would send a shudder through the UK market.
Indeed, worse was to come for the global investment community with the destruction
of the World Trade Center in New York. While many were glued to their office
television screens, some in the marketplace were taking advantage of this event to
push assets; I remember as a Long Gilt future analyst that the hours following the
first plane crash were very busy.
This chapter will look at ways of combining technical tools in order to make
more rational coherent argument and from that to feel confident in the positions
taken. Fibonacci and Gann tools will be used in conjunction with the more ‘traditional’
ones such as patterns, moving averages and momentum. As mentioned in
earlier chapters, for me those tools dealing directly with price, such as pattern and
moving averages, are more important than those derived from price, such as momentum
indicators. I believe that as the price is the graphical, physical representation
of the attrition within the market at any time, a tool that takes attention away from
this is removing some of the key information from the action at that time. While