Fibonacci and Gann Applications in Financial Markets
Fibonacci and Gann Applications in Financial Markets
Fibonacci and Gann Applications in Financial Markets
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Total Analysis – Pull<strong>in</strong>g All the Skills <strong>and</strong> Techniques Together 129<br />
momentum studies are important, lett<strong>in</strong>g them st<strong>and</strong> alone or giv<strong>in</strong>g them greater<br />
importance than is really necessary is a very bad habit to develop.<br />
In the follow<strong>in</strong>g sections, various market conditions are looked at <strong>in</strong> some detail.<br />
There are different treatments for trend<strong>in</strong>g, bullish/bearish <strong>and</strong> corrective market conditions<br />
<strong>and</strong> not all technical tools are of the same value <strong>in</strong> each of these conditions.<br />
TRENDING MARKETS<br />
All markets go through phases of trend<strong>in</strong>g <strong>and</strong> as such are quite bor<strong>in</strong>g for the technical<br />
analyst, but the trend<strong>in</strong>g market is the bedfellow of the technical analyst as it<br />
is easier to watch <strong>and</strong> predict. However, the basic tenet of technical analysis, that a<br />
trend<strong>in</strong>g market will cont<strong>in</strong>ue to trend unless there is someth<strong>in</strong>g to stop it, is key<br />
here. It is the latter part of that phrase that is key <strong>and</strong> it is the task of the technical<br />
analyst <strong>in</strong> a trend<strong>in</strong>g market to suggest areas of price (or <strong>in</strong>deed time) where the<br />
trend should come to an end.<br />
I prefer to look at trend<strong>in</strong>g markets carefully as it is very important not to th<strong>in</strong>k<br />
that the trend will go on for some time. There is always a time when the trend will<br />
come to an end, <strong>and</strong> at that po<strong>in</strong>t quick-witted technical analysts have to be prepared.<br />
There are many tools for the technical analyst to use when look<strong>in</strong>g for potential endtrend<br />
events such as approach<strong>in</strong>g congestive support or resistance. Trendl<strong>in</strong>e or channel<br />
or other pattern levels are equally good at this task <strong>and</strong> although some of these<br />
tools are seen as ‘simple’ they rema<strong>in</strong> very important as predictors of change.<br />
Look at this next example of the FTSE-100 future from LIFFE. The contract has<br />
been mov<strong>in</strong>g <strong>in</strong> a channel as constra<strong>in</strong>ed by the parallel l<strong>in</strong>es on the daily chart of<br />
Figure 8.1 s<strong>in</strong>ce the end of June 2003 <strong>and</strong> current pric<strong>in</strong>g shows that the contract is<br />
<strong>in</strong> little danger at this stage of attack<strong>in</strong>g either the top or bottom of the channel.<br />
From this chart there seems to be additional resistance com<strong>in</strong>g at the recent congestive<br />
highs above 4450 <strong>and</strong> this has been coupled with a slight flatten<strong>in</strong>g <strong>in</strong> the 15 day<br />
exponential mov<strong>in</strong>g average <strong>and</strong> that of the 35 day mov<strong>in</strong>g average. These are<br />
underp<strong>in</strong>n<strong>in</strong>g the price for now but when compared with the behaviour of the 50 day<br />
mov<strong>in</strong>g average, which is flatten<strong>in</strong>g out, there can be little doubt that the mov<strong>in</strong>g<br />
average support levels will come under threat.<br />
However, to see an end to this trend<strong>in</strong>g market, the analyst will really have to wait<br />
for the channel support to come under threat. Ambitious analysts will see the break<br />
<strong>in</strong> shorter period mov<strong>in</strong>g averages as sufficient early warn<strong>in</strong>g that the reversal is<br />
about to start, with <strong>in</strong>itial confirmation com<strong>in</strong>g on a break of the 3200 psychological<br />
support level just before the base of the channel comes under attack. Look<strong>in</strong>g at<br />
the previous behaviour will give a clue as to how dramatic a reversal could be, as<br />
this contract is rather gentle <strong>and</strong> does not suffer from major sw<strong>in</strong>gs very often. This
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