Fibonacci and Gann Applications in Financial Markets

180 Fibonacci and Gann Applications in Financial Markets
2003, the 23.6% retracement acted as strong support initially and then as strong
resistance once it was taken out. The congestion of retracements at the 41.4/44.7%
area again supports well and subsequently there has been broad consolidation about
these levels with only a tentative attack on the 52.3% support level. However, given
that there is a huge Head and Shoulders formation on this chart, the analyst can be relatively
sure that the 52.3% support level will break this time and the trigger moves
through the congestion seen in August–October 2002, leaving the 41.4/44.7% congestive
area as strong resistance.
CONCLUSION ON VERTICAL SYNTHETIC RETRACEMENTS
While there is little additional information gained from using these 15
and 12 and
circle retracement levels when compared to traditional Fibonacci retracement levels,
it is clear that having deduced these from ‘natural’ situations and concepts
allows some degree of appropriateness. The retracements themselves so far in this
experiment have about the same success rate as traditional retracements, but draw
attention to the success of the 23.6% retracement, which appears in both traditional
Fibonacci retracement studies and here in this ‘synthetic’ test. Although it is time
consuming to add these to a chart, in some cases these tests do bear significant fruit,
so application of these retracement levels cannot truly be dismissed. However, current
market demands do not allow for such time consuming tests to be completed,
and in the case of synthetic vertical retracements the competent analyst gains very
little by adding these levels due to the pressure of workload.
However, this is not the case in the following experiments. In the following cases,
I have used the same charts, but this time created ‘fanlines’ to assist in analysis and
to test the effectiveness and appropriateness of using these retracement levels. Overall
the application works well, indeed better than in the previous experiment with
vertical retracement applications. This would suggest that the ‘natural’ origin of
these retracements offers itself to analysis where a ‘natural’ element exists, in this
case the time axis. This is an interesting supposition.
EXPERIMENT TWO
Again the Schatz chart is used in the first instance (see Figure 10.8). Remembering
that the fanlines cannot be constructed until the significant extreme of price has
been generated, these fanlines only become useful after the May high. The fanlines
are constructed from the origin price, through those points where the vertical
retracement would occur and the lines extended.