Fibonacci and Gann Applications in Financial Markets

Other Interesting Studies Using Synthetic Ratios 189
Figure 10.15
The Dax index futures contract (Figure 10.15) has suffered alongside other equity
indices since the fall in 2002 and recovery moves are proving difficult. As can be
seen from this chart, the recovery has been gradual and shallow. Retracements have
acted as strong resistance and then support and by the end of this timeframe the contract
is seen struggling to advance even as far as 50% of the big downmove. Once
again the 22.2% and 29.6% area has proved a difficult zone to break, but after the
June 2003 period this has acted as strong support on many tests. Breaking higher
still has a long way to go before becoming convincing.
In the longer-term chart of Figure 10.16, current price action is far away from the
neo-platonic levels, but what is interesting is the behaviour after the 100% retracement
levels has been taken out. Notice that on the initial test in May 2003 the contract
bounced back higher again and then again in late June when this resistance
level was taken out the contract failed to reach through the old 100% retracement,
which is acting as strong resistance.
From the above exercises it would seem that the neo-platonic retracement levels do
have some use in technical analysis, especially in markets where there has been a
behaviour change from one form to another, especially in the case of strong downmoves
followed by gradual increases. The levels themselves are completely synthetic and I
would not suggest using these over more traditional and tried and tested Fibonacci
retracements or indeed Gann retracement levels. This chapter has taken some interesting
derived numerical relationships that have some ‘natural’ occurrence, whether in
nature, geometry or music, and applied these to contemporary chart behaviour.