Applied Fibonacci: From Trigger To Trade
Does this Fibonacci “time
and price” stuff really work? Let’s take a look at a recent
example in the March S&P futures
(
SPH1 |
Quote |
Chart |
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PowerRating) and you can decide for
yourself!! This lesson was prepared to show you how you put all this work and
information together, in order to create a trading plan.
When a clear coincidence or confluence
of price or time relationships “come
together” in a market, we start looking for a potential
change in trend in that market. Let’s start with timing work as we review an
ideal “time and price” setup
in the S&P that occurred late January 2001.
First, we noticed a confluence of time
relationships that came together between Jan. 30 – Feb. 2. The cycles
included:
1.272 in time
of the 9/1 high to the 11/6 high due on 1/30
1.272 in time of the 12/11 high to the 1/3 high due on 1/31
100% in time of the 7/28 low to the 9/1 high projected from the 12/21 low due on
1/30
.618 in time of the 10/18 low to the 12/21 low due on 2/2
These cycles are illustrated in the chart below and represented time resistance
to the rally we were experiencing from the Dec. 21
low. .
Next, we took a look at
the price relationships that were developing in this market. We saw that we had
a rather large coincidence of price
relationships that came in between 1386.70-1396.60. We
call this a price cluster. This cluster included the price relationships listed
below and represented a very important price resistance zone in the S&P.
1386.70Â Â Â Â Â Â Â Â Â Â Â
1.272 extension of the 1/24 high to the 1/26 low
1387.50Â Â Â Â Â Â Â Â Â Â Â 100%
projection of the 12/21 low to the 1/3 high projected from the 1/8 low
1388.30Â Â Â Â Â Â Â Â Â Â Â .382
retracement of the 9/1 high to the 12/21 low
1392.40Â Â Â Â Â Â Â Â Â Â Â 1.272
extension of the 1/3 high to the 1/8 low
1393.60Â Â Â Â Â Â Â Â Â Â Â .618
retracement of the 11/6 high to the 12/21 low
1395.30Â Â Â Â Â Â Â Â Â Â Â 100%
projection of the 10/18 low to the 11/6 high projected from the 12/21 low
1396.60Â Â Â Â Â Â Â Â Â Â Â 1.618
extension of the 1/24 high to the 1/26 low
So what happened? On January
31, a high was made at 1390.00. This
high was made directly within the time window for a potential high and
reversal, and also directly within the key price resistance cluster described
above. The next thing we had to do, was look for indications of a reversal
against this new high made at 1390.00. So let’s
take this down to a 15-minute chart. In the chart below, you can see that I
marked the prior swing low after the 1390.00 high was made. You would
want to see a violation of this prior swing low (1381.00)
as your first indication that the time and price parameters discussed above were
actually putting in a tradable high. The first signal came with a break below
this swing low. Beyond this, on your daily charts a healthy reversal day was
seen after this high was made. You can also use your own methodology that
signals a reversal in the market against the same time and price parameters.
(candlestick patterns, moving averages, etc.)
So what happened after
all that? A healthy decline followed in this contract. As of the writing of
this lesson, this decline has taken us to the 1216.00
level from the 1390.00 swing high!! Once the
1390.00 swing high was established as a key
and “pivotal” high, we started orienting all of our “longer
term” S&P trades to the sell side. These “time
and price” parameters, greatly assisted in providing a “market
roadmap” for us to follow. This is the type of information I
am constantly searching for in each market that I analyze, and
Fibonacci Time and Price Analysis continues to provide this
information for us!!Â
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