PREDICTING THE END OF WAVE
5 WITH FIBONACCI RATIOS
Swing Size
A price swing is continuous movement in one direction. Because prices
often move up and down in very small increments, it is necessary to ignore some
of this "noise" by eliminating all movement that does not continue in one
direction for at least a minimum point value. If, on successive days, the Swiss
franc were to move +50, +100, -30, -10, +70, —20, +25, and the minimum swing
size was 50 points, we would only see an upwards move of 185. The 40 and 20
point reversals were less than the 50-point filter; therefore, they are ignored.
A minimum swing
size is needed to make the best use of the Fibonacci ratios. For that reason,
intraday charts and examples are not used in this book. Shorter time intervals
contain more "noise," that is, price movement that is random and therefore not
predictable. In addition, the magnitude of that noise is relatively large
compared to the swing size possible during a short interval. The inclusion of
more noise would obscure the useful information and make analysis ineffective.
Elliott noted,
"In fast markets, the daily range is essential, and the hourly useful, if not
always essential. On the contrary, when the daily range becomes obscure, due to
slow speed and long duration of waves, condensation into weekly range clarifies"
(p. 139).
The intent of
this book is not to present empirical tests for every commodity, but to present
a concept with adequate convincing data. As a guideline for examples, the
minimum swing size for a daily chart of the Swiss franc, Deutsche mark, or
Japanese yen will be 100 basis points. For the British pound, it will be 200
basis points. When using weekly charts, the swing size will be twice the size of
that used on the daily chart.
Confirmation of the Swing Highs and Lows
A swing high or low is confirmed when there is a counterswing of at least the
minimum swing size in the opposite direction. For example, the minimum swing
size is 100 basis points, prices must decline by at least 100 points (without
being interrupted by a net upwards move of 100 points) to confirm a swing high.
This is shown in Figure 3-6.
Minimum Amplitude of the Total Five Swings
Elliott noted that after a 5-wave swing pattern there will be a 3-swing
correction. But this approach only makes sense if the amplitude of the 5-swing
pattern is reasonably big. Even though Elliott noted, "Timing". (FOREX 101)
Forex Art Of Fibonacci (Forex 101)
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15. 16.
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30. 31.
32. 33.
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44. 45.
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89. 90.
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99.
Forex Art Of Fibonacci (Forex 102)
100.
101.
102.
103.
104.
105.
106.
107.
108.
109.
110.
111.
112.
113.
114. 115.
116.
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118. 119.
120.
121. 122.
123.
124.
125. 126.
127. 128.
129. 130.
131.
132.
133.
134. 135.
136.
137.
138.
139.
140.
141.
142. 143.
144.
145. 146.
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153. 154.
155. 156.
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165. 166.
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170.
