Constance brown fibonacci analysis pdf download

We want to find a resistance target over the current market price so we must start at the price low. If we start at price low A and drag our mouse up to the price high at B, we will see the 50 percent line falls in the middle of the gap. If you started from the actual market high and dragged your mouse down to the low, you would never see this internal milestone form.

That's why you must start from a price low and consider key swing highs within the range of the decline to find resistance. If the price low selected was the key reversal just past point A, you would have discovered the range high at point B would draw the 50 percent line right on the price highs forming on the bottom of the gap.

In intraday trading, I often use this range for an early entry, but I know my stop has to be slightly higher. We will look at stop placement later in the chapter. So Figure 2. This is only the start. Now we want to examine the data to see if the market has shown respect to the subdivisions within our price range in the past.

By extending the subdivisions of the range in Figure 2. The corrective rally that follows into the 50 percent retracement seems to be confirmation, but keep in mind this only confirms that we took the correct range alter the fact. We need confidence at the time we first define the range to subdivide.

Keep in mind that the range was selected when we could not see this data. The first set of clues that range AB has been correctly identified is the result of the market respect shown at pivots e, d, and c. If you had used the price low just after point B, all these key pivots would have been off an equal amount that the swing low falls under B.

As we study the chart further, we see points f and g where strong moves began or were cut off. Point f will have great significance after the next example, but as an introduction to where the market truly starts a strong meltdown or thrust 38 up, these internal milestones will always be important within the data. The point I felt would be hard to start with, when the chart in Figure 2. A back-and-fill pattern after h told me the selected range was correct, as the I will also notice when all the closes stay above or below such an internal line.

In my experience, most traders in my seminar look only at the big picture and do not know how to look at the internals of the price data for valuable information. So I know this takes time and some work, because it is very different from how you likely read charts now.

The speed conies from knowing there are a few internal points that the market always uses as critical markers. Gaps are one type of milestone, but there are many others such as strong bars.

I'll cover these next. The decline of Centex continues to unfold, and you see the results in Figure 2. We sold the directional signal just behind point B and ran the trade into the lows near point A in this chart. How the targets for the decline were created will follow shortly, for now just study the entry levels at B and C into the corrective rally highs.

Assume we unwound the trade near the lows at point A, and the indicators show that this market will still develop more of a decline. Where do you get back in? Using the price low at point A to start your range, drag your mouse up to point B immediately. This is one of the major internal milestones or clues I was referencing. After the key reversal high just behind B in Figure 2.

Every time you find the market starting strong trends like this in any time period, use the data to your advantage and define the end of the price range at this level and do not go on to select the price high. Range AB is picked, and now we must ask if the three subdivisions within the range AB are major or minor resistance levels.

To answer this, we must define a second range of different length, but the start of the range must be from the same low at A. Within the data, I see immediately the place where the next calculation must be made, as another strong bar shows a breakdown at b. The second range uses the same low as A so a marks the same start. The end of the range that we want to subdivide is b. We may not use any bar high that has been retraced in a corrective swing up. The first strong bar that developed is at b.

Keep in mind that this calculation is being done before the swing forms from A to c. The entry target is where the two ranges form a confluence zone. Confluence forms on this chart where the 50 percent retracement aligns with the Confluence zones form when different Fibonacci ratios come 40 close or overlap from multiple ranges.

Confluence zones are price inflection points of major support or resistance. Now we are really making progress because we can answer where the market is going to go next, when the market first starts to roll up from the lows at point A.

The rally that develops and stops dead on the line at c is no accident. Only look at your indicators as the market comes into the target confluence zone. You will learn the market respects these confluence zones that form from ranges ending at strong internal bars, in every time horizon. Later as this method is developed further, we'll look at international global indexes to see how global 41 strategies can be built with this analysis. But we need to stay with the basics for now. We know where the market is going once A has been established.

The market will target the confluence zone at c. Now we want to determine where the market should not go. To answer this question, we need a third range and the question to ask, is the pivot at Ql the right one to use or should you stick with the theme here and go straight up to Q2, to the strongest bar where the meltdown begins with conviction? Study the internal ratios that fall on the You will find not a single price bar respects these levels. If the market does not respect the range you picked, it is not the grid the market is using to build its future swings so don't stay with it.

I do not mean the bar that starts the trend, but the strong bar that is the world's point of recognition that the market is falling like a rock. Price points m, n, o, p, and q are the bars I pay attention to. My eye always travels from right to left looking at the more recent data and scanning back.

Now the missing range needs to be redrawn so you have the full picture. The confluence zone marked x1 was the target to sell that was identified from the first two ranges. When a third range was added, a new confluence price zone forms at x2. We are armed with a lot of information right now. We know the target to reenter the market for another swing down is at confluence zone x1. We know the next confluence zone at x2, where a 50 percent and As a result, we know where to put our stop, which is just over the confluence zone x2.

Since we have an entry and we have a precise exit level where we know we are wrong, we know what our risk-to-reward ratio will be. When you enter stops, never use an even number in any market. To those who believe Fibonacci ratios are of little value; let them continue to do so, as those of us who work to develop these concepts will see bankable results. In this major decline of Centex, we did not discuss how to develop targets for the meltdown. We covered how to create entry levels and stop placement, but methods to determine price targets for future swings must follow in the next discussion.

I have not forgotten to answer the question, how do you make money from a spiral that turns round and round when you have to use two-dimensional charts? The geometry will be discussed in Chapter 4, and then developed further in the final chapters. The nautilus shell is in fact the most sophisticated geometric model you will encounter, as it has implications to traders in both the x and y-axes impacting both price and time analysis.

Chapter Notes 1. Cooper, See Plato Republic dc. Socrates and Timaeus banter the importance of these relationships in Plato's work Timaeus using complex triangles. Timaeus shows how geometric form was used to argue logic. All of the Pythagorean symbols have important meanings tied to the arrangement and proportions within the geometric forms known as sacred geometry. Change your default as described on page The W.

Gann Stock Trading Course Collection. Our purpose for defining these target confluence zones was to enter a short position in a developing trend. The intraday charts showed the market should not exceed the zone above, and we knew therefore to place stops over the next target zone.

Stops are not within the zone, but just above the zone. Longer-horizon traders would have made the same calculations but might have needed to consider their stop exit level above one zone higher again. As we know where to sell and where to put our stop, we need to know now where the market is going to complete a risk-to-reward ratio for our risk management needs and position size determination. The two confluence zones derived from different Fibonacci ratios created in Figure 2.

On the far left, the ranges used to create these zones are still visible. They have dots on the calculations. They can be deleted once a horizontal line has been added to mark the two confluence zones at Both charts show the 3-day Centex Corporation data hut Figure 3. The question to answer was, how do we determine the price target if we sell into point a? A box is used just to measure the range. So the width of the box has no meaning in this application, just its height.

The price is on the left of the zone's horizontal line. As I know I can add, subtract, divide, and multiply ratios, I elected to subdivide the new box with a Fibonacci retracement tool to determine the 47 From this single projection, I do not know if my target will be minor or major support.

I do not know what probability to give this target either. While it is a valid target, I have other ways to accomplish this task that experience has shown is better. This method is very useful for the Elliott Wave-challenged trader. There is no wave counting involved. Just a simple use of mirror geometry and you have a good start when your indicators confirm. Figure 3. There is a reason this works and I'll defer that discussion until the next chapter.

Our focus will remain on the methods used to create the price targets. If the market reaches price low 3, you may find a bounce that your indicators warn will lead to further losses. If you know the Elliott Wave 48 Principle, it is easier because you would see an incomplete wave structure in the decline into the low at point 3.

Momentum oscillators would also warn a final bottom is not in place. Whatever method you use, there is a big spread from the So subdivide the last range from the This decline is incomplete but a bounce will form. How do I know a bounce will develop? My indicators are used only when the market reaches a target zone. The indicators then give me permission to develop a trade strategy or warn when my exit plan should be followed immediately. Part of the exit plan might be to unwind a portion of the trade and add that portion plus x percent into the bounce, by focusing on momentum indicators only at the zone, this method filters out premature and false signals.

I will look at oscillators again in Chapter 5. How do I know how high the bounce will go? I repeat the process all over again by starting from a price low to calculate resistance levels and take subsequent price bar highs that started a strong thrust down within the decline. But how can I be confident this is the price support level the market will respect for a significant rebound? From this simple method alone, I cannot answer this latter question. For this reason, we need to continue.

In the chart in Figure 3. In Figure 3. But flipping the box down to produce a mirrored target overlooked two important facts about this data set. If you page back to Figure 2.

The other fact not considered was the price low, A, in Figure 2. We talked about why that price low was used rather than the key reversal swing down that followed shortly after this move.

We discussed how the probability, and hence our confidence of being right, was confirmed when the market showed respect to the results in hindsight within Figure 2. Plus we cannot overlook an important point When studying Figure 2. All this information is evidence why this market is declining. In the example 49 for Figure 2. The market is saying this price low is one of the key levels it is using to build future price swings. We have to use it. The upper box dimensions in Figure 3. The spacing between the two boxes, or confluence zones, is the same width as the gap.

No surprise, as often markets use the gaps as measuring features elsewhere within a chart. By knowing we gave consideration to the gap and the key level at Our targets will be more accurate, though we need to define confluence zones to identify the difference between major and minor support targets. In figure 3. The lower box was subdivided into When this smaller box is subdivided, we discover a confluence zone where an overlap forms at This confluence zone is marked c1 and will prove to be important.

The other Fibonacci ratios all stand alone. Draw a horizontal line at any confluence zone. The reason is found in Figure 3. Most of the Fibonacci lines and boxes are deleted leaving a clean screen in Figure 3.

Now other methods will use these confluence levels that we will discuss at another time. At the start of Chapter 2, we reviewed the terms and methods to create ratios, mean values, and proportions. Some of the secondary subdivisions in Figure 3. The Fibonacci ratios subdividing a range are in every example, but the mean has not been used. We are going to use two facts from our earlier work to develop a different way of making a price projection for Centex Corporation.

We also know gaps often form 50 percent subdivisional lines within the developing price geometry. Yon will use these facts now to your advantage. Define a box from the middle of the gap to the price high. This first box is marked d in Figure 3. That will become your arithmetic mean within a proportional equation that you need not write as a formula to understand.

Copy the box and create a mirrored placement under the first box. The new box in the middle of the chart is marked e. Within box e, you will subdivide the height of this box into the Fibonacci ratios.

All the old ranges that defined the two confluence zones in Chapter 2 are visible in this chart. You are using different methods, and finding the price low at B and the midpoint of the gap continues to anchor key measurements. This is exactly what is meant when I said the market forms milestones that tell what key levels are being used to form future swings.

All these calculation are derived from the market decline without benefit 53 of the market data that formed in the rally.

The reason for not showing the data in the rally is to learn how to do this when it is hard because new price lows are developing. The same methods apply when the market is breaking into historic new price highs. We will look at that scenario, as it is fitting for China, India, Australia, and many of the equity markets being dragged up by these indexes.

But this 3-day Centex chart is building the skills you need to tackle the tough international scene we will discuss later. Move a copy of the first or second box down to the bottom of the second box in the Centex Corporation data. You will again subdivide the range in the third and lowest 54 box. Level e, or the 50 percent line, is respected by a small bounce up before the market works its way lower.

Level d is also respected as resistance if you trace line d back to the left to pivot d1. Price level c shows how the market will use the Fibonacci ratios at c2 as support, and c1 as resistance.

The math would look ugly, but the geometric visuals are very easy to use and read. This is why Plato used geometry to explain the ratio that binds all things together and not the Fibonacci numbers that produce irrational numbers. An Introduction to Fibonacci Expansion Price Targets Another method widely used by swing traders is to select a range, as you see in Figure 3. Most people will use the price low to the right of point B where it appears to be the end of the swing. You are not going to use that lower pivot because of the important relationships we uncovered earlier in this chapter at B.

The high of the corrective rally that follows into X is then used to start a Fibonacci expansion price projection. The 0. Most books use diagonal lines to mark the swings being created; however, this is mathematically incorrect. You never give the slope or measurements on a diagonal axis any consideration.

The projections are always parallel to the y-axis, as you see in Figure 3. The equality, or 1. The real confluence target is missing from Figure 3. They often miss the confluence zone because the 1. We will need to define additional confluence zones within this data. All the charts from Figure 2. As 1 created the charts, I deliberately kept myself from looking back as well. Therefore, I am looking at the long-horizon data myself for the first time in this analysis discussion. The first thing you know: to start a support calculation, you must start from a price high and drag down to a price low.

The question is where do you start the high? There is a key reversal next to point c. I normally truncate the starting key reversals for these range selections. But I have to stop myself in this example. There is a double top and both tops produced key reversals. Strong directional signals should not be truncated.

So this chart demands you start the range to he subdivided from the price high. The first range is from the price high aligned near c to the lower price range at d. Why d? I find in my seminars everyone understands the concepts and then they get confused before the computer to do this.

Nearly everyone has trained their eye to look at the price extremes that form the major swings, but they have never looked at the internal details of the data.

So I know this is new for the majority of readers. We are looking to select a price low that starts a major price move. The price low that aligns with d is clearly the start of something strong, forceful, and relentless.

The data that immediately leads into this explosion shows a period of higher highs and higher lows that form a back-and-fill coil. Take the low that finally breaks away from that preparation. These are the areas that let us adjust and stay in sync with the different contraction and expansion proportions developing within all markets.

They are unique. They require us to read the data. The second range will again start from the high. Always begin from the same level. Then the price low for the second range stops at f.

As I dragged my mouse down to look at the swings under the low of the first range at d, I found that the Fibonacci ratios were just noise within the chart. This is why you have to start from a price high to define support.

If you start from the bottom, you have no other option than to pick the final high. If you stay with your vendor's thinking, you will always remain a beginner. I never complained when I managed a fund, as I knew most vendors locked the majority of traders out of using these methods.

But later I learned from writing a report for investors and institutions, that you can advertise your exact price target and still be able to use it. Everyone has to tweak his or her results. It is amazing to me that exact price zones never seem to be messed up when large trading firms have been notified of their location. In Chapter 5, we will study how to create price objectives when markets are moving into new market highs. You will see that the confluence zones we are developing within Figure 3.

A smile came across my face when the second range was completed in Figure 3. The subdivided ranges cd and ef define a confluence zone right along the price level that intersects the much referenced price low B. No surprise to me as this will happen all the time. Use any time horizon, any Fibonacci projection method correctly, and the most significant milestones within the data set will always reappear.

But if you never create multiple projections, you'll never know where they are hiding. You now know you were correct to use the price low at B and not the actual low that fell just to the right of it in all your prior calculations.

This area is marked with a horizontal line that runs across the entire chart. It is also ail exceptional chart to show why short-horizon traders must work with longhorizon charts as well and vice versa. There will come a day when the short-horizon trader's data will tell the trader point B is important.

But just how important is unknown unless you work with this longer-horizon data as well. One last comparison has been added for you in Figure 3. The confluence zones developed earlier at levels h1 and h2 have been extended to the left at h2 and g2. I want to use this opportunity to reinforce an earlier 58 comment that markets will show respect to these confluence zones in the future and in the past.

In this chart, a major spike reversal developed just to the confluence zone g2. The spike reversal is just to the right of the label g2. Notice also the lengthy consolidation that developed along h2 into the and highs. Look at price low B and the corresponding breakdown three 59 bars to the right with a down arrow. This zone was calculated from different approaches and entirely different internals, but each time we had a sense something important was forming at this price level. You are ready to focus next on rally examples and walk through the steps needed to create price targets for markets making new market highs in Chapter 5.

In Chapter 6, we will address some of the problems that develop in different price character, such as contracting triangles, which warns when a market is reseating. We will also cover adding technical indicators and other methods so you know what action to take when a market reaches a target zone.

But before we move forward with more charts, this is a very good place to digress and explain why these methods work the way they do. It also goes back to an unanswered question you still may have about how to transfer the Fibonacci spiral into twodimensional charts. Learning how to see the mysterious thread that connects the spiral galaxy see Figure 3.

Kuntz GSFC. Bresolin University of Hawaii. Of greatest interest to us are his travels through the Fertile Crescent, or an area known in BC to BC as Mesopotamia Greek for ''between the rivers". Figure 4. In ancient times, Babylon was a city of great fame.

Although the biblical story of the Tower of Babylon is how most people in the West recall this city, few know that all mathematical texts we have from BC to BC are Babylonian. The tablet has a length of just See Figure 4.

The depth of understanding that this tablet displays of the peoples of its time is staggering. The stone tablet shows Shamash the Sun God seated under an awning and holding a rod and a ring, symbols of divine authority. Just to the left and above his head under the arched rod are the symbols of the Sun, the Moon, and Venus.

On the left is the Babylonian king Nabu-aplaiddina between two interceding deities. The tablet is interesting because of its distinct golden rectangle design, but of even greater interest are the three symbols of the Sun, the Moon, and Venus above Shamash's head. The mathematical relationship between the Sun, Venus, Earth, and its Moon form several phi relationships that one might not associate with the tablet if it did not clearly show the awareness of the golden sector.

An example of the golden sector is the diagram of the Sun, Venus, and Earth in Figure 4. I've drawn a 1 by 1 square and divided it in half with a vertical line. Now imagine this square on the ground, and then place a peg at point A to stretch a rope out to point B. Then stretch the rope to draw an arc on the ground from B to point C.

Now move the peg over to point D and measure a rope from D to C. Next, stretch the rope with length DC in an arc to create point E. But why did you draw point E? In ancient Egypt, rope stretching was a skill referenced and diagramed in several papyruses.

You would have been known as a "rope stretcher" and highly respected. Only in modern times with the help of NASA could we determine that an average distance of all planets, with the largest asteroid Ceres, relative to Mercury in astrological units, equals 1.

But even well before Leonardo's time, the ancient Babylonians did not use the Fibonacci numbers; they used geometry to produce the ratios phi and Phi. That is how we are going to use them as well.

In order to show how to map the golden spiral, we need to learn new skills that will help bridge the gap between the mathematical model and the reality of having to work with price data that expands and contracts. Proportional Analysis The best place to begin is in the "pit. The Colosseum, with its "gladi-trader" connotation of do-or-die, offers an interesting way to introduce the new tools you need to bridge the gap between the proportions found in a nautilus shell and their reappearance in your financial data.

More important, it will help explain why you want to identify the proportions within your charts from internal pivots and other key features 64 such as gaps, truncated spikes, directional signals, and segments that start the larger meltdowns and melt-ups. Fibonacci may have displaced Roman numerals with the Hindu-Arabic number system for conducting business and currency exchanges throughout Europe in the thirteenth century, but the Romans were clearly infatuated by Phi and phi long before.

The photograph of the Roman Colosseum has been graphically delineated in Figure 4. It also allows us to consider how to study any image or printed chart in a book to define Phi and phi within the image. The proportional divider is a drafting tool with two arms held by an adjustable wheel in the center see Appendix A. The first thing to do is set up the proportional divider by loosening the center wheel. We want the two arms to be in registration, which makes the points at the ends align precisely to one another.

The two arms have a registration pin on the inside of the arm to ensure this task is done correctly. When the pin inside the arm fits a small notch, the points will be together. Next, hold the two arms and points together and slide the center wheel so that a registration line aligns with the number 10 marked on the "circles" arm. The illustration in Figure 4. Some dividers will just be marked GS for golden section.

Don't loosen the 66 center dial so much that the parts all come apart. It takes very little movement of the wheel to accomplish this task. When the proportional divider is set in this manner, the spread between the arms will be different when the arms are opened. This is correct because anything measured with the longer side will produce a 0.

If you measure a length with the shorter side first, you will have a proportion of 1. Be sure your proportional divider has the registration line set at 10 or GS. Separate the arms and use the ends that open farthest.

Place the points in the circles marked A and B. This is how you would use the tool on the chart. You have to measure the y-axis difference and not the diagonal. Now that the long arms measure line AB, flip the arms around and never change the set arm spread from your first measurement. The shorter arms will fit exactly on the If you start from point A, the second arm will fit on the You have discovered why In the analysis diagram of the Roman Colosseum Figure 4.

These lines are marked 1 and 0. You have to imagine points A and B now, but they are the start and end points of these lines. Check the registration of the arms again. Using your proportional divider, spread the points of the two arms apart and use the longest side of the drafting tool to measure line 1.

Being careful not to move the arms, turn the tool over so you can see how the short side fits between the arrows on line 0. You have just found your first proportional ratio of phi or 0. Like anything, a tool can be hard to handle at first. Setting the center wheel has a certain feel to it that you will soon have without thought.

The first few times, it is essential you check the center registration line often. It is easy to make errors because the registration line shifts when you begin, because many do not set the center tension of the wheel tight enough. This is easy enough to fix if you just glance down on occasion. Now you need to go back to the proportional analysis within the Roman Colosseum. Several 0. Once this diagram is full of pinholes from your proportional divider, you will be a whiz with this tool.

I have a beautiful art book of Leonardo da Vinci that is marked with small pinholes from the proportional divider. The book helped me learn how to use the tool and before I realized it my eye was trained to see this ratio with precision without the tool. Now, this is where we depart from prior authors on this subject. Rhythmic wave diagrams are being introduced to you now; I believe they are new to our industry, but they are not new to music theorists. This method of proportional analysis 68 is a common way to define harmonic unity.

In the chart of the Colosseum, two rhythmic wave diagrams intersect at the 0. These two wave diagrams are the easiest to relate to in the beginning. As an example, line ad is subdivided into In fact, they look similar to the results of a subdivided range into Fibonacci ratios. But the difference with rhythmic wave diagrams is their ability to show you the relationships between the proportional ratios.

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