Fibonacci Trading: How to Master the Time and Price Advantage
04/01/2008 12:00 am EST
As a student of Fibonacci analysis for many years, I have been looking forward to Carolyn Boroden’s new book, Fibonacci Trading: How to Master the Time and Price Advantage, and was not disappointed. This book is organized extremely well, addressing first the fact that many who use Fibonacci analysis in their trading only do so in terms of simple retracement analysis. Most do not make multiple calculations that reveal the “clusters” which form the basis for much of her work. Her discussion of this problem in the first three chapters is done in a very thorough manner.
This book also contains many well-annotated charts. A lack of well-annotated charts is often one of my pet peeves when I review books, as the lack of information on the chart often makes it difficult to understand the author’s message and see the formations described in the text. Although some may see extensive charts as redundant, the extensive number of examples allow one to learn using highly-annotated charts early in the chapter, and then to ‘practice’ on less-annotated charts later in the chapter. These later charts allow you to test your understanding of the material while still having the fallback of an in-text explanation regarding how her conclusions were drawn.
In Chapter 4, Carolyn gets into Fibonacci extensions, a subject which is bound to open the eyes of many traders who have only looked at retracement analysis. In subsequent chapters, she describes clearly the procedure by which one can identify ‘price clusters’. Carolyn’s definition of a price cluster is “the coincidence of at least three Fibonacci price relationships that come together with a relatively tight range”. Price clusters can give traders the confidence they need to succeed in trading, a quite important advantage considering the role that psychology plays in successful trading.
One of the many things that I found compelling about this book was Carolyn’s unique perspective on market phenomenon. For example, in Chapter 7, her discussion of symmetry provides several insights into price action, including the observation that ”important trend changes will most often be preceded by a break in symmetry”. This nugget was part of one of many ‘Author Tips’ that are found throughout the book. Chapter 8 was equally illuminating as she focuses on two-step (or Gartley) patterns, which many may think of as continuation patterns (flags or triangle). Carolyn then explains how combining her retracement and extension analysis can often very closely identify the price level at which these patterns will terminate. This can allow for low risk, high probability entries. To determine the price objectives for the two-step patterns, Carolyn looks for either symmetry or extension targets but also notes that these targets are not always met so advises the use of a trailing stop.
Chapters 10 through 12 deal with how one can apply Fibonacci analysis to the time axis of the market, deriving Fibonacci time clusters and finally developing time projections. Although I was not as able to immediately apply these time concepts as I was the price projections, they became clearer with a second reading. Carolyn notes in one of her ‘Author Tips’ that while not all of these time clusters will produce a change in trend, when they coordinate with the price parameters, the odds are much higher. She looks at the price and time together in the chapter entitled “Time and Price Confluence”, which reveals this to be quite a powerful tool. Carolyn then kindly devotes a few chapters to her favorite trade setups as a short-term trader, and these insights into her methodology I found quite illuminating. There is also a chapter devoted to trade triggers or indicators that can help you further filter your entries based on the price and time projections. Throughout the book she correctly (in my view) cautions that trading against the dominant trend (i.e. contra-trend trades) significantly decreases one’s odds of success. The book concludes with Carolyn’s advice on money management, psychology, and her thoughts on a trading plan.
This is one of the best trading/analysis books I have read recently and the methods within are applicable regardless of whether you are trading stocks, futures, or forex, and whether you use five-minute or daily charts. Some of her methods may involve some hard work, but this is a reality of any successful trading practice. If you have found yourself getting stopped out just before the market turns in the direction of your trade or find yourself buying when you should have been selling, adding Carolyn’s analysis should help improve your bottom line. And if you want a preview of what is in the book, I recommend checking out Carolyn’s course on Fibonacci analysis that we filmed last year.