The Symmetry of the Markets—Beautiful By Any Name (Part 4)
01/31/2008 12:00 am EST
Now let's take another look at the chart I showed you at the beginning of this series in part 1, to see if any of the ratios I marked had any predictive power:
You can see price climbed to the 38.2 percent retracement area and then failed to climb any higher. Price then turned lower. In down trending markets, any failure to climb above the 38.2 percent retracement area is a major sign of weakness.
Here's an example of using these ratios as a projection of where an expansion should run out of directional energy:
Price climbed right to the 127.2 percent projection of Swing B and then turned back dramatically lower. When planning a trade, it is often quite useful to mark these ratios on the right hand side of your chart, to remind you where so called 'Fib traders' will have their resting orders. You can then use them to make decisions about stop loss orders and profit orders. For example, if you have a trend line or Median Line at a particular price and then add in these ratios and see that the same area coincides with one of the ratios, you may want to aggressively lock in your profits as price approaches this area, because of the number of 'Fib traders' that may be working sell orders at the exact ratio.
More tomorrow in part 5.