Going Beyond Fibonacci and Gartley
09/13/2017 3:01 am EST
No other chart squares out so beautifully in price and time as the 1-minute YM. Why is that? Here’s what I discovered, writes Jeff Greenblatt, director of Lucas Wave International and editor of The Fibonacci Forecaster.
Last week I showed you how to apply ratio analysis going beyond the golden spiral on the 1 min YM. Now I’m going to show you how to apply a retracement on the Emini NQ in a time frame larger than the 1 minute. After all, the speed of the 1 minute is not for everyone. To be sure, I cracked the YM before any of the other charts in the Emini because it is the purest chart. No other chart squares out so beautifully in price and time as the 1-minute YM. Why is that? The ES and NQ both require you to divide ticks into the number of points and requires an extra calculation. The time it takes to do the extra calculation could mean the difference between getting a good risk reward ratio or not. For the Dow YM, each tick is a point.
That being said, similar principles apply to the other charts in various time frames. Several years ago, I wrote articles and did seminars on advanced Fibonacci methodologies. I probably came up with just about every Fibonacci ratio you can think of. But here’s the problem, there were a lot of legs that did not correspond to the traditional golden spiral of .618, 1.618 and 2.618. Those became opportunities that fell to the floor as neither I or most in the Fibonacci community knew what to do with it. For those of you familiar with Fibonacci, you know a whole strategy called the Gartley pattern was designed around it. For most Fibonacci enthusiasts, it is the most important pattern they will ever learn. Numerous books have been written on the subject through several generations. If you know Gartley, in addition to the 61s, you are also working with 1.27 and .786. As you know 1.27 squared is 1.61 and .786 squared is .618 while the square root of .382 is also .618 so they all work together.
What happens when you have ratios that do not correspond? For many, if you are not familiar with it, you’ll bypass it because you won’t appreciate the value. Additionally, we’ve been trained to look for retracement levels of 38, 50, 61 and 78 percent. These levels are on just about every software package you can think of. So, what happens if your pattern is outside the box? Chances are you will not have the same level of conviction.
In our chart of the day, here is the 30-minute NQ with the sell the bounce pivot which leads to the best part of the move.
There is a drop of 111 points and bounce of 63 points. This ratio is .567 or the 56% retracement. In this case from the high there is a 55-bar cycle on the 30-minute chart. What is happening here is price/time square out with the ratio of the down move to the bounce. There is nothing out of the ordinary for a 55-bar cycle, market timers see it often. But sometimes they don’t fire off or only fire off smaller moves. Why should you take note of this? As you can see it’s not a garden variety 55 bar cycle because the retracement ratio is lining up to a margin of error of one in the same place. The trader should have the conviction this is likely to work because price and time are squaring out. The Fibonacci trader can broaden their horizon to look for retracement levels beyond what the community has been teaching for years. As always, its prudent to practice these tendencies on a simulator until you feel comfortable as you would any new methodology.