Friday, April 07, 2006
VOODOO TRADING
Voodoo trading could add a lot to your bottom line. W.D. Gann, R.N. Elliott and other cultists spent years studying the market's mystical side, trying to figure out how obscure ideas could tap hidden profits. Magic numbers, astrological dates and prayer wheels have all been enlisted in the search for that elusive trading edge.
Most traders believe Fibonacci fits in the category of market witchcraft, but this arcane science has a basis in fact. A 12th century monk known as Fibonacci discovered a logical sequence that appears throughout nature. Beginning with 1 + 1, the sum of the last two numbers that precede it creates another Fibonacci number. For example: 1+1=2, 1+2=3, 2+3=5, 3+5=8, 5+8=13, 8+13=21, 13+21=34, 21+34=55, etc.
Major ratios between Fibonacci numbers identify expected retracement levels, as markets pull back after rallies or selloffs. The most common Fib retracements are 38%, 50% and 62% of the principal price movement. These are price levels where many traders expect important reversals and bounces. For obvious reasons, these also represent entry signals in many short-term strategies.
Fibonacci patterns and the Elliott Wave are kissing cousins. According to Elliott, major rallies or selloffs occur in three primary waves, with two countertrend waves in between. These waves are often boxed into major retracement levels. Go back and look at my article "Mind the Gaps." Notice how Fibonacci retracements can also define levels where markets jump from one price to another.
http://www.hardrightedge.com/wheel/hrevoodoo.htm
Most traders believe Fibonacci fits in the category of market witchcraft, but this arcane science has a basis in fact. A 12th century monk known as Fibonacci discovered a logical sequence that appears throughout nature. Beginning with 1 + 1, the sum of the last two numbers that precede it creates another Fibonacci number. For example: 1+1=2, 1+2=3, 2+3=5, 3+5=8, 5+8=13, 8+13=21, 13+21=34, 21+34=55, etc.
Major ratios between Fibonacci numbers identify expected retracement levels, as markets pull back after rallies or selloffs. The most common Fib retracements are 38%, 50% and 62% of the principal price movement. These are price levels where many traders expect important reversals and bounces. For obvious reasons, these also represent entry signals in many short-term strategies.
Fibonacci patterns and the Elliott Wave are kissing cousins. According to Elliott, major rallies or selloffs occur in three primary waves, with two countertrend waves in between. These waves are often boxed into major retracement levels. Go back and look at my article "Mind the Gaps." Notice how Fibonacci retracements can also define levels where markets jump from one price to another.
http://www.hardrightedge.com/wheel/hrevoodoo.htm
# posted by Cherie : 3:47 PM
