Dear Trader,

Yesterday, we explored various interesting aspects of the Fibonacci series. Today, we’re going to learn how to apply it to the analysis of any market.

You’ll love how practical this method is for use with any trading technique, or under any situation.

Let’s get started.

Applying Fibonacci To Market Analysis

This really isn’t as difficult as it sounds, provided that you devote some time to understanding the Math behind it.

We know from yesterday’s lesson that the Fibonacci ratios are 1.618 and 0.618. There are a few other additional basic ratios such as 0.382 and 0.50.

Now all that’s left to do is to start analyzing our markets!

To get started, you need some printed market data preferably over a period of a year (in the form of a clearly printed chart), a pencil and a ruler. There is going to be some work involved but it’s well worth the effort.

Step 1: Measure the distance between a major low and a major high. On your chart, identify the point where the market is at one of it’s lowest and highest points. Mark them out.

Step 2: Draw a horizontal line that passes through the first point of your graph. This will be the 0% mark. Then draw another horizontal line that passes through the second point. This will serve as the 100% mark.

Step 3: Using a ruler to help you, measure the vertical distance between 0% and 100%. Then identify the horizontal points on the graph that should be 38.2%, 50% and 61.8%.

Draw a horizontal line through them. Anytime the prices touch these lines, it signals a potential reversal point.

Tip: You’ll need some knowledge of ratios to help you figure this out. For example, if the vertical distance between the 0% line and 100% line is 10 dollars, then the 61.8% line should fall 6.18 dollars from the 0% line. Your measurements may vary, but it’s the same idea.

Step 4: Look at the line which you’ve drawn to indicate one of the ratios. There is likely to be an initial reversal from your major point to that line, followed by a retracement back to the original line. This is what is known as a pivotal, reversal or turning point.

Step 5: Now observe the series of peaks and troughs in your graph, you may find that they form within the region of the 0% line and the 100% line.

It is important to note that this may NOT occur with every single turning point you analyze, simply because not every potential price reversal point can be predicted using Fibonacci.

However, this is a good start for predicting reversal points.

Try this out on more charts and line graphs that you can get your hands on. You should be able to observe a pattern for the potential price reversal points.

Keep these charts as you’ll need them for tomorrow’s lesson!

Doing this for every single stock or commodity you trade is a tedious way prone to human errors. A much better way will be to make use of technology.

My Price and Time trading software helps you do all the groundwork. All you need to do is to input a set of prices (major highs and lows)… and the software will automatically calculate the potential reversal points. The whole process takes less than 10 seconds.

This is a must have for any serious trader. = http://stock-commodity-trading.com/pricetime.html

I’ll talk to you again tomorrow!

To Your Trading Success,

David http://stock-commodity-trading.com/pricetime.html

P.S - Other tools needed to help you calculate potential reversal points based on Fibonacci principles may set you back by hundreds or thousands of dollars, but not this one! = http://stock-commodity-trading.com/pricetime.html

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