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Technical Analysis

Fibonacci in Nature: The Golden Ratio and the Golden Spiral

The more you learn about Fibonacci, the more amazed you will be at its importance

By Elliott Wave International

If you’ve studied the financial markets, even for a short time, you’ve probably heard the term “Fibonacci numbers.” The ratios and relationships derived from this mathematical sequence are applied to the markets to help determine targets and retracement levels.

Did you know that Fibonacci numbers are found in nature as well? In fact, we can see examples of the Fibonacci sequence all around us, from the ebb and flow of ocean tides to the shape of a seashell. Even our human bodies are examples of Fibonacci. Read more about the fascinating phenomenon of Fibonacci in nature.


Let’s start with a refresher on Fibonacci numbers. If we start at 0 and then go to the next whole integer number, which is 1, and add 0 to 1, that gives us the second 1. If we then take that number 1 and add it again to the previous number, which is of course 1, we have 1 plus 1 equals 2. If we add 2 to its previous number of 1, then 1 plus 2 gives us 3, and so on. 2 plus 3 gives us 5, and we can do this all the way to infinity. This series of numbers, and the way we arrive at these numbers, is called the Fibonacci sequence. We refer to a series of numbers derived this way as Fibonacci numbers.

We can go back to the beginning and divide one number by its adjacent number – so 1?1 is 1.0, 1?2 is .5, 2?3 is .667, and so on. If we keep doing that all the way to infinity, that ratio approaches the number .618. This is called the Golden Ratio, represented by the Greek letter phi (pronounced “fie”). It is an irrational number, which means that it cannot be represented by a fraction of whole integers. The inverse of .618 is 1.618. So, in other words, if we carry the series forward and take the inverse of each of these numbers, that ratio also approaches 1.618. The Golden Ratio, .618, is the only number that will also be equal to its inverse when added to 1. So, in other words, 1 plus .618 is 1.618, and the inverse of .618 is also 1.618.

This is a diagram of the Golden Spiral. The Golden Spiral is a type of logarithmic spiral that is made up of a number of Fibonacci relationships, or more specifically, a number of Golden Ratios. For example, if we take a specific arc and divide it by its diameter, that will also give us the Golden Ratio 1.618. We can take, for example, arc WY and divide it by its diameter of WY. That produces the multiple 1.618. Certain arcs are also related by the ratio of 1.618. If we take the arc XY and divide that by arc WX, we get 1.618. If we take radius 1 (r1), compare it with the next radius of an arc that’s at a 90° angle with r1, which is r2, and divide r2 by r1, we also get 1.618.

Now here are some pictures of this Golden Spiral in various aspects of nature. For example, on the left is a whirlpool that displays the Golden Spiral and, therefore, these Fibonacci mathematical properties. We also see the Golden Spiral in the formation of hurricanes (center) and in the chambered nautilus shell (right), which also happens to be a common background that Elliott Wave International uses for a number of its presentations and graphics.

We can also see the Golden Ratio in the DNA molecule. Research has shown that if you look at the height of the DNA molecule relative to its length, it is in the proportion of .618:1. If we look at the components of the DNA molecule, there is a major groove in the left section and a minor groove in the right section. The major groove is equal to .618 of the entire length of the DNA molecule, and the minor groove is equal to .382 of the entire length.

This graphic of the human body also shows how the Golden Ratio exists in certain relationships of the human anatomy.


Learn How You Can Use Fibonacci to Improve Your Trading

If you’d like to learn more about Fibonacci and how to apply it to your trading strategy, download the entire 14-page free eBook, How You Can Use Fibonacci to Improve Your Trading.

EWI Senior Tutorial Instructor Wayne Gorman explains:

  • The Golden Spiral, the Golden Ratio, and the Golden Section
  • How to use Fibonacci Ratios/Multiples in forecasting
  • How to identify market targets and turning points in the markets you trade
  • And more!

See how easy it is to use Fibonacci in your trading. Download your free eBook today >>

Economic Gloom or Recovery? 5 Signs That One is Ahead

The economy has never really recovered since the 2007-2009 financial crisis

By Elliott Wave International

Several signs suggest economic contraction instead of expansion.

The first was recent front-page news: 8.1% August jobless rate. The number would have been higher, but it excludes people who gave up the job search.

The second is summed up by this Sept. 4 Bloomberg headline:

Food-Stamp Use Climbs to Record

Nearly one in seven Americans use food stamps. Before the downturn it was one in 10.

You can find the third sign at the other end of the income scale.

The chart shows that after a multi-decade bull market that tracked the major stock indexes, lobster prices (per pound) peaked in 2005, one year ahead of the global downturn. The timing of the lobster price top is so close to the downturn in home prices that the Maine Department of Marine Resources noted, “Interestingly, a ‘lobster bubble’ coincided with the national ‘housing bubble’ in 2006. … The six-year divergence between per-pound prices and total pounds (shown by the trendlines on the chart) suggests that lobster mania will not be back for a long time. Luxury is a classic byproduct of a bubble.

The Elliott Wave Financial Forecast, August 2012

Speaking of the parallel trend of lobster and home prices, a Sept. 18 Wall Street Journal excerpt reveals the fourth sign of a deflationary trend:

Mortgage lending declined to its lowest level in 16 years in 2011 amid weak demand for mortgages and tighter lending standards.

A Sept. 19 Reuters article says the latest housing data is mixed:

U.S. housing starts rose less than expected in August as groundbreaking on multifamily home projects fell, but the trend continued to point to a turnaround in the housing market.

Yet we’ve seen “hopeful signs” of a housing recovery before. The larger trend for real estate points in the opposite direction.

The fifth sign is summed up in this Sept. 18 CBS headline:

Median Income Worse Now Than It Was During Great Recession

The article says:

The median income for American households in 2009 – the official end of the Great Recession – was $52,195 (in 2011 dollars), while the median income dipped to $50,054 last year, falling 4.1 percent over two years. … The recovery is the “most negative for household income during any post-recession period in the past four decades.”

The “Great Recession” never ended. A more accurate way of describing the state of the economy is the onset of “depression.”

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This article was syndicated by Elliott Wave International and was originally published under the headline Economic Gloom or Recovery? 5 Signs That One is Ahead. EWI is the world’s largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

Elliott’s Discovery Foretells Major Market Turn

Elliott’s 70-year-old forecast applies in 2012

By Elliott Wave International

Adversity often visits people just as their future seems brightest.

At the same time, other people learn that when one of life’s doors closes, a window will open.

Both of these truisms describe the life of Ralph N. Elliott (1871-1948), the founder of the Wave Principle.

In the 1920s, Elliott became a successful business consultant. But his life of accomplishment and financial independence were in peril when he fell gravely ill. During months of recuperation, Elliott occupied his mind with a meticulous study of the stock market.

In other words: The door closed and the window opened. At 67, Elliott made a discovery.

Through a long illness the writer had the opportunity to study the available information concerning stock market behavior. Gradually the wild, senseless and apparently uncontrollable changes in prices from year to year, from month to month, or from day to day, linked themselves into a law-abiding rhythmic pattern of waves. This pattern seems to repeat itself over and over again. With knowledge of this law or phenomenon (that I have called the Wave Principle), it is possible to measure and forecast the various trends and corrections (Minor, Intermediate, Major and even movements of still greater degree) that go to complete a great cycle.

Ralph N. Elliott, R.N. Elliott’s Masterworks, pp. 154-155

In 1941, Elliott drew a chart of his long-term forecast based on the Wave Principle. The final label on that chart is the year 2012! (That chart is republished in the February 2012 Elliott Wave Theorist)

Amazingly, wave analysis thus far confirms Elliott’s 2012 forecast.

In the August 2012 Elliott Wave Theorist, subscribers receive a specific stock market overview through early 2013.

Indeed, EWI’s timing tools appear pointed to the exact month of a major stock market turning point.

Two observations lead us to the same month for the last upside gasp in the stock market.

The Elliott Wave Theorist, August 2012

Imagine: Today’s price pattern is in line with a forecast R.N. Elliott published 70 years ago!

To that end, EWI offers you a no-obligation education in Elliott Wave analysis. See below for details.


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This article was syndicated by Elliott Wave International and was originally published under the headline R.N. Elliott’s Discovery Foretells a Major Market Turn Still to Come. EWI is the world’s largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

Single- and Multi-Bar Price Analysis: Forecast the Markets

EWI’s Jeffrey Kennedy shows you what a simple price bar can tell you about a market

By Elliott Wave International

Senior Analyst Jeffrey Kennedy has spent over 15 years developing techniques to “read between the lines” on a price chart, and he shares some of his techniques with you in a FREE eBook: Learn to Identify High Confidence Trading Opportunities Using Price Bars and Chart Patterns.

You’d be amazed at how a simple price bar can provide you with so much information that can improve your trading success. In this excerpt from his eBook, Jeffrey explains how to interpret price bars and what that means for the subsequent market moves. Learn how you can download the entire 14-page eBook below.


Here’s a picture of two different price bars that we will consider to be daily price bars. What story does the single price bar on the left tell you?

Prices opened that day at the lowest price and closed at the highest price, which means that the buyers, or bulls, are in total control of the market. The bears have no power whatsoever, and, because the market closed so high, odds are that the price will continue up the next day. As I said, one price bar can give you tons of information about a financial market.

Now, look at the price bar on the right. It tells you a similar story in the opposite direction. Once the market opened, it got slammed to the down side. It stayed down hard all day and closed on the lows. A market like this is dominated by the bears, the sellers, and odds favor further decline the following day. It means that the bulls, or the buyers, have no control in this market.

Although these kinds of price bars are fairly rare, they may open your eyes to how much information a single price bar can contain, especially if you know how to interpret it.

These two price bars are more like what you will encounter every day.

The price bar on the left side shows that the bears, or the sellers, opened the market up and pushed it down a little bit. In a sense, they had some control, but not much. Then the buyers, or the bulls, took control of this market so that it closed above the open. This type of price bar shows up in an uptrending market.

Conversely, the price bar on the right often shows up in downtrending markets. It signifies that the bears control the market. You could say that the buyers gave it a feeble attempt early on, but by the close, the sellers had taken over. Closes don’t lie, and they are the most important item on the price chart.


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Learn how to get your free eBook >>

This article was syndicated by Elliott Wave International and was originally published under the headline Single- and Multi-Bar Price Analysis: Could It Help You Forecast the Markets?. EWI is the world’s largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

Current Gold Prices – The big secret behind gold’s $100 collapse

by Adam Hewison

The question many investors are asking themselves today is, just what happened to the price of gold?

Did the world change? Did the problems in Europe go away? Did all the states manage to find funding to cover their deficits?

No, none of that happened, but gold still dropped $100.

It’s all about market perception and timing, two things we’ve talked about many times before on the Trader’s Blog. I don’t know about you, but I remember when gold was over $1,400 an ounce and all I could see on TV where ads from gold companies extolling the virtues of buying gold as it is real money. Since the fall, I expect we’ll see fewer of these advertisements on TV and in print.

So what did happen to gold?

Well, for starters there were some key technical levels broken. If you’re a gold trader, but not a technical trader, you really need to learn how to read charts and see what other traders are doing.

Secondly, there did not appear to be any other news to drive this market higher. When that happens, markets tend to fall under their own weight, and as many retail investors purchased gold, there was nobody on the other side of the market to support gold.

So the question is, is the move over in gold? That’s a tricky one. I want to show you in today’s video exactly how we’re looking at this very emotional market. Every time we have created a video indicating that there would be some pullback in gold, we were bombarded by the gold bugs saying that we’re crazy. When you see a market pullback as much as gold has, you have to have some respect for the market itself.

If we look at the price of gold today at approximately $1,330, it pretty much equates to what happened in the last 30 years when gold was trading at a high of $850 an ounce. If you factor in inflation over the last 30 years, gold is probably lower now than it was 30 years ago. So how good an investment is gold? I think gold is more of a barometer of fear than anything else. Clearly there are other investments in the marketplace that have better returns.

Let’s get back to gold and what we think will happen. In this short video we analyze the market using our “Trade Triangles,” the Williams%R, and the MACD indicator.

As always our videos are free to watch and there are no registration requirements. If you like what you see please comment on our blog and feel free to Tweet or e-mail your friends. I think there’s an important takeaway message in this video – what goes up, must come down.

Enjoy the video.

DJIA Priced in Gold: What It Means for the Long-Term Trend

Timeless Trading Lesson

Of the many forward-looking market indicators we at EWI employ, one of the most interesting tools (and least discussed in the financial media) is the DJIA priced in gold — “the real money,” as EWI’s president Robert Prechter calls it. What implications might the present position of Dow/gold have for the long-term trend of the nominal Dow? In this video, Elliott Wave International’s Steven Hochberg shows you several revealing charts that answer this question.

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The #1 Reason Why Gold Collapsed

by Adam Hewison

Following the gold market as we do here at MarketClub, it was amazing that nobody, and I mean nobody, was bearish on this market. This always creates a problem as the markets tend to reverse when everyone is on one side and there’s no one else left to buy.

Another tip-off was on Fox Business News and also on CNBC indicating that gold was going to hit $1400 almost immediately. Well after Tuesday, we know what was to happen to the price of gold. If gold were so strong, should it really have gone down almost $70 in 4 days?

This is where technical analysis and Japanese candlestick charts really shine in my opinion. What happened in gold was a classic candlestick formation that any trader, whether they trade gold or other markets, should be aware of.

In this short video, I illustrate how this formation occurred and how it was confirmed the next day – and I don’t mean on Tuesday.

I also have a free candlestick book that I’m making available along with this video.

Video: The Versatility of the Wave Principle

Timeless Trading Lesson

In the video below, EWI senior analyst and trading instructor Jeffrey Kennedy shows how the Wave Principle can help you identify a high-probability trade set up regardless of the direction of the larger trend.


This timeless educational video was taken from Jeffrey’s renowned Trader’s Classroom series and is being re-released because of its valuable lesson. If a few minutes isn’t enough, get more FREE practical trading lessons from Jeffrey Kennedy in his latest eBook.

Bulletproof Your Retirement Portfolio – Free Video

by Adam Hewison

If you are looking to retire in the next 10, 15, or even 20 years, it’s time to have a strategy in place before it’s too late.

Now is the time to plan and protect your family’s future by turning your portfolio into the financial fortress that you’re counting on in the years to come.

In today’s short video, I share with you a way to bulletproof your retirement portfolio.

You may remember when we launched the “Perfect Portfolio” some months ago. This portfolio was very popular, but many of you told me that itwould not work within your retirement accounts. With this in mind, I specifically designed the “Perfect ‘R’ Portfolio” to work with your 401(k) or IRA account.

The “Perfect ‘R’ Portfolio” uses an easy to follow MarketClub strategy that I developed using my many years of investing experience as a former floor trader and member of four major exchanges.

For most investors, this report will come as a real wake-up call. For your own sake, I hope that you are one of them.

In this report, I share with you all the rules and results which explain how the “Perfect ‘R’ Portfolio” was created, how it actually works, and how it can work for you. As a bonus, I have included a special certificate that will give you instant access to MarketClub for the next 30 days. Get the free report here: Bullet-proof your Retirement.

With complete access to MarketClub and my foolproof strategy, you can see and verify for yourself that everything in the report is 100% accurate.

Download this report today and see how you can easily use this information to bulletproof your retirement account … no matter what happens to the economy.

Bullet-proof your Retirement

October Curse vs. Objective Analysis: The Choice Is Yours

October 12, 2010

By Elliott Wave International

Over the weekend, I went shopping for Halloween decorations. In the store, one of the clerks was wearing a white T-shirt with a puff-paint rendering of the Dow Jones Industrial Average. The line representing prices was the color of blood red, dripping and splashed across the front. When I asked him what it was, he said “the October Curse.”

‘Tis the season of stock market adages; those age-old Wall Street platitudes that claim stock prices perform a certain way during certain months of the year. The problem is, such correlations are hardly a guarantee.

Take October, for example. Yes, this month has marked some of the darkest periods in stock market history: 1929, 1987 and on. Historically, however, it’s not the worst performing month. For example, the supposed “Halloween Jinx” failed to bring a deathly pallor to stocks in 2008, as the final days of that year’s October saw the biggest weekly gain since 1974.

Remove Dangerous Mainstream Assumptions from Your Investment Process. Elliott Wave International’s FREE 118-page Independent Investor eBook shows you exactly what moves markets and what doesn’t. It will change the way you invest forever. Click here to learn more and download your free, 118-page ebook.

Then there are these familiar saws of seasonal wisdom:

“As Goes The First Week of January, So Goes The Month”– In the first week of January 2010, the stock market enjoyed a powerful winning streak. Yet, by the end of the month, prices were back in the red, circling the drain of a two-month low.

“Sell In May And Go Away” — And don’t come back ’till St. Leger’s Day (September). If investors heeded this wisdom this year, they would have missed one of the strongest uptrends in stocks of the entire year from July to September.

“September Curse” — If you think October is supposed to be bad, September is widely assumed to take the financial killing cake. Yet this year, U.S. stocks enjoyed their strongest September in 71 years!

Bottom line: Don’t “buy” your trading strategy before the trend actually arrives. The choice comes down to old adages, or objective analysis. Pick the latter.

Remove Dangerous Mainstream Assumptions from Your Investment Process. Elliott Wave International’s FREE 118-page Independent Investor eBook shows you exactly what moves markets and what doesn’t. It will change the way you invest forever. Click here to learn more and download your free, 118-page ebook.

This article was syndicated by Elliott Wave International and was originally published under the headline October Curse Vs Objective Analysis: The Choice Is Yours. EWI is the world’s largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.