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FIBONACCI FORECAST

I have a system that I use, with great success, for making short and long term predictions for various segments of the futures market. Recently, I have been asked repeatedly for more descriptive information concerning my system and techniques, and this article is my reply. In it, I will first briefly describe the theory, and then devote most of the article to examples of the proper application of my own Fibonacci techniques. These techniques I have researched over the past ten years and have tested empirically in the futures markets. I will highlight what to look for.

For a more thorough discussion of the theory and principles behind the application of the Fibonacci series to the futures and stock markets, you may want to refer to my Fibonacci Forecast or some other Fibonacci reference.

The Fibonacci Series is a succession of integers as follows: 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, . . . etc., each successive number in the series being the sum of the two previous. The ratio between successive numbers in the series approaches .618, or inversely, 1.618. These ratios are extremely important.

My Fibonacci approach to the futures markets involves subdividing each market into three specific categories: Pattern, Ratio, and Time.

(1) Pattern -- This refers to the wave pattern that every market is continually in the process of creating the number of waves up, versus the number of waves down. Each bull move, to complete itself, must have three major waves upward, interspersed by two major corrections, for a total of five major legs. Since each of these major waves can be also subdivided, I continually analyze the wave picture being provided by a given market to ascertain when a full wave pattern has been completed. This is a major clue in determining when a market has definitely topped out or bottomed out. A bear market is not quite a mirror image of a bull market, but the wave pattern count remains the same, although the patterns themselves vary a bit. It is the count that is of prime importance.

(2) Ratio -- This refers to the ratio between the successive bull waves and their corrections, and the bear waves and their corrections. The various waves should relate to each other based upon the Fibonacci ratios mentioned (not forgetting that the first part of the series provides '1' as a ratio, also). When you have wave pattern that correlates to the proper ratios, you then have a second major clue that you have found a major (or intermediate) top or bottom to a market.

(3) Time -- The third category, and perhaps the most decisive of the three, is the time frame during which a market carries out its bull or bear price action. Many years ago, I adopted the term 'cycle' to describe the time frame between price swings, this term is generally used by the trade today. 'Cycle' was used because the markets appear to complete a full bull move, or a full bear move, within a specific time cycle. And this time cycle is delineated by the Fibonacci series itself. Since, for my clients, I am concerned largely about the longer term cycles, I generally ignore the shorter term (3 day, 5 day, 8 day, 13 day) cycles, and concentrate on the 3 week (21 day), 5 week (34 day), 8 week (55 day), 13 week (89 day), 21 week (144 day) and so on. The longer term cycles tend to mark the major turning points of markets, and naturally the major turning points are what all traders are gunning for.

So in summation (again, I am oversimplifying somewhat to assist those new to the markets in

understanding a new idea),when you have a wave pattern that appears to have fulfilled its minor and major wave counts; when the price objectives have been satisfied as predicted by the ratio measurements between successive waves; and when your time cycle appears to have been fulfilled, and therefore a new change in cycle trend can be expected -- then you have satisfied all three of my Fibonacci categories. The reliability factor of any trade entered at this juncture is extremely good, and the 'Profit to Risk' factor will be enormously in your favor.

Now for the examples -- I am simply going to go over several major markets and show you how I have traded them with this Fibonacci approach.