How to profit from applied

INTRODUCTION Many of the studies in this book are focused on the application of angles and how they relate to previous market swing highs and lows and future points of price and time res

How to Profit From Applied

Gann & Fibonacci

The Definitive Guide to Market Geometry Space & Time

By Gene Nowell

CONTENTS

Introduction 1

1 The Mysteries of Price & Time 3

2 Geometric Angles & Charts 9

4 Constructing Fibonacci Fan Lines 21

5 Trading System or Trading Method 26

INTRODUCTION

Many of the studies in this book are focused on the application of angles and how they relate

to previous market swing highs and lows and future points of price and time resistance Some of these angles are from Gann's work, others are Fibonacci Fan Lines and some are my own

techniques Regardless of which ones they are, you will come to understand the significance of them and how you can use them in your every day trading It makes no difference which time frame they are applied to, the principle and results are close to being the same Some chart illustrations are from the Forex markets and others cover some of the traditionally traded markets like the S&P and Metals

When I was introduced to W.D Gann, I studied everything I could get my hands on Gann Courses, Books, Seminars, Radio Programs, Tools, Computer Programs etc; the more I studied, the more I realized the depth of Gann's work However, most of it did not have the accuracy I was looking for But there are a few techniques I have found to be quite accurate I guess I am not smart enough to understand all of Gann's theories It is my firm belief that W.D Gann, at times, tapped into the depths of knowledge of the 4 universe that is unknown Something like Edgar Cayce did when he went into his trances Gann published a book called the MAGIC WORD In this

publication, he spoke of the importance of meditating and verbal communication so one could be in tune with the Harmonic Vibrations which he believed are the foundation of the universe Unless a person pursues this avenue of the unknown they will most likely not comprehend all of Mr Gann's Work

I am not one who has taken his work to that level but, I have taken the angle techniques he used and dissected them front to back, back to front, inside out and more and then discovered some other techniques that have a real significance in technical analysis One of the most important pieces

of knowledge I have acquired over the years is this: Support resistance is not always on the horizontal plane It keeps changing based on where market price is in relationship to time There is a dimension not seen on charts unless geometric angles are applied and I intend to make that dimension and the symmetry of markets very clear to you in this book This is what I am all about and this is what the book is all about; ANGLES and making money

When I talked to a publisher in the Carolina's about writing this book, it was suggested that I include significant days of the week and month to watch for reports that may affect price movement

in the Forex and other markets Although this is very significant and should not be neglected, I have decided to exclude that information and in its place, discuss Money Management

This is a subject that has been talked about but seldom looked into thoroughly Dr Barry Burns is one of the few who has a section in his online courses which addresses the issue He covers the major commodity markets like Grains, Financials and Metals W.D Gann gave important information about protecting your account equity and trading a certain number of contracts for the money in your account, but he did not expound on the types of contracts outside of the grains which can be traded I will go in depth regarding contract size and money needed to trade and cover stop numbers and placement

Proper money management will be covered more thoroughly than most other publications I believe this to be the KEY to successful trading It must be used in every trade you make I hold no responsibility for loss due to any adverse market conditions or any other reason Simply put, one must take responsibility for their actions and not blame losses on conditions or

"THEM/THEY/THOSE GUYS" and others

Next, I cover Gann and the fundamentals and then I get in depth on some of Gann's

techniques I cover today's news and how it affects the future Included in this study I examine Gann's statement about how the fundamentals "CAST THEIR SHADOWS ON THE CHARTS"

in advance of the news You will see these shadows and how they fall on the charts It is my

intension to show you why Geometric Angles should be used when analyzing any market

Furthermore, it is especially beneficial to apply angles to Forex charts over other markets The uninterrupted intra day data from Sunday night through Friday evening develops a foreground from which these geometric angles can be used as a roadmap to knowledge of market strength and weakness and ultimately profits I will show angle analysis like never before You will see an in depth study using Fibonacci Fan Lines and you will learn how to develop a successful trading plan using Fibonacci Fan Lines and Gann Angles along with my own proven methods and procedures Some

of 7 the material I reveal in this book has never been presented to the public before

1- THE MYSTERIES OF PRICE & TIME

Who is wise enough to tap into the depths of knowledge that our loving God employed when

he created the universe? A perfect harmony of mathematics and beauty were put into motion to create the wonders of the Galaxies This knowledge is far too great for any one man or any people

to grasp To say that a BANG started creation is folly This is the same thing as saying one could take billions of letters and set a bomb off in the middle of them and expect to get a perfect library out of it all That is harder to believe than to believe in a Creator who put all what we see in perfect balance I am not trying to make a religious sermon out of this, but I am trying to put things in Perspective A BANG does not create, it destroys My point being, markets are part of the universe and a part of this creation And market movement is a reflection of the forces in motion which all have a time and place to culminate An in depth study of these relationships would take generations

Mr W.D Gann just scratched the surface of this knowledge when he began using angles on charts

to recognize certain price patterns Furthermore, he used the stars and planets as the foundation of his work At the end of his life I am sure he said I regret now that I am coming to the conclusion of

my life and that I am only now beginning to understand price & time and their relationship to the stars There is a beginning and an end to everything Let us take a step in the direction of wisdom to try and comprehend these relationships of mathematics and geometry so a beginning and end of trends can be identified Sit back, relax and let's take a journey through the wonderful world of MARKET GEOMETRY SPACE & TIME

As the markets evolve on a minute by minute display of Geometric relationships, there is clear evidence of previous highs and lows relating to future points of support/resistance and timing It must be understood that each new swing that is formed has a relationship of previous swings regardless of how insignificant they may appear To make this point more easily understood, let us consider the following example; Picture a pond in your mind's eye! Now throw a stone into the pond and notice the ripple effect this stone has created on the water's surface Each wave that moves out from the center is energy and this energy has an effect somewhere in time These energy waves are the forces that create market high and low at swing points If you throw a larger stone into the pond, a much greater set of waves will go out from the impact point Thus significant waves create longer lasting effects in the future and can also go higher from the surface than the effect of a smaller stone This would be the amplitude effect of price on the wave.

With that said, we now look for support resistance in the future This price support/resistance

is not always on the horizontal plane It is however, always on an angular plane These planes are in direct relationship to previous referenced swings This is how the geometric angles come into play They relate to the waves of the past to show the geometry of support/resistance in the future The charts displayed in this book have geometric angles which originate from these previous swings (waves) and project out into the future for use as support/resistance and timing The

TIMING POINTS are derived from the termination of an angle at strategic locations on the chart One of the key factors of this analysis is to know which angle will offer significant

support/resistance

Another significant use of these angles is to use them as an indication of market strength and weakness When price moves up and down on the charts, we will be able to know the strength of the current trend and can have an 11 indication if the next new high in the trend will be the last before price moves in the opposite direction These and many more trading strategies will be found

in this book, MARKET GEOMETRY SPACE & TIME Please explore my website:

www.gannline.com and check out the dates projected and the videos that explain the products I use

to obtain these targets

F OUNDATIONS & W ORDS F ROM W.D G ANN

Speculation or investment is the best business in the world if you make a business of it But in order to make a success of it, you must study, be prepared, not guess, not follow inside information

or depend on hope or fear If you do, you will fail Your success depends on knowing the right kind

of rules and following them Gann said, "Keep this well in mind, For Stocks or Commodities to show up trend and continue to advance, they must make higher bottoms and higher tops When the trend is down, they must make lower tops and lower bottoms and continue on down to lower levels But remember, prices can move in a narrow trading range for weeks, Months or even years, and not make a new high or a new low But, after a long period of time when Stocks and Commodities break into new lows, they indicate much lower prices And after a long period of time when they advance above old highs or old tops, they are in a stronger position and indicate higher prices This

is the reason why you must have a chart which goes a long way back, in order to see just what position a Stock or Commodity is in, and at what stage it is between extreme high and extreme low You will go broke trading on hope and fear You will never succeed buying or selling when you hope the market is going up or down You will never succeed by making a trade because you fear the market is going up or down Hope will ruin you, because it is nothing more than wishful

thinking and provides no basis for action Fear will often save you if you act quickly when you see that you are wrong The fear of the market is the beginning of wisdom Knowledge which can only

be obtained by in depth study will help you to make a success The more you study past records, the surer you are to be able to detect the trend of the future"

There are a number of rules Gann used in his analysis with angles Above all his rules was the use of correct charts There are two types of charts that can be used for analysis They are the Market Day chart which shows trading days Then there are the Calendar day charts which

encompass the entire calendar year and show all 365 days Any type of chart with the posted

High, Low and close will be fine because time and price is a measuring instrument and as long as they are uniform, an angular structure can be applied

When working with a market daily chart, the important thing is to set up all the data with no spaces for non-trading days like weekends or holidays If you have the capability to set up a calendar day chart, you will find important timing points that are not shown on the market day chart These must be laid out in the correct format As long as the format is uniform, it will be sufficient for

How to Profit From Applied Gann & Fibonacci

us veterans who have been exposed to Gann One can draw this format or buy a program that prints out these type charts Trend lines are easily drawn and so are the "GANN ANGLES"

It is most notable when the commercials are not active buyers (It is said, "It takes a

tremendous amount of buying to push a market higher, but it takes a mere lack of it for it to go down") Along with this selling pressure by these same commercials, Banks selling mortgage rates, Governments selling Treasury Bonds, etc; we have selling by small hedgers of the product being traded such as Grain Elevators selling Soybeans Finally there are those weak long positions who just can't hang on to their long positions anymore and they bail right at the bottom

Many times you see a market bottom with a large volume day and dramatic price drops fueled

by the worst news If traders are in a "weak" long position, panic could set in and mass liquidation

could take place Finally these weak longs throw in the towel Most always we will see the worst news at a market bottom And the exciting good news at market Tops

C HART 2

H IGH V OLUME AT B OTTOMS & T OPS

At this time, the profit takers cash in buying back their short positions Now the speculators,

"Bottom Pickers", come in and start to buy Then the commercials have found themselves short of product so they must buy to maintain an inventory level And when all the selling pressure is finished and the dust has settled, the market commentators call it a "Short Covering Rally" Gann said to watch the volume on these short covering rally's and count the days to see if the most recent rally has lasted longer in time thanany of the "Short Covering Rallies" since the market started on the down trend

If the volume is greater than that of the last short covering rally and if the time of this rally is longer in terms of number of trading days look for a place to enter the market on the long side if a

How to Profit From Applied Gann & Fibonacci

M ARKET T OPS

When a market is approaching a top, there will usually be extreme volatility Gann said John Q Public enters the market at these tops Gann also said markets are working between the 45 degree angles of the 360 degree chart (Square of 9) in price and time Price is fluctuating freely between these angles because they are widening as price goes higher Getting back to the publics

participation, the news is great and people get caught up in the hysteria of the time

a high of around $850, people were talking $1000 Gold and $100 Silver Well Silver went to $52.00 and Gold Reached $850 The greedy hung on for the ultimate $1000 mark and went down with the ship The smart ones were selling all the way up I was very fortunate to have been on the right side

of the Silver market both on the way up and on the way down At the time I was in the Silver and Gold business hedging my product

Gold had a tremendous move up in price from October 1979 to January 1980 Near the top, the producers started spoon feeding the public news of shortages in Gold and how the mines were drying up and their inability to supply the demand News like the mines were not producing as much etc, etc; at the same time, the producers were hedging (selling) the product they hadn't even mined yet This was done on "Forward Contracts" or the Futures Market The result was the public bought everything the mining company's could dish out And other companies like jewelry

manufacturers were selling it to them in product form such as jewelry, bars and coins This money eventually went to the larger company's bank accounts and the "small guy" got it stuck to him once again This is why Gann strongly emphasizes to stay far from the news and the ticker You won't be able to see the forest through the trees

To sum this up, I have come to a firm conclusion that there are very powerful and influential people who have the news media at their control and they use this to their advantage I therefore am very cautious when major news comes out (good or bad) especially when we have seen a significant price move, prior to the news, in the direction of the news It's the old adage, "Buy the Rumor, Sell the Fact"!

2- GEOMETRIC ANGLES & CHARTS

I MPORTANT G ANN A NGLES

Gann stated that the ideal balance between time and price exists when prices rise or fall at a 45 degree angle relative to the time axis Gann Angles are drawn from significant bottoms and tops at various degrees According to his writings, the most important angle is the 1 x 1 This angle reveals

if price is in a strong position (above the 45 deg angle) or a weak position (below the 45 deg angle) Gann said that a 1x1 angle provides major support during an up-trend and when the angle is broken, it signifies a reversal in the trend Therefore, the most important angle is the 1x1

Gann identified a total of nine significant angles When a set of angles is drawn between any two points the related market strength between these two points, are as follows:

 8x1 = Extraordinarily Strong Trend

 4x1 = Very Strong Trend

 1x4 = Very Slow Trend

 1x8 = Extraordinarily Slow Trend

When price follows one of these angles, the trend is identified for strength and a possible change of trend or acceleration of the trend can be recognized when price moves to the next slower

or faster angle

As a follow up on the 1x1, I have a radical way to use the Gann Fan The 1x1 angle must originate from a low or high and connect to the opposing swing In other words, the scaling is already on the charts This is very helpful when trading on the intra-day charts The following chart

is an example of my radical way of doing this The One Hour Canadian Dollar (CAD)/Japanese Yen (YEN) currency pair shows the symmetry of the angles and price

C HART 4

The Set of Gann Angles on this chart come down from the high and connects to the lowest low of the move The first wave up finds resistance at the 1x2 At this point, the continued rate of decent is slower than the initial down move Once price jumped to the next angle, the down trend momentum shifted to the upside

Gann also observed that each of the angles can provide support and resistance depending on the trend As stated earlier, when price breaks through one angle it has a high probability that it will move to the next to find support or resistance

A major reversal is signaled when prices fall below the 1 x 1 angle on an up move Prices should then be expected to fall to the next angle (1 x 2 angle) A rule of thumb is that price will most likely consolidate on an angle that had S/R on the opposite angle of the 1x1 An example of this is if price followed the fast moving angle 2x1 up and broke through the 1x1, then expect price to consolidate on the 1x2

How to Profit From Applied Gann & Fibonacci

offer support And the higher the price, the faster angles will offer resistance The 1x1 will always be the most significant of all these

By studying each time frame to see where the Moving Average is in relationship to price we can get the general direction of a trend Always check the angles from the most recent high and low

to see where price is and whether it is in a strong or weak position By looking back from where price is, we can see where support resistance and time turning points have reacted in the past This will give us an idea of how they will relate to the current and future price By doing so, you will have

a better idea of future support/resistance levels of price when approaching these angles Chart 5 illustrates this with past support/resistance when a set of Fan Lines are drawn The 90% angles have price up against resistance

How to Profit From Applied Gann & Fibonacci

In Chart 6 the same Fan Lines are drawn from the same high into the future and you will see price topping out around the 90% Fan Line angle

C HART 6

In Chart 7 resistance of the past has become resistance of the future

C HART 7

I day trade and watch the 15 minute, 45 minute and 135 minute bar charts Three times up in each time frame I am always on the lookout for the longer term trade so I can catch the larger move For this, I keep an eye on the 1 hour - 4 hour and daily time frames At the end of each week

I study the weekly charts When a set up occurs on the long term and short term charts, I have more confidence to take a trade Now I can look for long term support/resistance of price and angle location and how price has reacted to it in the past

As mentioned earlier, I also use the 15, 45 Moving Average along with the 135 MA when looking for support/resistance Along with these I use stochastic and RSI as guides When either of the MA comes in at the same point as an angle or long term support/resistance and price arrives at that point the same time, there will be a high probability that trend will change Chart 8 below shows the evidence of this

How to Profit From Applied Gann & Fibonacci

C HART 8

The arrows point to the area of support When the Fibonacci Fan line and the 55 MA come together, this will always be an area to watch for price support or resistance

Let’s take a look at the Chart 9 below I have drawn Fan Lines connected from a high to low

In this illustration, I am using Gann numbers for my angle percentages A set of angles moving up

or down are; 25%, 50%, 62.5%, 75%, 90% In addition to these, the 112.5% and 125% can be used

as well Gann tells us if price is trading below the 45 degree angle, then price is weak Here, the 50% angle is the same as the 45 degree angle and can be used to divide price The difference is we have market geometry already in place for us What I mean is the two points of the HI and LO are our connecting points We do not have to consider scale because the scale is on in the range Thus if price is trading below the 50% angle, it is weak, above it, strong

C HART 9

How to Profit From Applied Gann & Fibonacci

Chart 10 below is the EUR/USD 4 hour chart with a set of Fan Lines that originate from a significant high and go to a significant low The first sets of angles were drawn high to low from the left going down Once the low was established, price moved up to the 62.5% angle (left arrow) and moved down sharply This live angle will prove to be significant resistance in the future (right arrow) As you can see, once price bounced off the angle of resistance and came down a little bit and moved sideways finding support on the 75% angle coming up from the low for a period of time then moved to the 62.5% angle again and the result was resistance found and significant move down

A second set of angles was drawn from the low to the high where price bounced off the 62.5% angle What is so significant about this set is the length of time price followed the 75% angle up coming from the low

C HART 10

Chart 10 shows how price touched the 75% angle 5 times before finally breaking through to the down side One of Gann's rules can be seen here That rule is: "WHEN PRICE HITS A

SUPPORT/RESISTANCE AREA 3 TIMES IT WILL ALMOST ALWAYS GO THROUGH IT

ON THE 4TH" In this case, it took 5 times to break through to the down side This sometimes happens when using intraday charts When Gann put these rules in place, they were used in his daily and weekly chart analysis However, the basic principle can be applied to any chart with a little variance These patterns are not hard to recognize when you have structured geometry of past price laid out in this manner The hard part is waiting for price to give you a setup And it is even harder when you know it is going to break through and you have to get some sleep and the move occurs

during the night

S TRENGTH AND W EAKNESS

Another significant use of these angles is being able to recognize market strength and

weakness When price moves up and down on the charts, angles will give the trader a roadmap to market strength of the current trend Chart 11 illustrates this

C HART 11

We can use the angles to tell if price is strong or weak Chart 11 illustrates this I am using Fibonacci numbers for the Fan Angles They are 38.2, 50, 61.8, 76.4, 90 (There is little difference in price support resistance from Gann and Fibonacci) After the two geometric points have been located and angles drawn, price shows support on the 76.4 % angle (marked with X) This 76.4 % number is used at many trading desks around the world Some find it to be the ultimate

support/resistance line before a big move takes place in the opposite direction I am inclined to think this to be true In addition to this, the 90% angle is the last line of support before a market collapse Since price has fallen below the 50% angle, it is inclined to be weak Let’s follow this 76.4

% angle out and see what transpires Chart 12 is the next illustration of this setup

How to Profit From Applied Gann & Fibonacci

C HART 12

Price dipped down close to the 90% angle (marked with X) then immediately moved higher and began to consolidate along the line of the 76.4 % angle before doing something dramatic as shown in Chart 13

C HART 13

This would be a good time to incorporate a rule The longer price consolidates along an angle, the more likely it will break sharply in the direction it was moving before it came to the angle As you can see in Chart12, price was moving down when it came to the 76.4% angle This is exactlywhat happened when the price broke away from the 76.4 % angle Charts 12& 13 show this clearly Of course nothing is perfect and there are exceptionsto this rule

4- CONSTRUCTING FIBONACCI FAN LINES

Fibonacci is a household word around trading rooms and trading pits these days If you are new to this game, you may ask yourself, how could a middle aged Italian mathematician with his formulas and theories become so popular? The answer is simple The theories he worked with obtain a high rate of accuracy in technical analysis I am going to explain how I use some of the Fibonacci Ratios and show chart illustrations with them in action

My favorite tool is the Fan Lines I have devised a trading plan which incorporates these geometric wonders I will also show the Fibonacci Ruler, and the Projections associated with it And finally I will discuss briefly the "GOLDEN RATIO" and which part can be relied upon Let’s get started

F IBONACCI F AN L INES

Please reference this first chart To construct the fan lines, you must have two points of reference There must be a distinct high and low on intraday, daily, weekly, or Monthly charts These high and low points are "Market Symmetry" given to us from previous moves which will influence future market moves These "Road maps to the Future" are a reliable source of support/resistance

in future days ahead if referenced properly I use GECKO SOFTWARE’S Track 'n Trade Pro because it has all the tools I need to construct a good set of Fan Lines

C HART 14

On Chart 14 above I have found two points of reference and then drew the Fibonacci Ruler (horizontal lines of support/resistance) These horizontal lines will later become reference points for the Fan Lines (angles) coming down from the high Second I have drawn a vertical line from the reference low up to the high point horizontal line These two simple techniques are all we need to obtain our reference points for drawing the fan lines The intersecting points which are harmonically joined together by the high and low are circled on the chart

In the second chart I started each angle down from the high and continued them out to the low point horizontal line The importance of this will be shown later

How to Profit From Applied Gann & Fibonacci

C HART 15

With price on the way up or on the way down the most important of these angles will always

be the 618 Angle One of the ways I can tell a markets strength or weakness is to watch how price reacts to this all important angle When there is an up trending market, if for the first time price moves to the 618 angle and price blows right past it without any correction it is usually a very strong market However, price will almost always pullback to this angle sometime in the future to find support or resistance

In Chart 16 I have circled three points labeled 1, 2 and 3where price touched the 618 angle Notice at point 1 price blew right past the 618 angle At point 2 you can see how it pulled back to touch it then found support and proceeded up again The third time price touched the angle it found support again and then moved much higher

If a trader has any kind insight, he or she can devise some kind of a good trading plan to make money just on this technique alone

C HART 16

How to Profit From Applied Gann & Fibonacci

Chart 17 below has another very important aspect of the Fan Lines Keep in mind these lines are support resistance which are not on a horizontal plain They are on the geometric plain of market symmetry They are also timing lines because they measure price in terms of time Therefore, they can be used as timing points for change of trend

Once the set of Fans have been drawn using two reference points, draw a horizontal line from the high and low and extend it out to the right As the angle lines move down from the high or up from the low mark the point in time where the angle lines intersect the horizontal lines coming from the high or low Most often there is some kind of change in trend This can be either a minor or a major change in trend I have drawn arrows to show the reference points You can do this exercise with any chart or time frame and find the 618 angle line will almost always show a change in trend

C HART 17

This Golden Ratio (.618) is a part of our universe and should not be ignored when doing technical analysis, however the 764 number should also be considered one of the most significant

of these support/resistance areas More times than not the 618 will be the number of most

importance The other significant time frame is the 50% angle It has proven to me to be most reliable and worthy of trust

5- TRADING SYSTEM OR TRADING METHOD

Which system or systems do you use to beat the market? Which method do you have to help control your emotions and urges to jump in and take a trade just to be in the market? Do the charts look right or do you have a "GUT FEELING" the market is going to do this or that? These are questions I am sure you have heard many times before Whether you are new to trading or an Old Timer, these are questions you must ponder They are topics that lead to success or failure

Trading Systems are multi-dimensional and can be used by anyone I believe most every trader has some kind of system However, the road to success says there must be some kind of track record to show the results If you have a system and have at least one year of profit/loss percent data, then you are on the right track If you are just beginning, try to obtain a system that has at least

a 50% profit/loss track record This 50% can be improved upon by adding other techniques to the system Simple methods that can be added are indicators which show over bought and over sold conditions in market price These are provided in every software program and trading platform However there are people who have expounded on these indicators People like Wells Wilder, (RSI) Larry Williams (Percent R & Ultimate Oscillator), George Lane (Stochastics) These people have written books on the use of their methods It is highly recommended you go into depth on some of these indicators so you can tell which one works best for your trading method I use some indicators along with my angles and a breakout system I also incorporate a timing program that I developed along with two moving averages and other techniques to help guide me in my trading

However nothing is perfect If the account balance keeps moving higher, then you are on the right track Try to add another (effective weapon of war) to your trading arsenal whenever you can

A word of caution though, if you decide to alter your successful trading method by adding some things, go light on the number of contracts to be traded You can add all kinds of methods, but if they are not effective, then you are just spitting in the wind and it will come back in your face The clean up part is always messy and time consuming However, you will never do that again, will you?

A trading method should be looked at and studied closely We should learn from our mistakes and not repeat them again and again

The two main Moving Averages I use are 80 time periods apart and I use them only as an indication a top or bottom is on the horizon Seems when my faster MA crosses over the slower

MA to the downside, a short term bottom has already formed and the market is ready for a

correction to the upside This is a very reliable MA pattern for me, however it is contrary to

what the elementary book on trading with Moving Averages says The book says when your faster

MA crosses over the slower to the downside it is time to sell In my case, it is time to buy When this happens, I will look at the RSI, the Timing, the Angle where price is and wait for a confirmation

by using the breakout system When this scenario is present, I will be looking for a short term buy

on the next move up After that, I will be looking for a sell signal for the longer term This is just

How to Profit From Applied Gann & Fibonacci

one of W.D Gann's most famous areas of technical analysis His trading techniques were born out

of his study of past price movement He charted them religiously and found repetitive patterns

PATTERN RECOGNITION

Other techniques are patterns There are too many to mention There are several books out which cover this topic There are M tops, W bottoms Big W's & Big M's Broadening Bottoms and Broadening Tops, V Tops, Rising Wedges, Falling Wedges and the list goes on Personally I like simple easy to use Black & White Patterns with some kind of rule

One such rule is an outside bar down or up In Candle Stick patterns it is called "Engulfing" First of all what does this pattern mean? Most people who have been trading for a while know what this is For the benefit of the beginner I will explain For example if a market is trending up and the most recent price bar is making new a new high in the current swing, then all of a sudden price fails and turns around and goes down in the same bar and makes a new low over the previous time frame low, an outside trading period has just been established This means market sentiment has changed and traders are most likely taking profits, selling short or adding to their short positions In the intraday bar charts I watch, I find this to be especially powerful when price closes below the previous bars low Because I mostly trade using the 30 minute bar charts, I look for this pattern to produce a winner more times than not As confirmation, I look to see if the RSI is in over bought or over-sold territory Below is an example of this pattern which produced a very nice winner

C HART 17

Another pattern is the Power Top or Power Bottom This one is really good For simplicity sake, I will use the Power Top example Reverse the rule for a bottom Market price must be trending up and when a time frame bar closes within 10% of its range high and the following time frame bar closes within 10% of the range low it is a sell signal In the example below, the up bar closed within 06 cents of the parameter And the following bar closed well within the 10%

parameter However, there was a double pattern in one This is Very Powerful The second bar was also an outside down bar which closed below the previous low and closed near the bottom of the bar Wow, how can one not take the trade? In one half hour, Gold produced a $23 per ounce profit That's $2,300 per contract That's some serious money for just 1/2 hour If you’re trading 10 contracts, $23,000 is not a bad day’s work

How to Profit From Applied Gann & Fibonacci

C HART 18

Other patterns are revealed as price and time move along their course on the charts When a

pattern is recognized, you have to believe in what you see and act on it if you are going to make money If all or most of the confirming techniques are there, then why not take the trade? One of the hardest things to do is figure out where to put the STOP! This should always be the first consideration before putting the order in Question is this: How much money will be on the line on this trade? If the number comes in too high, then the trade should not be taken Figure it this way! Murphy's Law says, if it can go wrong, it will And yes, you must use a stop I hear this all the time about stops "When I put a stop in, the stop is hit and the market turns around and moves in the direction I thought it was going and I wouldda, couldda, shouldda, made money on that trade" I am not exempt from these thoughts or feelings But one has to come to the point in their trading, when

it is time to believe in what you are doing and to finally discipline yourself and take the bull by the horns and put an end to bad ways Here I'm going back to Money Management

Now to continue on with Trading Systems, as I present some of the steps I use to trade in this book, you will see how I have developed a trading system that works for me I like it and I am staying with it Why abandon something that works? At the same time I am always open to some technique that can "tweak" the system I carefully include any new technique on phantom trades to see what the result would have been I most certainly do not want to include the new technique and experiment with it using my own money

I'll give you an example of one such technique I tried years ago and then dropped it like a hot potato Like I said at the beginning, I have read numerous books on technical analysis and picked out a few techniques I thought would work Some turned out to be a real deadbeats One such technique is the Timing of Fibonacci day counts from previous highs & lows

Fibonacci numbers like 21, 34, 55, 89, 144, etc; etc; what a bust! It makes no difference if do trading day counts or calendar day counts, they are not reliable Once in a while the "Big One" will hit, but which number is going to be the "Big One"? There is not enough consistency in the sequence of numbers There may be one number which will be within one or two days of a turning point, but sometimes these turning points are short lived and have little amplitude to yield any profits I want something with a good track record I realize no system is 100% accurate but why not look for something close

Getting back to patterns, I have noticed a consistency in the following pattern The chart below is Gold 30 minute The left high indicated by the triangle comes in at 1540.50 The right high (triangle) came in at 1540.70 Twenty cents difference with no follow through to the upside This tells me the stops have been run by the big boys and there may be a temporary halt in buying at this time The market sold off and I took the trade by using one of my other systems for entry and pulled 2.00 per ounce profit out of the market in less than an hour

How to Profit From Applied Gann & Fibonacci

C HART 19

The angles should be drawn from a significant high to a significant low or vice versa and either the 55 MA or 135 MA should meet at that line When price moves to that point, sell at market with

a volatility stop above it

Chart 20 shows just the opposite On the 4 hour chart the Fans were drawn from a low to high and the 200 MA was at the point of support As you can see, price moved down to the 618 angle consolidated a while then move sharply higher

How to Profit From Applied Gann & Fibonacci

C HART 20

I have two more patterns using Fibonacci Fans In chart 21 fans are drawn from a high to low and then a low to high When price comes down to a crossing of two angles, in this case the 618 and 750, and my indicators show bear over sold, I use my entry system to enter the market long

C HART 21

On Chart 22, I use an old Gann Rule "What was once support, when broken, becomes resistance" It makes no difference if you are working with horizontal 50% 618 support line or angles The three arrows show price breaking the 618 angle Then, a while later price moves up to the angle two times and finally breaks sharply to the downside Notice Stochastics The K line showed cycle top each time price came up to the angle