Technical Analysis Continued

Number Theory

Fibonacci:

The Fibonacci number sequence (1, 1, 2,3,5,8,13,21,34...) is constructed by adding the first two numbers to arrive at the third. The ratio of any number to the next larger number is 62%, which is a popular Fibonacci retracement number. The inverse of 62%, which is 38%, is also used as a Fibonacci retracement number. (Used with the Elliot wave theory, see below )

Gann's

W.D. Gann was a stock and a commodity trader working in the 50's who reputedly made over $50Mio in the markets. He made his fortune using methods which he developed for trading instruments based on relationships between price movement and time, known as time/price equivalents. There is no easy explanation for Gann's methods, but in essence he used angles in charts to determine support and resistance areas and predict the times of future trend changes. He also used lines in charts to predict support and resistance areas.

Waves

Elliotwave:

The Elliot wave theory is an approach to market analysis that is based on repetitive wave patterns and the Fibonacci number sequence. An ideal Elliot wave patterns shows a five wave advance followed by a three wave decline.

GAPS

Gaps are spaces left on the bar chart where no trading has taken place.

. An up gap is formed when the lowest price on a trading day is higher than the highest high of the previous day.

. A down gap is formed when the highest price of the day is lower than the lowest price of the prior day. An up gap is usually a sign of market strength, while a down gap is a sign of market weakness.

. A breakaway gap is a price gap that forms on the completion of an important price pattern. It signals usually the beginning of an important price move.

. A runaway gap is a price gap that usually occurs around the mid-point of an important market trend. For that reason, it is also called a measuring gap.

. An exhaustion gap is a price gap that occurs at the end of an important trend and signals that the trend is ending.

TRENDS
Trends video clip

A trend refers to the direction of prices. Rising peaks and troughs constitute an uptrend; falling peaks and troughs constitute a downtrend that determines the steepness of the current trend. The breaking of a trend line usually signals a trend reversal. A trading range is characterized by horizontal peaks and troughs.

Moving averages are used to smooth price information in order to confirm trends and support and resistance levels. They are also useful in deciding on a trading strategy particularly in futures trading or a market with a strong up or down trend.

For simple moving averages, the price is averaged over a number of days. On each successive day, the oldest price drops out of the average and is replaced by the current price- hence the average moves daily. Exponential and weighted moving averages use the same technique but weight the figures-least weight to the oldest price, most to the current

Short-Term Trend Strategy