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For me personally, the subject of this .618 ratio has been most intriguing
throughout my life and in particular my trading experience. I have
witnessed this ratio in many ways. You too are witnessing it just
as I am but if you are not aware of it you will not be able to identify
it. Books have been written on it, software programs have been named
after it and it keeps turning up on my charts in the form of price
support and resistance. This is where you as a trader can help yourself
to an amazing and universal phenomenon. Let me explain…
The
following charts on Australia's Share Price Index (SPI). Using these
charts you will understand how you can find and use the .618 ratio
in your trading. On the 11th of August 1999 the SPI made a low at
2905. It then spent 9 days trading up to 3114 where it made a top
on the 24th of August 1999. You can see this range on the left hand
side of chart A with a trend line running through it. This is a range
of 209 points.
CHART A. SPI. 25th November 1999. HotTrader
There are two ranges you can now calculate. The first is a .618 contraction
of the 209 pt range…
209
x .618 = 129 pts.
If you
subtract 129 pts from the high of 3114 you end up with a price of
2985. You can see in chart A that there was significant trading at
this level. (I have placed a horizontal line at 2985).
The
second range to calculate is an expansion of the 209 pt range…
209
x 1.618 = 338 pts.
If you
subtract 338 pts from the high of 3114 you end up with a price of
2776. You can see in chart A that 2776 is the current major low on
the SPI made on the 19th of October, 1999.
Using
this formula to project future price levels of support and resistance
on any market can be fun and most of all profitable. Whether you are
day trading or position trading be sure that you have confirmation
of a change in trend before entering a trade and always use a stop
loss. You will find that with the confirmations of a change in trend
using HotTrader's swing charts you are able to benefit from entering
the trade at the earliest possible point of confirmation.
HotTrader's Swing Charts
In closing
I would like to add that I am still studying this phenomenon of the
.618 ratio and I have an idea that it may be related to some cyclic
behavior. Why certain ranges react perfectly at these projections
and why some ranges don't react at all is still unclear to me, however
I continue to observe and study. If you would like to contact me please
do so by my email. My address is: Solomon@gannswings.com
or Telephone: (07) 3832 4733
Happy
trading,
Solomon
Thallon
HotTrader, Australia
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