Market Cycles Linked by Fibonacci Ratios
Forecasting Market Reversals with Price and Time Relationships
Mar 15, 2009
Both Ralph N. Elliott and W.D. Gann found that Fibonacci numbers are frequently to be found in the elapsed time between price reversals. This is another confirmation that the Fibonacci sequence is of central importance to natural systems.
Some recent traders have also observed this phenomenom and they have advanced new ideas, introducing this knowledge as part of their trading. In some cases, researchers have created their own software to help with market data processing and presentation.
The following focuses on such Fibonacci-influenced market reversals and highlights the fine work of researchers and traders: Bryce Gilmore, Larry Pesavento, and Christopher Carolan.
Fibonacci Ratios at Market Reversals
There are three types of reversals that could be considered influenced by Fibonacci related time periods:
- A price reversal is likely to occur once a lengthy Fibonacci time period has elapsed since an earlier important turning point. For example, we might expect a reversal 55 days, or 55 weeks, or 55 months from a previous turning point.
- If two or more Fibonacci-defined time periods (of same time units) coincide after previous reversals. This conjunction increases the probability that a reversal is in the offing.
- The reciprocal or multiples of Fibonacci ratios can also increases the probability of a market reversal.
Other Ratios and Price Patterns
The Australian trader Bryce Gilmore researched a large array of ratios appearing in markets, both in price and time. He grouped these into three main categories:
- Geometric series. These numbers appear as a progression in the geometric spiral (1.0, 1.272, 1.618, 2.058, 2.618, 3.333)
- Harmonic series of numbers, based on root 2, generated from the diagonal relationships found within the square (1.0, 1.414, 2.0, 2.818, 4.0)
- Other Important series, such as Fibonacci series, Lucas series, Gann squares, and divisions in solar degrees.
Gilmore gave many market examples where the above expanding numbers appeared at market turning points. Moreover, he showed that their reciprocal values are also important, corresponding to the same, but contracting, series of numbers.
Larry Pesavento wrote a trading manual explaining which Fibonacci ratios are commonly found in markets, according to his own research. He used some of the ideas put forward by Gilmore and also provided ample market examples with interesting new price patterns that he discovered.
Fibonacci Numbers and Lunar Time Units
Christopher Carolan quantified a link between lunar and solar cycles, and human social experiences. His “Spiral Calendar” is a set of time units where a number of moons are measured in square roots of Fibonacci numbers. Carolan showed that the occurrence of these units, as measured from important previous market turning points, have recurring effects on financial markets. Therefore, this tool is very useful for forecasting market turning points.
References:
- “ Dynamic Time & Price Analysis of Market Trends”. Bryce Gilmore. Pub. Bryce Gilmore & Associates, Helensvale, Australia. 1999.
- “Fibonacci Ratios with Pattern Recognition”. Larry Pesavento. Traders Press Inc, Greenville, SC. 1997.
- “The Spiral Calendar - and its effects on financial markets and human events”. Christopher Carolan. New Classic Library, Gainsville, Georgia. 1992.
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