The definition of synchronicity is meaningful coincidence. In the methodology
I use to trade and advise clients, I look for the “meaningful coincidence” of price
parameters and time parameters that are projected using the ratios derived from
the Fibonacci number series.
These coincidences help me to define low-risk high-probability trading setups.
In this first tutorial, we are going to start with how we apply these ratios to
price levels.
First, let’s look at the Fibonacci number series.
Number Series:
0,1,1,2,3,5,8,13,21,34,55,89,144,233, etc.
This series starts with zero and one and goes on to infinity by adding the prior
two numbers to get the next number in the series. Thus:
0 + 1 = 1
1 + 1 = 2
1 + 2 = 3
2 + 3 = 5
3 + 5 = 8
and so forth...
As you move further out in the series, the constant that is found when you divide
one number by the next is the ratio of .618 or what is commonly known as the
“golden ratio."
For example, 144 divided by 233 is .618.
This ratio, and others derived from it, is actually what I use to analyze the market.
You may be wondering what in the world is the significance of these ratios? Well,
we won't get into that here because we can get into some rather lengthy
discussions. What is most important about these ratios is not where they come
from and why they work…but the fact that they continually show up in both
nature and the marketplace.
The ratios that I have found work best in my analysis are:
.382, .50, .618, .786, 100, 1.272 and 1.618
Sometimes I also use .236, 2.618 and 4.236 when appropriate.
There are three types of price calculations we make from the key highs and lows
in a particular market. These are price retracements, price extensions and
price projections or objectives.
We make these projections to identify potential price support and resistance.
We pay special attention to an area or price zone when we see the coincidence
of at least three or more price relationships come together within a relatively tight
range. This is called a price cluster. If you were to learn only how to use price
clusters effectively, you will greatly improve your trading. Please understand that
this type of analysis is not stand-alone. It's capable of giving you some great
results, but you must look for patterns to set up and confirmatory price action at
these price clusters before there is a trading opportunity.
(The following chart examples were done on a 60-minute soybean chart of the
November 2000 contract (SX0))
This methodology can be applied to both stocks and futures and all time
frames therein. It works very well in all liquid stocks, stock indexes and
commodities with adequate price history.
Retracements: Price retracements are calculated by measuring prior highs to
lows or lows to highs and then determining the Fibonacci ratio retracements of
this range. The ratios most often used for retracements are .382, .50, .618 and
.786. In the following example, we measured the 446 low to the 515 1/2 high and
ran all the price retracements from that low to high swing. This showed us
potential support at 489, 480 3/4, 472 1/2 and 460 3/4, which coincided with the
.382, .50, .618 and .786 retracements.
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