Disclaimer:

This does not purport to represent the teachings of Robert Fischer or Robert Miner.  To learn more about Fischer, buy his book "Fibonacci Applications and Strategies for Traders," on Wiley.  To learn more about Miner, check out his web site http://www.dynamictraders.com/ .

To learn more about the application of these and other Fibonacci methods, read our new book, New Frontiers in Fibonacci Trading.

 

There are many ways to use Fibonacci to estimate wave targets.  Some of them are listed in my Fibonacci Primer.  However to calculate the target of Wave 3 based upon the amplitude of Wave 1, there are two very different ways of applying Fibonacci.   Fischer uses one, and Miner uses another.  I use both, and like to see where the Fischer and Miner methods coincide.  In both cases, the Fibonacci calculations are based upon the amplitude of Wave 1, represented in the drawing below as line AB.  The difference though is in where those calculations are then applied.  Fischer applies them to point A (the beginning of Wave 1), whereas Miner applies them to point C, the end of Wave 2 / beginning of Wave 3.  The first example shows how Fischer applies Fibonacci.

Fischer:  Calculations on Wave 1 (AB) are then applied to point A to determine the Fibonacci target for potential Wave 3 (CD)

Fischer takes the length AB, multiplies it by 1.382 or 1.618, and ADDS that to point A to get the target for D. 

  • Note that the exact same targets can be achieved by taking the length AB, multiplying it by 0.382 or 0.618, and adding it to point B.

    For example, if A is 500 and B is 600, and if we are using the Fibonacci ratio of 1.618, then the target for  D (potential Wave 3) is either:

        ((600-500) * 1.618) + 500       = 661.8        OR
        ((600-500) * 0.618) + 600      = 661.8
     
  • Note that it makes NO DIFFERENCE what point C (Wave 2) is. 

Now let's look at how Miner applies the Fibonacci sequence:

Miner: Calculations on Wave  (AB) are then applied to point C to determine the Fibonacci target for potential Wave 3 (CD):

Miner takes the length AB (just as does Fischer), then multiplies it by (typically) 1.0, 1.27 and 1.618, and adds that to point C, which is the end of Wave 2 and the beginning of potential Wave 3.  Examples:

Taking the first chart, if B is 600 and A is 500, and if C has retraced 50% of that range to 550, and assuming we are using the Fibonacci ratio of 1.27, we would calculate as follows:

((600-500 * 1.27) + 550         =  677

  • With Miner, it makes a very big difference what point C (Wave 2) is.
     
  • Note, however, how close the Miner 1.27 calculation is to the Fischer 1.618 calculation.  This is often the case.  When this is the case, i.e. when two different methods converge to create a close target zone, it strengthens the predictability of that zone as a Wave 3 exhaustion zone.
     
  • Miner also uses 100% of Wave 1 (AB), applied to point C, as an important predicator for Wave 3.  Simply put, the measured move of AB is often the same as the potential measured move CD.  It is very interesting how often the Miner "Measured Move" comes close to Fischer's Fibonacci  target of 1.382:

    Fischer:  ((600 -500) *1.382) + 500 = 638.2
    Miner:  ((600-500) * 1.0) + 550 = 650
     

This actual chart from 7/22 shows the difference between Fischer and Miner, and also how they often line up quite well:

  • Turning points are labeled the same as the previous two examples, i.e
    AB = Wave1
    BC = Wave2
    CD = Wave3
     
  • The Fischer calculations of 1.382 and 1.618, shown in magenta,  are based on AB and applied to A.
  • Note that the Fischer calculations of 2.236 and 2.618 - also based on AB and applied to A - provide a good target for the Wave5 extension (EF).
  • Miner calculations of 1.0 and 1.272, shown in lime green, are based on AB and applied to C.  Note how they overlap with the Fischer calculations.
  • Wave2 (BC) retraced to 61.8% of Wave1 (AB).

In summary:

  • Great minds to not think alike, but there are more then two ways to skin a cat. 
  • Mix Fibonacci trading methods, not metaphors.
  • There are many other ways to use Fibonacci to target exhaustion points.  Major retracements are perhaps the most dependable. 

 

Happy trading!