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How You Can

Identify Turning Points

Using Fibonacci Part 2

Wayne Gorman By

© Copyright 2008 Elliott Wave International

EWI eBook

How You Can Identify Turning Points Using Fibonacci Part 2: How To Use Fibonacci Relationships To Set Trading Strategy By Wayne Gorman, Elliott Wave International

Chapter 1 - Fibonacci Analysis of Cocoa Using cocoa’s price chart to show how to find turning points with detailed Fibonacci retracement analysis Chapter 2 - Fibonacci Analysis of Starbucks Corporation A review of Starbucks’ Fibonacci relationships and turning points Chapter 3 - Fibonacci Analysis of Euro/U.S. Dollar Foreign Exchange Reviewing the Euro/USD price chart for Fibonacci relationships and turning points Chapter 4 - Questions and Answers A few questions from the Fibonacci webinar participants

Introduction: Welcome to the second part of Elliott Wave International’s eBook, “How You Can Identify Turning Points Using Fibonacci,” which discusses how to use Fibonacci relationships to set trading strategy. In this course, we will cover three different trading scenarios. The first will be in cocoa futures, then we will look at Starbucks Corporation, and finally we will discuss the Euro against the U.S. Dollar in the foreign exchange market.

How You Can Identify Turning Points Using Fibonacci — Part 2 — © 2008 Elliott Wave International — www.elliottwave.com

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Chapter 1: Fibonacci Analysis of Cocoa Identifying Structure Note: The Cocoa analysis beginning with Figure 1 starts on Slide 4 of Wayne Gorman’s Online Trading Course, “How You Can Identify Turning Points Using Fibonacci — Part 2.” Figure 1 Let’s start our detailed Fibonacci analysis with a situation in cocoa. This is a daily continuation chart of the cocoa futures contract traded on the New York Board of Trade. We are going to start trading at the end of the graph on the right. That is May 24, 2001. We are going to put our first trade on, right at the opening of this market. Before we start trading, we should put some wave labels on here. Figure 2 We are starting right from the major low at the left of the graph. That major low occurred on December 12, 2000, and is 674. We can count an impulse wave from that low; there are waves 1, 2, 3, 4 and 5 in red for the Intermediate wave (1). Now, we are in wave (2) to the downside. We see a five-wave impulse wave: 6, 7, 8, 9 and 0 for wave A; then there is another corrective structure — a, b and c — for wave B. So, what do we have here? We have five waves down. The B wave in red is an expanded flat, because wave b goes beyond the start of a, and wave c goes beyond the end of a. We basically have a 5-3 structure, so far. What does that sound like to you? A zigzag, right? Zigzags are 5-3-5. We want to determine how far it has to go to the downside. To be sure, we are going to check a few things, because it may not be totally clear that the B wave is over. The a wave is a 3. The b is a 3. The c wave can be counted as an ending diagonal with waves 1, 2, 3, 4 and 5. Therefore, we will be looking to go short on May 24, 2001. How You Can Identify Turning Points Using Fibonacci — Part 2 — © 2008 Elliott Wave International — www.elliottwave.com

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Chapter 1 — Fibonacci Analysis of Cocoa

Fibonacci Retracement Analysis Figure 3 Before we do that, let’s get our bearings and see how far we have come down. I am doing a Fibonacci retracement analysis using this table. I am going from the low of 674 up to the high of 1202 and seeing how much we have retraced so far. Look at the end of wave A in red. Wave A almost makes a 50 percent retracement. The b wave within wave B goes a little bit lower. The A wave comes in at 949, and the b wave is at 945, a few ticks lower. So, we have done 50 percent, which is certainly viable. But what do we know about second waves? Second waves make deep retracements. Therefore, we may want to look for something like 876, which is the .618 retracement of wave (1). We do have room to come down if this is, in fact, going to be a 5-3-5 zigzag. We could come down to 876. We may even come down to 787. We have to analyze it further, but, for now, we will keep this 876 in mind, in terms of setting price targets. What about at the end of the graph, though? Can we be sure that the wave or all of wave B is over? We do not know. Figure 4 Here, I am looking at how far wave B has traveled In terms of retracing wave A. Look at the second red dotted line down. We see that wave c or wave B basically has completed a .618 retracement of wave A. That immediately tells us that there is a good chance that wave c has finished (which means wave B

How You Can Identify Turning Points Using Fibonacci — Part 2 — © 2008 Elliott Wave International — www.elliottwave.com

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Chapter 1 — Fibonacci Analysis of Cocoa

has finished), and we are going to be heading to the downside. Could it go further? Maybe we did not count wave c correctly. That is possible, but we have some proof here that wave B has most likely ended. There is a bit of a risk here. What happens after the termination of an ending diagonal? A swift major reversal occurs. So, we are not going to have much time to decide. We have to be careful if we say, “Well, let’s wait a few days and see what happens.” We may miss a big move, and we do have that .618 retracement.

Fibonacci Relationships Figure 5 We can also look at the length of wave c relative to wave a from a Fibonacci perspective. We start at point R, which is the beginning of wave a. We end at the letter S, which is the end of wave a. Then we are extending from point T, which is the start of wave c or the end of wave b. We are looking at some Fibonacci multiples or relationships. We know that a common relationship is for wave c to equal wave a; that is what the 1.000 means on the chart below 1084. Equality with wave a comes in at 1084, and we have gone beyond that. The top of wave c is 1109. We also know that within an expanded flat, it is common for wave C to equal 1.618 multiplied by the length of wave A. Well, if that were the case, we would be up at 1170. That is way beyond the .618 retracement. The .618 is at the second dotted line down on the previous chart. 1170 is even beyond the .786 retracement. So, if c is going to be equal to 1.618 multiplied by the length of wave a, then we are going to retrace most of wave (1). That is a deep retracement.

How You Can Identify Turning Points Using Fibonacci — Part 2 — © 2008 Elliott Wave International — www.elliottwave.com

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Chapter 1 — Fibonacci Analysis of Cocoa

Figure 6 At this stage and with all things considered, if this is an ending diagonal, we want to act quickly. I think we have good enough evidence to tell us that wave c (and therefore wave B) has probably ended, and we are heading down in Minor wave C of Intermediate wave (2). So, we are going to go short. The last tick on the right is the open at 1076, and we do not want to go past the top of wave c. Wave c of B ends at 1109. So, we are going to set our stop at 1110, just one tick above that. We really would not want to see further price action above 1109. Therefore, we have a tight stop.

Price Targets Figure 7 Now, with the available price data, we want to set some price targets and, hopefully, a time target. Let’s go back now and see that retracement here. Remember, we said that the .618 retracement of wave (1) comes in at 876. That is one point we can look at for a projection.

How You Can Identify Turning Points Using Fibonacci — Part 2 — © 2008 Elliott Wave International — www.elliottwave.com

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Chapter 1 — Fibonacci Analysis of Cocoa

Figure 8 What is the other thing that we can do using Fibonacci relationships? We can look at the length of wave A in red. We are going from point R, the beginning of wave A, to point S, the end of wave A. Then we are going to extend multiples of that length from point T, which is the end of wave B in red. This gives us estimates for wave C within wave (2). Remember, we are looking for more than one point that might be close. Right now, the only target point we have is 876 to the downside. Look at the 1.000 mark. That means it is a 1-to-1 relationship, and it comes in at 856. If wave C equals wave A, it would end at 856. If wave C is 1.618 multiplied by the length of wave A, it would end down at 700; that would be a fairly deep retracement. Yet 856 is somewhat close to the 876. So, we have a couple of good points. Again, right now, we are just looking for a general target or something to aim for as this price move for Cocoa unfolds to the downside. Figure 9 I now have this Fibonacci cluster. Wave (2) retraces .618 of wave (1) at 876, and C equals A at 856. Remember, we are looking for wave C in red to come down to complete wave (2).

How You Can Identify Turning Points Using Fibonacci — Part 2 — © 2008 Elliott Wave International — www.elliottwave.com

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Chapter 1 — Fibonacci Analysis of Cocoa

Figure 10 We are short at 1076 and have a stop at 1110. For a price target, we will shoot for 856 for now, because C equals A is a strong relationship. We certainly could use 876 or a range of 876 to 856; we will fine-tune this price objective as we go forward.

Figure 11 On this chart, I have moved ahead several days in time, and you can see that we are breaking out to the downside. Notice that I have marked our potential risk and potential reward. Given our stop at 1110 from the 1076 start point and our projected target of 856, our potential risk is 34 points and our potential reward is 220 points. So, we have a very good risk-to-reward ratio, and we have already come down.

How You Can Identify Turning Points Using Fibonacci — Part 2 — © 2008 Elliott Wave International — www.elliottwave.com

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Chapter 1 — Fibonacci Analysis of Cocoa

Figure 12 Let’s now analyze this move down. I put some wave labels on here. We can count the waves within wave C as 6, 7, 8, 9 and possibly 0, or maybe 8 ends at the bottom right. It is debatable. It’s possible that at the start of wave C, there is a small 6 -7. In both cases, there are three waves; we either have three waves down to the second to last low or to the very last low on the right. Can we get out of the position here? Certainly we can. At the second to last low, we are down to 914. At the last low, the level is 897. So, we certainly have a decent profit. However, at these levels – 897 and 914 – we do not even achieve parity with wave A. In other words, if we are going to take the view that wave C has ended, then wave C would be less than wave A in terms of length. It would be approximately equal to 80 percent of wave A. We want to stay in this position. Remember, we still see the potential for 856 or 876. Instead of just getting out, we can bring our stop down and still shoot for the target of 856. Now that we have more price information from waves 6 through 8, we can start to calculate additional Fibonacci points, right? We can look at the distance of waves 6 through 8 and try to project wave 0 within wave C. We can also make some Fibonacci time projections. But first matters first. We really should adjust our stop level.

Adjusting Stop Level Figure 13 Assuming for now that the second to last low is wave 8 within C, we are looking at a Fibonacci retracement of wave 8. We do not want to have the price action go much above a .618 retracement, though, because that probably would indicate that the move has ended. So, let’s lower the stop down to 1026, which is just above the .618 level at

How You Can Identify Turning Points Using Fibonacci — Part 2 — © 2008 Elliott Wave International — www.elliottwave.com

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Chapter 1 — Fibonacci Analysis of Cocoa

1024. This way, we will hold onto the position and see what happens. Unless we get a bad fill, we know that we really have no more risk. We do have opportunity loss: if the market moves up to 1026, that is certainly a lost opportunity, but not an outright loss. So, with the stop at 1026 now, we are going to hang in there, because there is strong evidence that we can go down even more. Figure 14 We have moved ahead several days. Now it looks like wave 8 ends at the last low. The next high could be 9, and the following low could be 0.Then, maybe it is over, but we still have not even reached parity. The lowest low to the right is 880. That still does not give us parity with wave A. At 880, we are about 90 percent the length of wave A. It is still possible that we can stay in and watch the price go down further to that 856 level, or we can get out here. But again, we can just keep lowering our stop. There is no need to exit too quickly. Figure 15 On this chart, we have moved our wave 8 label down. I think that maybe the next rise can be a wave 9 expanded flat. Possibly. Let’s move ahead a few days now that we have moved wave 8 down.

How You Can Identify Turning Points Using Fibonacci — Part 2 — © 2008 Elliott Wave International — www.elliottwave.com

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Chapter 1 — Fibonacci Analysis of Cocoa

Figure 16 We see now that we have moved up substantially. The top level at the right is 1000 even. Notice what happens next: We gap down from there. Maybe this price move is going up. Maybe the move is over. Just look at the whole wave (2). It is not what you call very sharp, but again, we can adjust our stop. This is not the best looking 9. Look at how small the 7 is, and this 9 is a bit large. It is awkwardlooking to be a wave 9, but it does have the characteristics of a corrective structure. We will put a 9 up there at the top for now just to give us a reference point. Figure 17 If we are going to hold on here, we want to bring our stop down even more. Look at the .618 retracement of wave 8 – that comes out at 1018. So, we are going to move our stop down to 1019. Remember, we are short at 1076 and would not want to see a move above this 1018. We are going to take a stand here. We see that we are gapping down. There is a good chance that maybe we are coming down in wave 0. We have some valuable information here with waves 6, 7, 8 and 9 of wave C in red. Next, we will do some more Fibonacci analysis and see if it coincides with that 856 and 876. We can also do time analysis.

How You Can Identify Turning Points Using Fibonacci — Part 2 — © 2008 Elliott Wave International — www.elliottwave.com

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Chapter 1 — Fibonacci Analysis of Cocoa

Continued Fibonacci Analysis Figure 18 Let’s look at the whole move of developing wave C by starting with the net distance traveled of waves 6 through 8. In other words, the beginning of wave 6 is at my starting point R, and point S is the end of wave 8. Then, we are going to what I think is the end of wave 9, which is point T. We can now project downward some Fibonacci relationships for wave 0, and that is what this diagram shows you. That .618 – 869 in blue is saying that if wave 0 goes down to 869, it will be equal to .618 multiplied by the net distance traveled of waves 6 through 8. If wave 0 goes down to 788, it will be on parity with waves 6 through 8. If wave 0 is 1.618 multiplied by the length of waves 6 through 8 – of course, that would be an extension – we will be down at 657. That does not work; we can eliminate that option because it goes below 674. In Elliott wave analysis, wave (2) cannot go beyond the start of wave (1). Even the 788 is way past our 856 target. But we are going to take note of the 869 level. We will build on our Fibonacci price cluster, because now, besides 856 and 876, we also have 869. Let’s look for some more relationships here, all based on the assumption that wave 9 ends at the top right. Figure 19 Let’s look at some Fibonacci dividers. We are looking at how wave 9 divides waves 6 through 0. Look down at the 824: if wave 0 ends at 824, then the entire length from 1109 to 824 is equal to 2.618 multiplied by the length from 1109 to 1000. So in other words, if the distance from 1109 to 1000 is 1 (the net distance traveled of 6 through 9), the entire length is 2.618 at 824.

How You Can Identify Turning Points Using Fibonacci — Part 2 — © 2008 Elliott Wave International — www.elliottwave.com

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Chapter 1 — Fibonacci Analysis of Cocoa

Figure 20 That is the same as saying that the end of wave 9 creates the Golden Section. If the entire length is 2.618 of the length from 1109 to 1000, that means that the length in red is .618 of the whole (1.618 over 2.618 is .618), and the length in blue is .382 of the whole (1 over 2.618 is .382), which means that the lower section is .618, and the upper section is .382. So, we have another Fibonacci point. If wave 0 of wave C of wave (2) ends at 824, it forms a perfect Golden Section.

Figure 21 We have a decent Fibonacci price cluster, thanks to our analysis in which we were looking for wave 0 of wave C of wave (2). Wave (2) retraces .618 of wave (1) at 876. C equals A at 856. 0 of C equals .618 multiplied by the net distance traveled of waves 6 through 8 at 869. We see that the end of wave 9 of wave C forms that “GS,” or Golden Section; there is a .382 on the upper section and a .618 on the lower section, if wave 0 ends at 824. So, we have a whole cluster of points that we can monitor.

How You Can Identify Turning Points Using Fibonacci — Part 2 — © 2008 Elliott Wave International — www.elliottwave.com

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Chapter 1 — Fibonacci Analysis of Cocoa

Figure 22 What about the price target then? I have made it a range of somewhere around 856 to 824. I have given up on the 876, because I think that it is possible to go a little bit further than that. But we will keep everything in mind.

Time Targets Figure 23 Now, let’s look at time targets. We want to do some Fibonacci analysis with respect to time on this C wave. We are starting right at the beginning of wave 6 of C. At the bottom, the numbers in blue are all Fibonacci numbers. Do you see the 5, 8, 13, 21, and 34? If the entire C wave lasts 34 days, it will end on Friday, July 6, 2001. The last piece of price data is from July 3. The high at the end of wave 9 is July 2, and then we have the point on July 3. This is telling us that there is a possibility that the whole move may end on July 6. That really is just a couple of days away.

How You Can Identify Turning Points Using Fibonacci — Part 2 — © 2008 Elliott Wave International — www.elliottwave.com

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Chapter 1 — Fibonacci Analysis of Cocoa

Figure 24 Let’s look at some other relationships. Now here, we are looking to see if we can identify a Golden Section with respect to time. We start at the beginning of wave 6 of wave C and extend this forward. We want to see if either the end of wave 9 or the beginning of wave 9 creates a Golden Section. The .618 red dotted line tells us that the end of wave 9 forms a Golden Section – .618 for the first time section and .382 for the second – if this entire move ends on July 26, 2001. So, that is one point. That is pretty far out in time, since we are only at July 3, but we can keep that point in mind. Figure 25 Now here is another one. Instead of looking at the end of wave 9, we are looking at the end of wave 8, which is the beginning of wave 9. We are looking for a Golden Section with respect to time. Notice the .382. If the C wave ends on July 10 – or wave 0 of C ends on July 10 – the end of wave 8 or the beginning of wave 9 will divide the whole time frame into .382 and .618. So, here is another date, July 10, to keep in our memory besides July 6.

How You Can Identify Turning Points Using Fibonacci — Part 2 — © 2008 Elliott Wave International — www.elliottwave.com

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Chapter 1 — Fibonacci Analysis of Cocoa

Figure 26 Now, let’s try a Fibonacci extension. We look at the total time from the beginning of wave 6 to the end of wave 8. Then, we extend from wave 9. We are looking at .382, .618 and even 1.618. In terms of time, if wave 0 is equal to .382 multiplied by the net distance traveled of waves 6 through 8, we get an end point of July 9. If wave 0 is equal to .618 multiplied by the net distance traveled of waves 6 through 8, we get July 13. Now we are starting to get a Fibonacci time cluster.

Figure 27 To sum up our Fibonacci time targets: We can see that the end of wave 8 of C forms a Golden Section if 0 ends on July 10. In C, .382 multiplied by 6 through 8 from the end of 9 gives us July 9 for the end of 0. In C, .618 multiplied by 6 through 8 from the end of 9 gives us July 13. Remember, these are all with respect to time, not price.

How You Can Identify Turning Points Using Fibonacci — Part 2 — © 2008 Elliott Wave International — www.elliottwave.com

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Chapter 1 — Fibonacci Analysis of Cocoa

Figure 28 So now we have both a good price cluster and a good time cluster for Cocoa, which I have summarized here. Here are our prices: We are looking for 856 to 824. Now we have a time target – July 9 to July 13. I left out July 6 because it seems to be a little too soon. By the way, these are trading days, not calendar days. When we are analyzing time on a daily bar chart or less, we are looking at the actual bars; so, we are always looking at the trading days. Whereas at higher time frames, if we are looking at a weekly or monthly, we are looking at the actual weeks, because we do not have trading weeks. So, we have to have a bit of tolerance of the plus or minus one day, because we don’t calculate fractions of days. These estimates – .618, .382 – are always whole numbers. I am not putting up fractions of days. So we could be off plus or minus one day. We have to consider that as well.

Conclusion Figure 29 Before we move ahead in time, what other analysis can we do? Let’s not forget some of our Elliott wave guidelines. Remember, this wave (2) is a zigzag, so we can draw a trend channel (the blue lines) that contains the zigzag. We can also channel an impulse wave for wave C with green lines. Notice that these two channels intersect at about the 825 level. The bottom of these channels is certainly within our price-target range.

How You Can Identify Turning Points Using Fibonacci — Part 2 — © 2008 Elliott Wave International — www.elliottwave.com

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Chapter 1 — Fibonacci Analysis of Cocoa

Figure 30 The red box I’ve drawn takes into account both our price and time targets. So, we are going to look now for this wave C move to come into that box or close to that box, and that is where we are going to get out.

Figure 31 So, here’s the chart showing how Cocoa’s price moved in the next few days. We are gapping down. Notice that the price action comes into our target area, meeting our price and time targets. The exact day in the box is July 10. The low of July 10 right now is 854. The range is from 880 to 854. We have come a little bit past the 856, so we are going to get out. There is no other reason to stay in at this point, and with a fast-moving market, it is probably best to get out. We will get out in the middle of the range between 880 and 854.

How You Can Identify Turning Points Using Fibonacci — Part 2 — © 2008 Elliott Wave International — www.elliottwave.com

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Chapter 1 — Fibonacci Analysis of Cocoa

Figure 32 The middle comes out to 867, and we end up with a profit of 209 points.

Figure 33 Look what happened next. The low after wave 9 does turn out to be wave 0 of C of (2), and we do get a major reversal. As a matter of fact, cocoa goes up substantially into the start of Intermediate wave (3).

How You Can Identify Turning Points Using Fibonacci — Part 2 — © 2008 Elliott Wave International — www.elliottwave.com

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Chapter 2: Fibonacci Analysis of Starbucks Corporation Identifying Structure Note: The Starbucks analysis beginning with Figure 34 starts on Slide 40 of Wayne Gorman’s Online Trading Course, “How You Can Identify Turning Points Using Fibonacci — Part 2.” Now let’s move on to a situation in Starbucks that took place back in 2006. Figure 34 Here is a chart of Starbucks from the middle of 2004 up through almost the end of 2006. The end of the graph on the far right is the week of November 3, and that is when we are going to start trading. Let’s put some wave labels on this chart. Figure 35 There is a big upturn here. Our concern, of course, is really toward the end of the chart, but we can label the waves (3) and (4), and then waves 1, 2, 3, and 4 in red. That is certainly an unusually deep wave 4, but the move off of it looks impulsive and there is no overlap. Wave 4 in red ends at 28.72, and the wave 1 high in red is 28.45. We are going to look at the rise after wave 4 on a daily chart, and we will see that we have an impulse type of structure. But first, let’s stay with the big picture. Wave 3 ends at $39.88 per share on Starbucks. The next high after wave 4 is 39.50. These are important prices.

How You Can Identify Turning Points Using Fibonacci — Part 2 — © 2008 Elliott Wave International — www.elliottwave.com

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Chapter 2 — Fibonacci Analysis of Starbucks Corporation

Fibonacci Analysis on the Weekly Chart Figure 36 Let’s now do some Fibonacci analysis here on the weekly chart. We are looking to go long at the end of this graph to capture the end of wave 5 in red. We want to basically capture that upward move. If we go from the beginning of wave 1 at point R to the end of wave 3 at point S, we are looking at the net distance traveled of waves 1 through 3. If wave 5 equals .618 multiplied by waves 1 through 3, what is our target? That comes out to 39.59. That poses a little bit of a problem, because wave 3 ends at 39.88. This projection is telling us that wave 5 might be truncated. We have been on a long-term up-move for quite a while. And 39.59 does go above the high on the far right, which is 39.50, but only by 9 cents. So we are not going to put too much weight on this number, but we will keep it in mind. Figure 37 What about a Golden Section? Notice these dotted blue lines here. We are looking at how wave 4 divides the entire move – waves 1 through 5 – into the Golden Section. .382 is the first section and .618 is the second. At 39.12, there is a Golden Section, because if the whole move is 2.618 of the length from 28.72 to 22.29, that comes out to 39.12. That is even more of a truncated wave, which again is not going to help us very much. That does not even go above the high at the right of the chart. So these calculations are either telling us that we need to be on watch for a truncated fifth or that they are just not working on the weekly.

How You Can Identify Turning Points Using Fibonacci — Part 2 — © 2008 Elliott Wave International — www.elliottwave.com

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Chapter 2 — Fibonacci Analysis of Starbucks Corporation

Fibonacci Analysis on the Daily Bar Chart Figure 38 So now we are looking at the daily bar chart of Starbucks. Notice wave 4 in red that we were looking at before. We want to do some Fibonacci analysis based on the daily chart, but let’s first put some wave labels on. Starting from the low at wave 4 in red, we can label waves 6, 7, 8 and 9 in blue. I put in the subdivisions of wave 8 so that you can get an idea of how I arrived at this wave 8. We have (i), (ii), (iii), (iv) and (v) in red. Then we have wave 9 in blue that looks like a double zigzag. We have a gap in wave (v) in red that we have to be concerned about. Now we are looking for wave 0 of 5 to the upside. So, let’s analyze this. The high at the end of wave 8 in blue is 39.50. We do not know if wave 9 in blue is over yet. Let’s not jump ahead too much. That low in wave 9 is 36.22 on November 3. We will start trading on November 3, and we are looking to go long. However, we first want to determine how we are going set a stop. What is our stop going to be and is wave 9 over?

Price Targets Figure 39 Let’s look at some price projections here. Wave 0 in blue will end up somewhere around the top right of the chart. How do we get that number? First, we look at the distance of wave 6 in blue – from point R to point S. If wave 0 is going to equal wave 6, we add that distance onto the end of wave 9, and we get 38.71. Well, that is even below those other 39 levels. Why are we looking at parity? Because wave 8 in blue is extended, and if wave 8 is extended, we can usually expect wave 0 to equal wave 6. That does not help us here, though, because 38.71 is too low. It is almost telling us that we are going to have a truncated fifth wave. Maybe we will have to watch for that after all.

How You Can Identify Turning Points Using Fibonacci — Part 2 — © 2008 Elliott Wave International — www.elliottwave.com

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Chapter 2 — Fibonacci Analysis of Starbucks Corporation

Figure 40 How about this relationship, then? How about looking from the beginning of wave 6 in blue to the end of wave 8 – point R to point S? We multiply that by .382 and add that onto wave 9. That gives us a target of 40.34. In other words, at 40.34, wave 0 equals the net distance traveled of waves 6 through 8 multiplied by .382. Now we are getting somewhere. At least that is higher than 39.50. That seems to make some sense, so we are going to take note of it. It is a possible price target. Figure 41 Let’s look at the Golden Section again but now on this daily chart. We are looking at how the end of wave 9 divides the entire price movement into .618 for the lower half and .382 for the upper half. That is the same as saying that the entire distance is equal to 1.618 multiplied by the distance from 36.22 to 28.72. We get a price target of 40.86 – a valuable piece of information. If wave 0 ends at 40.86, then wave 9 will have divided the entire price movement into the Golden Section.

How You Can Identify Turning Points Using Fibonacci — Part 2 — © 2008 Elliott Wave International — www.elliottwave.com

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Chapter 2 — Fibonacci Analysis of Starbucks Corporation

Figure 42 We have a Fibonacci price cluster now to help us estimate the end of wave 0 in blue, which is completing the wave 5 in red, which is completing wave (5). What does this tell us? That we are talking about a fifth of a fifth of a fifth wave, so we have to be cautious here. We are approaching the end of a major move. Maybe we should not even go long. Maybe we should just let it play out and go short, but why don’t we try? It looks like there could be a decent move. We have Fibonacci clusters here with price, so it may be worth doing. Let me review: 0 of 5 in red equals .382 multiplied by 6 through 8 at 40.34. The end of 9 of 5 in red forms a Golden Section, if 0 ends at 40.86. Wave 5 in red of (5) equals .618 multiplied by the net distance traveled of waves 1 through 3 in red at 39.59. Now remember that we can have a truncation. Wave 5 in red can be truncated, and wave 0 in blue can be truncated. We will keep that in mind, but we are not going to look for a truncation. For a price target, we just look at the mid-point of 40.34 and 40.86; that will give us a target of 40.50. Figure 43 On November 3, the low is 36.22 and the high is 37.40; the middle of that range is 36.80. So, we are going to go long at 36.80 with a price target of 40.50 based on that price cluster. We should exclude the price target of 39.50 unless we see more evidence that there will be a truncated fifth wave.

How You Can Identify Turning Points Using Fibonacci — Part 2 — © 2008 Elliott Wave International — www.elliottwave.com

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Chapter 2 — Fibonacci Analysis of Starbucks Corporation

Time Targets Figure 44 Now, I want to go back to the weekly chart and examine some time relations. The numbers – 87, 54, and 44 – are all weeks. Notice the .618 red dotted line. We are looking to see how the end of wave 3 in red, which is the same as the beginning of wave 4, divides the entire time length for waves 1 through 5 in red into the Golden Section. We get an end date of December 22, 2006, which means that if this entire move ends on December 22, the end of wave 3 will have divided the entire time duration into the Golden Section, the first section being .618 and the second .382. Well, December 22 is pretty far away from November 3, considering that we are looking for a move over about a week or two. Yet we will still keep it in mind. Figure 45 In terms of time, we can also look at waves 1 through 3 and extend from wave 4. We find that .382 times that length is 88 weeks forward (a Fibonacci 89 minus 1), which comes out to December 29. On the chart before, December 22 was at 87 weeks, so December 29 is at 88 weeks.

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Chapter 2 — Fibonacci Analysis of Starbucks Corporation

Figure 46 Here is one last relationship – a Fibonacci 89 weeks for waves 1 through 5. That comes out to January 5, 2007. These are all pretty far away in time from November 3, but we will make note of them and see what happens.

Figure 47 Before we go forward with the trade, there is a time target that looks more reasonable back on the daily chart. Look at the Minute waves 6, 7, 8 and 9 in blue. If wave 0 in blue of wave 5 in red ends on November 15, then the beginning of wave 9 or the end of wave 8 in blue will have divided the whole time duration into a Golden Section. For now then, we will set a time target of November 15, 2006, because it is the only close time target we have.

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Chapter 2 — Fibonacci Analysis of Starbucks Corporation

Setting a Stop Figure 48 Now we need to set a decent stop level. For the stop, we look at the retracement that wave 9 in blue makes of wave 8. We are looking at the distance that wave 8 travels from 29.37 to 39.50 as we also acknowledge that the gap at 36.09 might complicate things. It turns out that the .382 retracement of wave 8 is 35.63. So, if we put our stop below the .382 level, we already have taken the gap into account, and we do not have to worry about it. Figure 49 What else can we do? We can look at wave 9 in blue more closely and see if it has ended. If it has not ended, we can map out another level to put our stop. I labeled this wave 9 as a double zigzag – (w)-(x)-(y). We measure wave (w) and then see if wave (y) equals wave (w), which is a common relationship. It is analogous to wave C equaling wave A in a single zigzag. In a double zigzag, we first look for wave (y) to equal wave (w); that is what 1.000 means on this chart – a 1-to-1 relationship. Well, wave (y) equals wave (w) at 36.22. We have already traded at 36.22; that is the low here. So, wave 9 may be over, but we cannot be totally sure. This Fibonacci price cluster can help us to determine our stop. We already know that we have hit 36.22. So, we set a stop slightly below 35.63, which covers the gap. That means that wave (y) could be a little bit longer.

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Chapter 2 — Fibonacci Analysis of Starbucks Corporation

Figure 50 Here is all of our information on one chart for Starbucks: • We are long at 36.80. • We have a price target of 40.50. • Based on our Golden Section for time, we are first looking for November 15. • If we go past that, we will look for the end of December. • We h a v e a s t o p a t 35.50. • Our potential risk is 1.3 points and our potential reward is 3.7 points.

Conclusion Figure 51 On this daily Starbucks chart, we have moved forward several days. We have a little bit of a problem here, since we certainly have not reached 40.50. That last high to the right on November 15 is 39.39. We have not even gotten above wave 8 in blue, which you can see with the dotted line. Should we label wave 0 in blue as having waves 1, 2, 3, 4 and 5 and just say, “Well, it’s a truncated fifth of another truncated fifth?” It could be truncated, but we will give it another day. The other thing we can do is raise our stop. Let’s just give it another day and see what happens.

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Chapter 2 — Fibonacci Analysis of Starbucks Corporation

Figure 52 So, now we are finally coming up. This is November 16, so we are one day past our time target. The high up on the top right is 40.01, which means that we can now eliminate the truncatedfifth scenario. We have gone beyond the wave 8 high. We have gone beyond the high of the other weekly chart wave 3 (not shown here) at 39.88. Yet we must take caution. This is a fifth of a fifth of a fifth, and we cannot stay in much longer. We can certainly get out here. We have not gotten up to 40.50, but we are close. We certainly have met the time target of November 15. Can we wait another day? Why don’t we do this: If it starts to come down a little bit, we will get out on the next day. How’s that? Let’s see what happens. Figure 53 That was a very bad decision. Starbucks gaps down tremendously the next day. Even if we had raised our stop, we probably would not have even gotten filled. It goes down to a range of 37.54 to 36.72 – that is a huge drop. We have to get out now; it looks like this is over. We basically broke even. So, here is a case where waiting just one day really killed us. It is certainly a lesson to be learned. In real time doing this, would I have waited another day? I might have. I would not have thought that this stock was going to gap down, but then, after the gap down, I probably would have said to myself, “Well, I should have known that, because it was a fifth of a fifth of a fifth.” Looking back, there were some other clues that told us we really should have been cautious of a big down move. We just came up with Fibonacci relationships telling us that the wave was going to be short or even truncated. It was a bit risky to have stayed on this long, even though it was just one extra day. One day can make a big difference.

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Chapter 2 — Fibonacci Analysis of Starbucks Corporation

Figure 54 One last chart going back to the weekly. See where that wave 5 in red ends? That is a major top, which we almost caught. Then we have a major decline after that in Starbucks. Now, let’s look at our third scenario.

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Chapter 3: Fibonacci Analysis of Euro/USD FX Identifying Structure Note: The Euro/USD FX analysis beginning with Figure 55 starts on Slide 65 of Wayne Gorman’s Online Trading Course, “How You Can Identify Turning Points Using Fibonacci — Part 2.” This last scenario is going to be the Euro against the U.S. Dollar in the foreign exchange market. Figure 55 Here is a daily continuation chart of the Euro. These are futures. By the way, the system I am using here is Trade Navigator, also known as GenesisFT. It provides you with a lot of the Fibonacci tools, so you can quickly do your calculations just using your mouse. In this chart, we are going from June 2007 up to the middle of November 2007. We are going to start trading on November 13, 2007. Let’s label this chart. Figure 56 There is a Minute wave 6 and wave 7 in blue on the left of the chart, and we are now in Minute wave 8. We have waves (i), (ii), (iii), and (iv). Within wave (v), we have waves i, ii, iii and iv in brown, and we are looking for wave v. In this case, we are looking for an up-move for wave v in brown within wave (v) within wave 8 in blue. The wave ii in brown is an expanded flat, and wave iv in brown is a zigzag. So, we have nice alternation there. Let’s analyze this after I give you some data points that are important. The low for wave iv in brown is 1.4528. The high of wave iii in brown is 1.4760. The low of wave 7 in blue on August 16 is 1.3370. How You Can Identify Turning Points Using Fibonacci — Part 2 — © 2008 Elliott Wave International — www.elliottwave.com

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Chapter 3 — Fibonacci Analysis of Euro/U.S. Dollar Foreign Exchange

Fibonacci Retracement Analysis Figure 57 The first thing we want to do is get oriented. Where are we in this wave count? Maybe wave iv in brown has not ended. We want to see how wave iv retraces wave iii. I have put up my Fibonacci table. What do we see? We go from the beginning of wave iii in brown up to the end of wave iii. We see that wave iv almost makes a .382 retracement of wave iii. The .382 retracement comes in at 1.4523, and we make a low at 1.4528. So, we are just 5 points, or 5 ticks, away from making a .382. Maybe wave iv is over.

Figure 58 Just for the sake of comparison, I thought I’d show you that wave ii in brown makes about a .50 retracement of wave i.

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Chapter 3 — Fibonacci Analysis of Euro/U.S. Dollar Foreign Exchange

Figure 59 If we go up to the higher degree, wave (iv) makes almost a .382 retracement of wave (iii). As a matter of fact, it falls shy of it almost by the same amount as wave iv in brown.

Figure 60 Here, wave (ii) makes almost a .50 retracement of wave (i).

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Chapter 3 — Fibonacci Analysis of Euro/U.S. Dollar Foreign Exchange

Drawing a Trend Channel Figure 61 How else can we determine whether wave iv is completed and that the Euro/USD is ready to start wave v? First, we are going to draw in a trend channel. We have an impulse wave here. Since we have identified what we think are waves i, ii, iii and iv, we connect the end of wave ii to the end of wave iv. The end of that wave ii is 1.4139, and the end of wave iv is 1.4528. Then we draw a line parallel to that channel line that includes the termination point of wave i. Why do we pick wave i and not wave iii? Because wave iii is exceptionally steep, and one of the guidelines is that you would draw it from wave 1 rather than wave 3, if 3 is steep. As you can see, it does not matter, because when we include the end of wave i and extend it, it includes the end of wave iii anyway. So, in addition to the Fibonacci analysis, we have a perfect trend channel that can help us set the price target for wave v.

Setting a Stop Figure 62 Now we want to set a stop. The rate could come down further – maybe it goes below the channel, or maybe we have to redo the channel. Or maybe it is a throw-under, and we will have a throw-over for wave v. The blue box is the previous fourth wave within wave iii. It is debatable whether that fourth wave has ended at 1.4517 or further up at 1.4537.

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Chapter 3 — Fibonacci Analysis of Euro/U.S. Dollar Foreign Exchange

Figure 63 Notice the 1.4519. That is the general area of the previous fourth wave at one lesser degree. So, we are going to keep that in mind, in terms of our stop. Let’s blow up wave iv.

Figure 64 That small wave iv all the way to the right ends at 1.4528. I have gone all the way down to a 15-minute bar, because I really could not see the structure on the hourly chart. We want to see if this wave iv is over or not; if it is not over, we want to see how far it has to go. Now I am finally able to see a wave structure that I can recognize and label.

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Chapter 3 — Fibonacci Analysis of Euro/U.S. Dollar Foreign Exchange

Figure 65 Although you could not see it on the daily, the brown wave iv on the right forms a zigzag. We have wave A in red with five waves down – (1) through (5). Of course, this is A of a small degree. We have a wave B triangle in red. We see the (A), (B), (C), (D), and (E) of the triangle. Then we have five waves down for wave C in red on the right. So we have a lot of information here. Notice waves (1), (2), and (3) of wave C. Wave (4) really is an A, triangle B, and then C (labels not shown on chart); that is what those green lines mean within wave (4) of C. Let’s analyze this and see if we can get more evidence that wave iv in brown is close to ending or has ended. Figure 66 Well, what do we know about a zigzag? There is a relationship between C and A in red. I measure from the beginning of A to the end of A – point R to point S. I extend or expand that from the end of wave B – point T at 1.4685. What do we find? Look at the numbers in blue at the bottom. At 1.4541, wave C is equal to 1.618 multiplied by the length of wave A. Where are we? We are at 1.4528. Here is evidence that wave C may be over. We have gone a little bit past it.

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Chapter 3 — Fibonacci Analysis of Euro/U.S. Dollar Foreign Exchange

Figure 67 Let’s see if we have any other evidence. Within wave C, we look at waves (1) through (3). We take the net distance traveled of waves (1) through (3) – which is point R to point S – and then expand that downward from the end of wave (4). We find that at 1.4521, wave (5) of C equals .382 multiplied by the net distance traveled of waves (1) through (3). That gives us another point or clue. Remember, we hit 1.4528. So again, it looks like wave iv in brown is over.

Figure 68 Let’s just look at time. These are not days or weeks – this is the 15-minute bar. The red numbers at the bottom are the number of 15-minute bars. I am looking to see if within wave C, which is five waves down, if there is a Golden Section with respect to time. It is close. The end of wave (3) does form a Golden Section with respect to time. The first half is .618 and then the next time frame is .382 with a few more 15-minute bars. As you can see, we are not that far away from forming that Golden Section.

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Chapter 3 — Fibonacci Analysis of Euro/U.S. Dollar Foreign Exchange

Figure 69 Here is the Fibonacci price cluster that we discussed. Remember that wave iv in brown retraces .382 of iii in brown at 1.4523. We looked at the C wave within iv and compared it to 1.618 times A, and we got 1.4541. We looked at wave (5) of C as it relates to .382 times waves (1) through (3), and we got 1.4521. So, we have a lot of evidence to tell us that wave iv has either ended or is near to ending. We are going to set the stop somewhere below the 1.4523 level and that would at least be in that previous fourth wave – in the 1.4519 area. So, let’s set our stop somewhere down below 1.4519 for going long.

Price Targets Figure 70 Let’s look at price projections. We measure waves i through iii in brown and then expand that from the end of wave iv. We find that if wave v ends at 1.4977, wave v will equal .618 multiplied by the net distance traveled of waves i through iii. So, 1.4977 is an important price target.

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Chapter 3 — Fibonacci Analysis of Euro/U.S. Dollar Foreign Exchange

Figure 71 Now let’s look at some Fibonacci dividers. Look at the end of wave iv at 1.4528. If wave v ends at 1.5023, the entire price range will be divided exactly in half, 50%-50%, at the end of wave v. We would have a Golden Section at 1.4834. That is a little bit lower than what we have been looking at. Remember, we have 1.4977 and 1.5023. But we will keep 1.4834 in mind. I did not put in the .382 and .618 on the chart, but this analysis says that if wave v ends at 1.4834, we would have a Golden Section.

Figure 72 Now we are going to the next higher degree. We measure waves (i) through (iii) and expand that from the end of wave (iv). We find that if wave (v) ends at 1.4965, it is on parity with (i) through (iii) instead of just (i). Normally, parity is when you have an extension for one of the other waves, but it is the closest thing we can find. It is not a .618 or a 1.618 and so on, but we will make note of that.

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Chapter 3 — Fibonacci Analysis of Euro/U.S. Dollar Foreign Exchange

Figure 73 We see that the end of wave (iii) forms a Golden Section at 1.4878 for wave (v).

Figure 74 Let’s summarize these relationships. We have a Fibonacci cluster made up of 1.4977, 1.4965, 1.5023, and 1.4878. When we average all of those together, we end up with a price target of 1.4935 for v in brown of (v) of 8.

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Chapter 3 — Fibonacci Analysis of Euro/U.S. Dollar Foreign Exchange

Time Targets Figure 75 Let’s look at time. Notice the .618 at the end of wave iii or the beginning of wave iv. It makes a Golden Section if this entire move ends on November 30.

Figure 76 I tried to look at some others here with respect to time – like the .382 or the .5 – but they just did not work. They would just move it further over. Remember, right now we are on November 13. If there is a Golden Section, this is telling us to look for November 30.

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Chapter 3 — Fibonacci Analysis of Euro/U.S. Dollar Foreign Exchange

Figure 77 Here we expand. We are looking at the total distance of waves i through iii and expanding that from the end of wave iv. What do we find if we expand that by .382? That comes out to a target of November 26. So, we will keep that date in mind.

Figure 78 If the whole move starting from the end of wave (iv) to wave (v) up at the top lasts a Fibonacci 34 days, then that, too, is November 26.

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Chapter 3 — Fibonacci Analysis of Euro/U.S. Dollar Foreign Exchange

Figure 79 Now we go up one degree. Look at the beginning of Minute wave 8 in blue and the Minuette wave (iv) in red. See how wave (iv) divides the entire time length of Minute wave 8? If wave (v) ends on November 29, then wave (iv) makes a 50%50% split.

Figure 80 One other thing: If I am looking at just a Fibonacci number of days, I get 89 days. So, that takes us out to December 19, which is pretty far. We will keep that in the back of our minds.

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Chapter 3 — Fibonacci Analysis of Euro/U.S. Dollar Foreign Exchange

Figure 81 Here is a summary of the time clusters. I will repeat these just to make sure you get this. The first one says that the end of wave iii in brown forms a Golden Section – .618-.382 – if wave v in brown ends on November 30. Wave v equals .382 of a move from i to iii if it ends on November 26. November 26 is a Fibonacci 34 days for waves i through v in brown. The last one is that the end of wave (iv) forms a 50%-50% split – 50 percent on each side of wave 8 in blue, if wave (v) ends on November 29. So we have November 26, 29 and 30. Figure 82 There is one more thing I want to look at, at higher degree with respect to time. If we start from the end of wave 7 in blue, measure waves (i) through (iii) and extend that from wave (iv), we get a Fibonacci 1.618 at December 20. We will have to keep that in mind. If this move does not end around the end of November, then we are looking toward the end of December.

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Chapter 3 — Fibonacci Analysis of Euro/U.S. Dollar Foreign Exchange

Figure 83 Another thing: We have drawn in our channels. We have a longterm channel for waves (i), (ii), (iii), and (iv), right? Then the green lines show the short-term channel for waves i, ii, iii and iv in brown. Notice that the lower channel lines intersect at the end of wave iv. As we go up, if we go beyond the blue channel, then we will look for the short-term channel. Again, I connect (ii) and (iv) and draw a parallel line that includes wave (i), because wave (iii) is steep.

To summarize all of our analysis: • We are going long at 1.4584 on November 13. That level is the middle of the price range. • We put our stop down to 1.4510 – that is below the .382 Fibonacci level. It is within the area of the previous fourth. Hopefully, it will not get tested. • The price target is 1.4935, which is an average of prices in the cluster. • Our time target is from November 26 to November 30. • Our potential risk is 74 points, and our potential reward is 351 points. • The red box at the top of the chart represents our target with respect to time and price. So, we are looking to come right into that box, which is right on one of the blue channel lines and is also in between those two green channel lines.

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Chapter 3 — Fibonacci Analysis of Euro/U.S. Dollar Foreign Exchange

Conclusion Figure 84 We have now moved forward in time, and, fortunately, we are moving up. We can raise our stop level. On November 22, 2007, which is at the end of the chart, we make a high of 1.4880. The low is 1.4827. We have not reached our time target or price target of 1.4935, but we are coming very close. Unlike the Starbucks scenario, we are not going to wait too long, but let’s go a little bit further in time. Keep in mind that November 23 is a Friday, and November 26 therefore is a Monday. Figure 85 We are still moving up. So, now it is Friday, November 23. We have met our price target. The high is 1.4977 – that should ring a bell. That is where wave v in brown is equal to .618 multiplied by i through iii. Now, why aren’t we in the box? We are on November 23, and the box starts at November 26. We are just one day from our time cluster. I say we get out. We went past the longer-term channel, but we are almost hitting the short-term channel. We have met just about everything. So, unlike Starbucks, we are not going to wait another day. Now, of course, we could have left an order with the broker to get us out at 1.4935 – that was another option. But the way I approach this is by taking it day-to-day.

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Chapter 3 — Fibonacci Analysis of Euro/U.S. Dollar Foreign Exchange

Figure 86 So, we are going to get out in the middle of the current range at 1.4882; that is a profit of 298 points. We are going to call this v of (v) of 8. We can see a fivewave structure within v (labels and degree not shown on chart): 1, 2, 3, 4 and 5, and we are not going to wait another day.

Figure 87 Here is what happens after that. This is the aftermath. The Euro/ USD, indeed, made a dramatic move to the downside for Minute wave 9 in blue. Now, in this case, if we had waited another day or two, it would not have killed us; but it was the right place to get out. We had all the evidence. That concludes this session on the trading scenarios, and now I will answer a few of your questions.

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Chapter 4: Questions and Answers Here are some selected questions and answers that followed the second part of Wayne Gorman’s original presentation of “How You Can Identify Turning Points Using Fibonacci — Part 2” on March 19, 2008. Q.: When projecting the Golden Section dividers, why use the end of wave 4 for price but use the beginning and sometimes the end of wave 4 for time? Gorman: Because the guideline applies to both. If you recall from one of the slides we had [in part 1], for Golden Sections or for 50-50 splits, sometimes it’s the beginning of wave 4 that gives us a good target and sometimes it’s the end of wave 4. So, you’ve got to look at both and then make a judgment call as to which one is giving you more useful information. Q: Would you have considered reversing your position when you exited on the Euro? Gorman: Yes, that’s a good point, but I had to stop the scenario somewhere. If I just kept going, we’d be here for another hour. But, yes, you had enough data to start thinking about not only getting out, but going short. Q; In Cocoa, why did you consider wave c of B a possible ending diagonal? There was so much consolidation. Gorman: I based it more on the fact that wave c was basically equal or slightly longer than wave a, and that a 1.618 relationship would have gone too far, and that wave B had retraced to .618. So, it was a combination of evidence. It wasn’t just one thing, but it had the right look. Q: Time and price confluence raises confidence in high probability turning points. Do you weight your trades or strictly position size? Gorman: No, I would position a certain size based on my risk tolerance, in terms of managing my capital and do a little bit of risk management in the sense of looking at what a several standard deviation move might be overnight and calculating – with a certain confidence interval – what my value at risk is or earnings at risk on a trade. I wouldn’t weight them.

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Chapter 4 — Questions and Answers

Q: I’ve heard many times that trading is 99% psychological, such that, even with the best methods, emotions get in the way. Is this a problem for you, too? Gorman: Well, sure, yes. It’s hard to keep your emotions in check and be objective. I think one of the best ways to do that is certainly not to risk more than you feel comfortable losing. Otherwise, if you’re taking a larger risk, that’s going to start getting your emotions going. And so, it is difficult. You really have to be like a surgeon and be cool and calm about it, and just constantly be aware of your emotions. Q: If someone is interested in pursuing your approach further, what first steps would you recommend? Gorman: I would certainly get the book, Elliott Wave Principle, which states all the Elliott rules and guidelines. I would look into taking some of our on-line courses. We have a whole library of on-line courses. This course is just one of many. You may want to start with the Basics course and then work from there. Just getting through Elliott Wave Principle will be a big task, too. There’s a lot there. Q: If you’re trading individual stocks, do you need to trade stocks with a longer history, for example, IBM? Or would Google work? Gorman: No, Google works. I’ve been looking at Google. As a matter of fact, I’ve been looking at a lot of stocks that were IPOs recently, meaning over the last few years, because I’d like to do a course on how to trade individual stocks. Starting when they were IPOs, in other words, when a stock is born, how do you know where you are in the wave count? Even with stocks that just became new companies in recent years, you can pick up the wave count. And even if you can’t go back years or decades, that’s okay. You look for things that you can recognize – like a triangle. If you see a triangle you know that triangles are normally in wave 4, so you immediately know that it looks like this IPO started in wave 4, and you go from there. Q: Does Elliott wave analysis apply best to stocks that have large volume? Gorman: Well, yes, when it comes to individual stocks, it can be more difficult. I mean, it just depends on the stock and, certainly, if there’s better volume, that’s going to help. In general, of course, the indexes are better. But as we’ve seen with Starbucks – and that’s another reason I wanted to show that – you can use Elliott wave for individual stocks. Certainly, the ones that are more highly traded will display clearer Elliott waves.

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Chapter 4 — Questions and Answers

Q: Did the bank where you worked ever teach you the real trading secrets? Gorman: My recollection is, at least back then in the ‘80s and ‘90s, that you were left to your own devices, and nobody really told you anything. You were just thrown in there, and you had to just learn on your own. If they did teach you anything, it was more about macroeconomics – it was the standard economic fundamentals: money supply, CPI, job data, etc. Actually, this is a good question because it raises a point that I always think about when I look back. With Elliott wave, what’s the underlying theory of the wave pattern? It’s that people herd. What causes all this? In the aggregate, people engage in what we call – if you really want to get technical about it – unconscious herding. People follow the decisions of others. They herd and everyone then follows what everyone else is doing. You get this herding process. Following others, that’s what you’re taught, usually when you’re young and you’re working for an institution. I remember that I was taught to find out what everyone else was doing and make sure I was doing the same. What I found was that it was not the road to success, to just follow others. You had to be an independent thinker. We were literally told every day to call around and find out what other traders were doing and then decide what to do based on that. I found that didn’t work, and the economic fundamentals did not work either. That’s why I started using Elliott wave back in 1986 and have been using it ever since.

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EWI eBook

How You Can Identify Turning Points Using Fibonacci Part 2: How To Use Fibonacci Relationships To Set Trading Strategy By Wayne Gorman, Elliott Wave International

© 2008 Elliott Wave International

Published by New Classics Library

For information, address the publishers: New Classics Library Post Office Box 1618 Gainesville, Georgia 30503 US www.elliottwave.com

ISBN: 978-0-932750-80-8