Workbook 7 Complete

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Elliott wave compass instruction manual

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E l l i ott Wav Wave e E ducational ducati onal Vide Vi deo o Se Ser i es

Utility Manual for the Precision Ratio Compass

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The Elliott Wave Educational Video Series — Workbook 7: Utility Manual for the Precision Ratio

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WORKBOOK for the ELLIOTT WAVE EDUCATIONAL VIDEO SERIES WORKBOOK 7 UTILITY MANUAL for the PRECISION RATIO COMPASS Copyright © 1985, 1987 and 1995 by Robert R. Prechter, Jr. Printed in the United States of America First Edition: June 1985 Second Edition: September 1987 Third Edition: April 1995 For information, address the publishers: You're Reading a Preview Elliott Wave International P.O. Boxwith 1618 Unlock full access a free trial. Gainesville, Georgia 30503

Download With Free Trial ISBN: 0-932750-25-7 Elliott Wave Educational Video Series 10 Volume videotape set including workbooks ISBN: 0-932750-13-3 Elliott Wave Educational Video Series Tape 7 and Workbook 7: Introduction to the Elliott Wave Principle

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CONTENTS

Page 5

Introduction

7

PART 1: FIBONACCI AND THE COMPASS

9

What are Fibonacci Ratios?

13

Why Fibonacci Ratios?

15

Compass Terminology and Procedure

16

Compass Scales

16

What the Compass Does

17

Chart Scales

17

Price and Time

19

You're Reading a Preview

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PART II: ELLIOTT WAVE APPLICATIONS

21

Typical Wave Structure

22

Using the Compass

25

Fibonacci Ratio Relationships

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36 36 37 38 38 39 40 40 41 41 42 43

Corrective Waves Zigzag Corrections B Waves in Zigzags C Waves in Zigzags Flat and Irregular Corrections B Waves in Flats C Waves in Flats B Waves in Irregular Corrections C Waves in Irregular Corrections Subwaves in Double and Triple Threes Subwaves in Contracting, Ascending and Descending Triangl Subwaves in Expanding Triangles

44

Advanced Ratio Application — A Comprehensive Forecasting Method

46

Real-Time Examples of Fibonacci Multiples and Retracements

46 49 53


The Bond Market The StockUnlock Market full access with a free trial. The Gold Market

Download With Free Trial 59

PART III: GANN ANALYSIS

61

Gann Analysis

61

The Gann-Blitz Approach

62

Squaring of Time and Price

64

1 x 1 lines

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INTRODUCTION R.N. Elliott used a time-saving Fibonacci ratio calculation device, and his mention of it in “Nature’s Law” has prompted many requests for a similar tool. Elliott’s design necessitated a two-step recording procedure, since he did not have access to a compass specifically made for his purposes. Rather than create a copy of that more cumbersome tool, we decided to see if we could find a compass which would suit our specific needs. A long search finally turned up a company that produced a Golden Ratio compass, but the construction was cheap and the tolerated error much too great. As any trader knows, a few cents’ difference on a stock or commodity chart can mean the difference between a perfect entry and a missed opportunity. You're Reading asearching, Preview After much additional we found a manufacturer which compass tools Unlockmade full access with a free trial. for professional draftsmen. We felt that any less quality was unacceptable. We’re extremelyDownload happy with tool we’ve found and Withthe Free Trial hope you will be, too.

Your Precision Ratio Compass is constructed of chromium plated solid brass, machine tooled to virtual precision. The PRC is a slim, handsome professional draftsman’s tool, built for a lifetime of use. The spread between points can be firmly locked so the compass won’t slip when being moved from one position on the chart to

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The following pages will show you in detail how to apply the Compass. Undoubtedly there are uses for it which we have yet to discover. If you find any, please let us know. Perhaps your ideas will appear in the next edition of this manual.

Robert R. Prechter, Jr. Elliott Wave International

You're Reading a Preview Unlock full access with a free trial.


ACKNOWLEDGEMENTS This manual would not be here in its present form without the effort and talents of David A. Allman. His editing and illustrative skills, as well as his dedication to the project, were invaluable in attaining the quality we required for the final product.

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PART I

FIBONACCI AND THE COMPASS



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WHAT ARE FIBONACCI RATIOS?

Fibonacci Ratios are the ratios between numbers at a distance infinitely far along in any sequence which is derived by adding a number to the previous number to obtain the next. Like pi, these ratios are irrational num bers, i.e., they cannot be expressed precisely in either fractional or decimal form. The “Fibonacci Sequence” is the best known and the most basic additive sequence of this type. It is derived by adding each number, starting with the number 1, to the one just prior to it to obtain the next number. Thus, 1 added to nothing gives a second 1. 1 + 1 gives 2, 2 + 1 gives 3, 3 + 2 gives 5, 5 + 3 gives 8, and so on. The first sixteen terms in the sequence are 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377, 610 and 987. A full mathematical description of the Fibonacci sequence can be found in FIBONACCI NUMBERS by Reading aofPreview N. Vorobev, andYou're a description its relevance to the financial marketsUnlock can full beaccess found Chapters 3 and 4 of within a free trial. ELLIOTT WAVE PRINCIPLE (New Classics Library, $29). Download With Free Trial

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2 e r u g i F

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As infinity is approached, the ratio between adjacent Fibonacci numbers, smaller over larger, is .6180339... (phi), commonly abbreviated as .618; the inverse (larger over smaller), gives 1.618. As infinity is approached, the ratio between alternate Fibonacci numbers, smaller over larger, is .382; the inverse (larger over samller), gives 2.618. The ratios for second alternate Fibonacci numbers are .236 and 4.236. The ratios for third alternate Fibonacci numbers are .146 and 6.854. This progression can be continued forever, as demonstrated in the bottom row and far right column You're Reading and a Preview of Figure 2 (from “Historical Mathematical Background” chapterUnlock of Elliott ). Note that Principle full accessWave with a free trial. each of the decreasing ratios is the result of multiplying the preceding ratio by With .618Free and Trial each of the increasDownload ing ratios is the result of multiplying the preceding ratio by 1.618. It is for this reason that any Fibonacci ratio can be calculated with only one or two quick and simple steps with the PRC. The spiral-like form of market action is repeatedly shown to be governed by the Golden Ratio, and, as has often been observed, even the Fibonacci num-

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You will find that as this sequence approaches infinity, the ratio between adjacent terms in the sequence will approach .618... This relationship becomes obvious generally before the tenth term is produced (see Figure 3, using the starting numbers 17 and 352). Thus, while specific numbers making up the Fibonacci sequence are not necessarily important in markets, the Fibonacci ratio is a basic law of geometric progression, and does govern many relationships in data series relating to natural phenomena of growth and decay.



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WHY FIBONACCI RATIOS?

The occurrence of Fibonacci ratios in markets is not coincidence, and it is not a mystical numerological theory developed in an ivory tower and forced into real life situations. When Elliott began to research the markets, he had no idea that the Fibonacci sequence would be representative of his eventual discovery. What he found initially was that the basic Dow Theory idea that primary bull markets traveled in three upward phases applied to all degrees of market trend, from hourly waves to those lasting centuries. From this discovery, he developed a system of naming and labeling the different sizes of waves, and soon realized that the total number of waves in each degree turned out to be a different Fibonacci num ber. In fact, these totals not only produced the Fibonacci sequence, but did so exactly, with no omissions and no You're Reading a Preview repetitions. Unlock full access with a free trial.

The discussion below is a reprint from the “Historical and Mathematical DownloadBackground” With Free Trialchapter of Elliott Wave Principle, and illustrates this concept. We can generate the complete Fibonacci sequence by using Elliott’s explanation of the natural progression of markets. If we start with the simplest expression of the concept of a bear swing, we get one straight line decline. A bull swing, in its simplest form, is one straight line advance. A

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Figure 4

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this method the further on breaks down the wave, that is, the greater the number of subwaves one counts. Em pirical evidence reveals, moreover, that Fibonacci ratio relationships occur throughout the price structure in markets. The following pages will give specific examples of the most common occurrences.

COMPASS TERMINOLOGY AND PROCEDURE

For the purpose of this manual, we will refer to the compass as having points AB (top, narrow end) and points CD (bottom, wide end), as shown in Figure 5. The procedure for setting the center guide is as follows: Close the compass, loosen the center guide nut, set the scale as desired, and tighten the nut. The ratio you have chosen will remain fixed for whatever distance you now open Reading Preview the compass. ForYou're the balance ofathis manual, all distances will be designated by full a bar underneath the points in quesUnlock access with a free trial. tion. For example, the distance between points A and B will be referredDownload to as AB. With Free Trial

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COMPASS SCALES

Generally, proportional dividers are used for dividing lines into equal parts, for enlarging or reducing length by different ratios, or for dividing the circumference of a circle into equal parts. The left hand scale of this compass is used for length multiples while the right hand scale is used for circle division. To relate the two scales, notice that the sequence of Fibonacci ratios, 1.618, 2.618, 4.236, 6.854, 11.090, 17.944, 29.034, 46.978, 76.012..., when multiplied by pi, 3.1416..., yields the series 5 + .1, 8 + .2, 13 + .3, 21 + .5, 34 + .8, 55 + 1.3, 89 + 2.1 +.1, 144 + 3.4 + .2, 233 + 5.5 + .3... Notice that the numbers of the first sequence on the left-hand (lines) scale of the PRC correspond to the numbers of the second sequence on the right-hand Reading (circles) scale foYou're the PRC. Onea Preview formula illustrating the eternal relationship between phi Unlock full access pi withand a free trial.is as follows: (15-n) Download With Free Trial " = .618..., n Fn ! 100 x π2 x " , where represents the numerical position of the term in the sequence and Fn represents the term itself. The number ‘1’ is represented only once. This F 1 ! 1, F2 ! 2, F3 ! 3, F4 ! 5, etc.

For example, let n = 7. Then F7

2

! 100 x 3.1416 x .6180339

(15-7)

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restrictions, the Golden section marking for length has been placed on the right-hand scale. When the left hand scale of the compass is set at Fibonacci multiples, CD will be a Fibonacci multiple of AB, while AB will equal the inverse Fibonacci multiple of CD. For example, when the center guide reference is placed at “GS”, Golden Section (on the right-hand scale of the compass), the distance at the narrow end AB will always equal .618 of the distance of the wide end CD. Conversely, CD = 1.618 x AB. We frequently refer to the right-hand scale under “USING THE COMPASS” because there is often a convenient equivalent marking correspoinding to the Fibonacci ratio we wish to locate on the left-hand scale.

CHART SCALES You're Reading a Preview Unlock in full this accessmanual with a free trial.arithmetic scale. All the charts use The difference between arithmetic and semi-logarithmic Download With Free Trial on arithmetic chart scale is that equal vertical distances charts reflect an equal number of points traveled whereas equal vertical distances on semi-log charts reflect equal percentage changes. Empirical research confirms that Fibonacci relationships in markets, in almost all cases, are based upon the number of actual points traveled, an observation which is consistent with the theoretical basis for the Wave Principle. To obtain true multiples, the PRC must always be used on charts with arithmetic scale. For-

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Figure 6


distance covered on a With chartFree byTrial a wave. In these Download examples, do not measure from the actual beginning of a wave to the actual end, a process which would include time in the calculation, but rather vertically to the price level of the end of the wave. You will see that in each of the calculations, the PRC is placed with one point at the origin of the wave to be measured and the other point vertically equivalent

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PART II

ELLIOTT WAVE APPLICATIONS



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TYPICAL WAVE STRUCTURE

This graph of one rendition of an ideal Elliott wave has been created as a reference for this manual. It contains all of the multiples and retracements discussed on the following pages. The index numbers starting at 1000 are for an imaginary market. Actual real-time examples begin on page 46.



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USING THE COMPASS

1.00 (equality) After closing the PRC, the center guide may be set at any point on the scale and either end may be used depending upon the length of the wave in question. Place point A (or C) at one end and point B (or D) at a vertical equivalent to the other end of a recently completed move to determine its length. Then, transfer this distance to the extreme point of the most recent move to project an equivalent length. Sample Objective: You wish to mark the level of a 1.00 multiple of wave (A) as an estimate for the low of wave (C). Refer to Figure 8. Example: wave (A) = wave (C) You're Reading a Preview Unlock full access with a free trial.


.50 Procedure: Close the PRC. Set the center guide at 2 on the left hand scale. Place point C at one end and point D at a vertical equivalent to the other end of a recently com pleted move. Flip the compass. AB = .50 x CD.

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Figure 8 a free trial. Unlock full access with Download With Free Trial

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As you may have already deduced, all desired ratios from 1:10 to 10:1 may be obtained by simply adjusting the setting on the left-hand scale (or the right-hand scale equivalent) of the PRC. For orientation, if you were to set the center guide at 1 on the left-hand scale (lowest hash mark), the distance between points A and B, AB, and points C and D, CD, would be identical (AB = CD). The compass settings for AB/CD relationships most useful for market analysis are listed below.

.50/2.00.

Set PRC at 2.00 on the left-hand scale. AB = .50 x CD, and CD = 2.00 x AB.

.618/1.618.

Set PRC at GS on the right-hand scale. AB = .618 x CD,aand CD = 1.618 x AB. You're Reading Preview

.382/2.618.

Unlock fullat access freeright-hand trial. Set PRC 8.2 with on athe scale. AB = .382 x CD, and CD = 2.618 x AB.


.236/4.236.

Set PRC at 13.3 on the right-hand scale. AB = .236 x CD, and CD = 4.236 x AB.

.146/6.854.

Set PRC at 6.854 on the left-hand scale. AB = .146 x CD, and CD = 6.854 x AB.

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FIBONACCI RATIO RELATIONSHIPS Multiplicative .618 .382 .236 .146

x x x x

.618 .618 .618 .618

= = = =

.382 .236 .146 .090, etc.

= = = =

.382 .236 .146 .090, etc.

Additive 1.000 .618 .382 .236

-

.618 .382 .236 .146

These properties of the Fibonacci ratio are also true with regardYou're to the Reading inverse aofPreview phi, 1.618: Unlock Multiplicative full access with a free trial.

Download With Free=Trial 2.618 1.618 x 1.618 2.618 x 1.618 = 4.236 4.236 x 1.618 = 6.854, etc.

Additive 1.000 + 1.618 + 2 618

1.618 = 2.618 = 4 236

2.618 4.236 6 854

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Contracting Fibonacci Ratios (for “Retracements”) Use the wide end of the PRC (points C and D) to measure the vertical distance of the move for which you desire Fibonacci retracements points. See Figure 10a


Figure Download With10a Free Trial

Step #1) For .618 retracements: Keeping CD fixed, flip the compass. Now, AB is a .618 retracement of your original distance. Measure from the top down and mark this point W. See Figure 10b.

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Step #2) For .382 retracements: Keeping the PRC fixed, measure from the bottom up and mark a second point, X. The remaining length is a .382 retracement of your original distance. See Figure 10c.

You're Reading a Preview Unlock fullFigure access with 10ca free trial.

With Free Trial the PRC, placSet #3) For .236Download retracements: Contract ing compass points A and B on points W and X. This length is a .236 retracement of your original distance. Keeping the PRC fixed, measure from the top down and mark point Y. See Figure 10d.

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Step #4) For .146 retracements: Contract the PRC, placing compass points A and B on points X and Y. This length is a .146 retracement of your original distance. Keeping the PRC fixed, measure from the top down and mark point Z. Thus, in four quick steps, you have marked all the important retracements of your original distance, CD. See Figure 10e.



Figure 10e

The above directions are applicable to

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Let’s apply this method to our textbook graph: .618 Sample Objective: You wish to mark the level of a .618 retracement of wave 1 as an estimate for the low of wave 2. Refer to Step #1 and Figure 11. Example: wave 2 = .618 x wave 1


Figure 11

Download With Free Trial .382 Sample Objective: You wish to mark the level of a .382 retracement of wave 3 as an estimate for the low of wave 4. Refer to Step #2 and Figure 12.

Example: wave 4 = .382 x wave 3

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.236 Sample Objective: You wish to mark the level of a .236 retracement of wave (1) as an estimate for the low of wave (2). Refer to Steps #2-3 and Figure 13. Example: wave (2) = .236 x wave (1)

Figure 13 You're Reading a Preview Unlock full access with a free trial.

.146 Download WithtoFree Trial Sample Objective: You wish mark the level of a .146 retracement of wave (3) as an estimate for the low of wave (4). Refer to steps #2-4 and Figure 14. Example: wave (4) = .146 x wave (3)

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Expanding Fibonacci Ratios (for “Multiples” and extensions) Use the narrow end of the PRC (points A and B) to measure the vertical distance of the move for which you desire Fibonacci multiples. Step 1) For 1.618 multiples: Flip the compass, keeping the spread fixed. CD now measures 1.618 times the original distance. Place point C on the chart at the point from which you wish to project a longer wave. Place point D vertically above or below it. Make a small mark where point D touches the paper. See Figure 15.



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Step 2) For 2.618 multiples: After following the above steps, flip and expand the PRC so that the narrow end fits the 1.618 multiple distance. Now, CD = 2.618 times your original distance. Flip the compass again and mark the 2.618 multiple. See Figure 16. Step 3) For 4.236 multiples: The sum of the 1.618 and 2.618 multiples yields 4.236 times the original distance. Just flip the compass and add AB (which is now the 1.618 multiple length) to the 2.618 multiple distance. See Figure 16.



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1.618 Sample Objective: You wish to mark the level of a 1.618 multiple of wave (1) as an estimate for the length of wave (3). Refer to Step #1 and Figure 17. Example: wave (3) = 1.618 x wave (1)

You're Reading a Preview Figure 17 Unlock full access with a free trial.

2.618 Download With Sample Objective: You wish to Free markTrial the level of a 2.618 multiple of wave 1 as an estimate for the length of wave 3 . Refer to Steps #1-2 and Figure 18. Example: wave 3 = 2.618 x wave 1

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4.236 Sample Objective: You wish to corroborate your preferred count by finding additional internal Fibonacci relationships between waves. Refer to Steps #1-3 and Figure 19. Example: wave 3 = 4.236 x wave 2



Figure 19

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A COMPLETE LIST OF KNOWN RELIABLE RELATIONSHIPS WITHIN PATTERNS developed by R.N. ELLIOTT and R.R. PRECHTER, JR. The following pages list the most common and useful Fibonacci ratio relationships in markets. IMPULSE WAVES Fifth Waves When Wave Three is Extended (see Figure 20) The most common multiple is 1.00 times the length of wave 1. Transfer the fixed length of wave 1 to the end of wave 4 to project the end of wave 5. The next You're most common Reading amultiple Previewis .618 times the length of wave 1. Follow Step #1 under “Retracements” Unlock full access with a free trial. on page 26 to project this target. With Free Trial is 1.618 times The nextDownload most common multiple the length of wave 1. Follow Step #1 under “Multiples” on page 31 to project this target.

Extensions in First or Fifth Waves (see Figure 20) By far the most common multiple for the extended wave is 1.618 times the net price advance

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You're Reading a Preview Figure 20


Download With Free Trial CORRECTIVE WAVES

Zigzag Corrections The most common retracement is 61.8% of the previous impulse wave and is most likely when the correction itself is in the “wave 2” position. Follow Step #1 under “Retracements” to project this target. See Figure 21.

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The next most common retracement is 50%. See page 22 to project this target. The least common retracement is 38.2%. Follow Step #2 under “Retracements” to project this target.


Download With Free Trial Figure 22

B Waves in Zigzags (See Figure 22) The most common retracement of wave A is 38.2%. Follow Step #2 under “Retracements” to project this target.

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Figure 23 You're Reading a Preview

C Waves inwith Zigzags Unlock full access a free trial. (See Figure 23)


By far the most common multiple is 1.00 times the length of wave A. Transfer the fixed length for wave A to the end of wave B to project the end of wave C. The next most common multiple is 1.618 times the length of A. Follow step #1 under “multiples” to project this target.

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Figure 24



Figure 25

The next most common retracement is 23.6%. Follow Steps #2-3 under “Retracements” to project this

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C Waves in Flats By far the most common multiple is just over 1.00 times the length of A. Transfer the fixed length for wave A to the end of wave B to project the end of wave C. Then look for the market to turn slightly beyond that point. See Figure 25.



Figure 26

B Waves in Irregular Corrections

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The next most common Fibonacci multiple is 1.382 times the preceding A wave. Follow Step #2 under “Retracements” and add this length to the beginning of wave A to project a 1.382 multiple. C Waves in Irregular Corrections By far the most common multiple is 1.618 times the length of wave A. Follow Step #1 under “Multiples” to project this target. See Figure 26. The next most common multiple is 2.618 times the length of A. Follow Steps #1-2 under “Multiples” to project this target.



Figure 27

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The next most common relationship is that alternate “threes” are related by 1.618. Follow Step #1 under “Multiples” to project this target. The least common relationship is that adjacent “threes” are related by 1.618. Follow Step #1 under “Multiples” to project this target.


Download With Free Trial Figure 29

Subwaves in Contracting, Ascending and Descending Triangles (See Figure 29)

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Subwaves in Expanding Triangles Download With Free Trial (See Figure 30) The most common relationship is that each subwave is 1.618 times the length of the previous alternate subwave, i.e., wave e = 1.618 x wave c = 2.618 x wave a; wave d = 1.618 x wave b. Follow Step #1 under “Multiples” to project these targets.

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ADVANCED RATIO APPLICATION — A COMPREHENSIVE FORECASTING METHOD Keep in mind that all degrees of trend are always operating on the market at the same time. Therefore, at any given moment the market will be full of Fibonacci ratio relationships, all occurring with respect to the various wave degrees unfolding. It follows that points which are found to be in Fibonacci relationship to several market lengths have a greater likelihood of marking a turning point in the future than a point which is in Fibonacci relationship to only one length. The group-ratio approach works best when the guidelines of the Elliott Wave Principle are kept in mind. For instance, if a .618 retracement of a Primary wave 1 by a Primary wave 2 gives a particular target, and within it, a 1.618 multiple ofReading Intermediate wave (A) in an irYou're a Preview regular correction gives the same target for Intermediate Unlock that, full access with a free trial. of Minor wave wave (C), and within a 1.00 multiple 1 gives the same target yet again for Minor wave 5, then Free Trial you have a mostDownload powerful With argument for expecting a turn at that calculated price level. Figure 31 illustrates this example.

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If one of the above calculations were to yield one level, but two of them were to yield another level, the level supported by two calculations is more likely the valid one. Years of experience have proved this to be the most valid, reliable and useful approach to price forecasting in markets. The graph on page 21 is full of such confirming ratios, and serves as a good illustration of how markets often build an interlocking grid of Fibonacci relationships.



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REAL-TIME EXAMPLES OF FIBONACCI MULTIPLES AND RETRACEMENTS Rather than give the reader ‘doctored-up’ examples and charts of what might transpire with regard to Fibonacci multiples and retracements, we have chosen real-time examples of how Fibonacci relationships were actually applied in forecasting future market turning points. The following paragraphs are excerpted from past issues of The Elliott Wave Theorist : THE BOND MARKET November 1983 “Now it’s time to attempt a more precise forecast for bond futures prices. Wave (a) in December futures dropped 11 3/4 points, so a wave (c) You're equivalent subtracted Reading a Previewfrom the wave (b) peak at 73 1/2 last month projects full of access a free a downsideUnlock target 61with 3/4. It trial. is also the case that alternate waves within symmetriDownload Withrelated Free Trial cal triangles are usually by .618. As it happens, wave B fell 32 points. 32 x .618 = 19 3/4 points, which should be a good estimate for the length of wave D. 19 3/4 points from the peak of wave C at 80 projects a downside target of 60 1/4. Therefore, the 60 1/4 - 61 3/4 area is the best point to be watching for the bottom of the current decline. This target zone fits the fact

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Figure 32

April 3, 1984 [adjusting and confirming the target after (b) ended in a triangle itself] “...the ultimate downside target will probably

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wave (A) fell 11 points. 11 points from the triangle peak at 70 3/4 projects 59 3/4, making the 60 zone (+ or - 1/4) a point of strong support and a potential target. As a final calculation, thrusts following triangles usually fall approximately the distance of the widest part of the triangle. Based on the accompanying chart, that distance is 10 1/2 points, which subtracted from the triangle peak gives 60 1/4 as a target.” June 4, 1984 “The bond market ended a one-year decline on May 30, hitting the long-standing Elliott target of ‘59 3/4-60 1/4’ basis the nearby futures with a dramatic reversal off [an intraday] spike low at 59 1/2 on the June contract [closing day at 59 31/32]. In the You'rethat Reading a Preview 2 1/2 days following that low, bonds have full access with a[See free trial. rebounded Unlock two full points.” Figure 33]. Download With Free Trial

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THE STOCK MARKET November 7, 1983 [See Figure 34.] “A break of Dow 1206 will virtually confirm that Primary 1 has peaked and assure a continuation of the decline. If 1158 is broken, the next point of support is 1090, which marks a .382 retracement of Primary 1”.



Figure 34

March 5, 1984 Downside Targets “As the correction progresses, we should be able to get closer and closer to estimating

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with ‘buy’ strategy outlined (with minor variations) for the 1087-1099 area. The hourly low on May 30 was 1087.93.


The list of Fibonacci wave relationships now Download With Free in place is so perfect as to be a Trial compelling argument all by itself that a low is in the making. 1) Wave (C) at 90.99 points, is .22 of a Dow point from being exactly .618 times as long as wae (A) at 146.88 points, a typical relationship in zigzags. 2) Wave (B) at 35.27 points, is 1/2 point from being exactly .382 times as long as wave

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correction lasted 21 weeks. Thus, the time lengths create the Fibonacci sequence, 3, 5, 8, 13, 21, revealing that each time period, as precisely defined by their Elliott Wave structures, is related to each of the others by a Fibonacci ratio. 5) Even the Minor moves are related precisely by Fibonacci ratios (see March and April issues). 6) The Dow Jones Transports have retraced exactly 50% of their 1982-1984 advance as of the low on May 30.”



Figure 36

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August 6, 1984 “The leap out of that bottom (as if you hadn’t heard) has been one for the record books, and is powerful enough virtually to confirm that Primary wave 3 has begun. The first important level of resistance is Dow 1290-1340.” [See Figure 37.]


Figure Download With37 Free Trial

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THE GOLD MARKET The quotes presented below detail 5 consecutive forecasts, which were made in The Elliott Wave Theorist between November 1979 and January 1982, as follows: 1) Gold should drop to $477. Outcome: Dropped to $474. 2) Gold should rise to $710. Outcome: Rose to $710. 3) Gold should drop to $388. Outcome: Dropped to $388. 4) Gold should undergo a rise to new highs. Outcome: Short 3-month rise followed by renewedYou're decline. But because of stop Reading a Preview placement, the loss on the erroneous access with a free trial. forecastUnlock was full only $10. Download Free Trial 5) Gold going lower.With Move back to the short side. Outcome: Gold dropped another $90 to $296.75.

Here are the exact comments which appeared: November 18, 1979 “London gold appears to be in its final blowoff rally on a long term basis. One all-important question, in Elliott terms, is whether the

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Figure 38

March 9, 1980 “Fibonacci support levels for gold are $565, $477 and $388. An ideal Elliott scenario for gold over the next year or two would be an A wave down to $477, forming the first

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Figure 39

April 6, 1980 “Gold has since declined to a low of $474 on March 18.” [See Figure 39.]

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Figure 40

September 23, 1980 (the day of the high) “Gold has now hit its minimum target of $710 per ounce London fixing. From here on out,

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Figure 41

August 5, 1981 “Yesterday the Fibonacci ratio target of $388 per ounce computed a year and a half ago was satisfied quite closely, and the time zone of ‘mid-1981,’ refined last May to ‘August 1981,’ is upon us.” [See Figures 41, 42.]

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September 8, 1981 “The exact low on the COMEX nearby futures contract was $388.00 and the lowest price for a cash bullion sale was $388.00 by the Bank of Nova Scotia, both on the same date.” January 11, 1982 “[The a-b-c rally into the September 1981 high] in gold is indicating that a break of the $388 level is now extremely likely. If gold fixes below $380, I suggest reinstating your short position. The net result will be as if we had never exited the short side at all.” While most commodities’ wave structures clearly indicated that wave I began in 1967, some uncertainty had existed in bullion’s pattern due to government-imposed price controls. The subsequent of the $388 level You're Reading a break Preview conclusively resolved this matter, confirming the wave Unlock full access with a free trial. count shown below. Download With Free Trial

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PART III

GANN ANALYSIS



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GANN ANALYSIS

The PRC is ideally suited for many of the methods pracaticed by the late W.D. Gann. We do not attempt to evaluate Gann theory in this manual, rather to illustrate the usefulness of the PRC to those already convinced of the benefits of Gann analysis. THE GANN-BLITZ APPROACH

Those researchers with either computers or a good deal of spare time may wish to explore a method similar to that used by Gann. Of course, the basis of Gann’s choice of “important numbers” is strictly numerological, and the long list of numbers he considered im portant leaves almost no number untouched. However, his idea of finding groups of such numbers to reveal highreliability futureYou're turning pointsa can be applied successReading Preview fully to Fibonacci ratios. This method is essentially a Unlockin fullwhich access with free trial. takes every ap“shotgun” approach, theaanalyst plicable Fibonacci ratio (2.618, 1.618, 1.00, .618, .382, Free Trial ... etc.), applies Download it to each With discernible market swing on the chart, and plots every one of these points in order to find “clusters” which might reveal “magnets” for price turning points. This approach is not as useful as that which takes into account the guidelines of the Elliott Wave Principle (see ADVANCED RATIO APPLICATION). However, for those who have no desire to learn or apply the tenets

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Procedure: 1) Choose the most recent swing in the market of the largest degree in which you are interested and apply all the functions under “USING THE COMPASS” to that swing. Add (and subtract) each of the results to (and from) both the beginning and end of that swing and of the preceding swing of the same degree. Lightly mark all resulting price levels on the chart. 2) Choose the most recent swing of the next smaller size and repeat the process. 3) Continue this process until the computations have been performed on the smallest applicable swing from the available data. 4) Mark with heavy the aboundaries You'relines Reading Preview around those price levels which cluster, or which appear a greater than full access with a free trial. average numberUnlock of times in your calculations. Look for these areas to coincide with turning points. Experience Download With Free Trial shows that Fibonacci relationships are generally quite precise, so “clusters” should be tight where market turns are indeed likely. This method is best accomplished using a computer. SQUARING OF TIME AND PRICE

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market. This line is referred to as a 1x1 line (1 time unit by 1 price unit). Download With Free Trial

Other frequently drawn lines regarded by Gannophiles as having significance are 2x1 lines (2 time units by 1 price unit) and 1x2 lines (1 time unit by 2 price units). An alternate method of ‘squaring’ is accom pli sh ed by meas ur in g fo rw ar d in ti me a nu mb er

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1x1 lines Procedure: Place point C at the beginning or end of the move from which the line will be drawn. Place point D forward in time at a price equivalent to point C. Keeping point D fixed, pivot the PRC so that point C is at a time equivalent to point D (above D for bottoms, below D for tops). Make a small mark. Connect the extreme point of the move to the mark, and extend the line into the future. You have just drawn a 1x1 (45 degree) line to your initial point. 1x2 lines Procedure: Set the center guide at 2 on the left-hand scale. Place point A at the beginning or end of the move from which the line will be drawn. Place point B forward in time at a price equivalent point A. Make a small You're Readingtoa Preview mark. Flip the compass. Place point C at the mark you full access free trial. have just made. Unlock Keeping pointwith C afixed, pivot the PRC so that point D is at a time equivalent to point C (above C Download WithMake Free Trial for bottoms, below C for tops). another small mark. Connect the extreme point of the move to the second mark, and extend the line into the future. You have just drawn a 1x2 2x1 lines Procedure: Set the center guide at 2 on the left-hand scale. Place point C at the beginning or end of the move

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UNEQUAL CHART DIVISIONS

For chart paper where the price units and the time units are not equal, Gann lines are still easily drawn with the PRC by adjusting the center guide on the PRC to correspond with the ratio of time to price on your chart paper. As an example, suppose your time units are twice the size of your price units (i.e., the height of paper used for 2 points is equal to the length of paper used for 1 day). Your objective is to draw a 1x1 line. Set the center guide at 2 on the left-hand scale. Place point C at the beginning or end of the move from which the line will be drawn. Place point D forward in time at a price equivalent to point C. Make a small mark. Flip the compass. Place point A at the mark you have just made. Keeping point A fixed, pivot the PRC so that point B is at a time equivalent to point A (above A for bottoms, below A for tops). Make another small You're Reading a Preview mark. Connect the extreme point of the move to the Unlock full access a free trial.the future. You second mark, and extend thewith line into have just drawn a 1x1 line to your initial point, WithFor Free2x1 Triallines, you can squaring time Download and price. then multiply the setting chosen by 2. for 1x2 lines, multiply the setting chosen by 1/2. This technique can be applied to various scales of chart pa per by set ti ng th e ce nt er gu id e on th e le ft ha nd scale at the ratio of the number of price units in a certain height of chart paper to the number of time units in the same length of chart paper.

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conclusion that every 25 unit demarcation would represent a potential area of support or resistance. The most widely used range subdivision by Gann practicioners is that of eighths. The usefulness of the PRC to believers in this method is illustrated in Figure 45. Step 1) Set the center guide at 2. AB = .50 x CD. Step 2) Measure the wave length with the wide end of the PRC. Flip the compass. Place point A at one end and point B at an equivalent point in time to point A. Mark this point. Step 3) Flip and contract the PRC so that points C and D fit on the smaller length you have marked. Flip the compass again. Now AB = .25 x the original length. You're Reading a Preview

Step 4) Flip and contract the PRC so that points C full access with ayou free trial. and D fit on theUnlock smallest length have marked. Flip the compass again. Now AB = .125 x the original length. Download With Free Trial

The subdivisions can be projected into new high or low price territory for levels of resistance or support as illustrated.

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ERRONEOUS USE OF THE COMPASS

Some people have attempted to find value in measuring the physical length of waves on chart paper, taking into account both price and time. The problem with this approach lies in the fact that a physical length as defined above is subject to the time and price scales of the chart paper which is used, and thus a retracement or multiple will not transfer from one type of chart paper to another. If a method is to have significance, it should certainly not be dependent on chart scale. CONCLUSION

The Precision Ratio Compass is the perfect tool for projecting ratio-based price and time targets in the financial markets. The foremost You're Reading a Preview advantage is a tremendous saving of time, since you will not have to full access with a free trial. down figures, calculate price Unlock or time distances, write and then transfer the result to your chart. In fact, With Free Trial you won’t evenDownload have to check your records to make sure of exactly what the price levels at the turning points are. The Compass knows that when you place it on the chart. The second important advantage is that you will now have time to investigate all the relevant ratio relationships, not just one or two. You can even experiment with your own special ratio theories (pi multiples have been suggested). And last but lea will elimin sibili of

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ADDITIONAL CHARTS PRESENTED DURING CALCULATING FI BONACCI RELATIONSH I PS Using the PRECI SI ON RATI O COM PASS



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1-770-536-0309 (outside the U.S.) or 1-800-336-1618 (inside the U.S.)

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