Can the Pyramids make you money??

Fibonacci, Elliot wave, cycles and Phi all correlate. Leonardo Fibonacci was a 13th century accountant who worked for the royal families of Italy. In 1242 he published a paper entitled "liber abaci." The basis of the work came from a two-year study of the pyramids at Gizeh.

Fibonacci found that the dimensions of the pyramid were almost exactly the same as the golden mean or (.618).

The Fibonacci Summation Series takes 0 and adds 1. Succeeding numbers in the series adds the previous two numbers and thus we have 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89 to infinity. At the eighth series, by dividing 55 by 89, you have the golden mean: .618. If you divide 89 by 55 you have 1.618.

Do you see the pattern? 1+1=2, 1+2=3, 2+3=5, 3+5=8, 5+8=13.....

These ratios, and several others derived from them, appear in nature everywhere, and in the financial markets they often indicate levels at which strong resistance and support will be found. They are easily seen in nature (seashell spirals, flower petals, structure of tree branches, etc.), art, geometry, architecture and music.

Why are they important to the financial markets? Because the markets tend to reverse right at levels that coincide with the Fibonacci ratios.

Elliot Wave Patterns, in short, are usually a three or five wave series of advances, or declines, that define a trend. They are the result of crowd psychology, and thus are usually more reliable when found in broader based indices, such as the S&P 500 Index, Nasdaq Composite Index, etc.

Typically, if the S&P 500 Index moves higher in a 5 wave pattern, and then falls below the top of wave 3, it signals the start of a retracement that normally consists of 3 waves.

In a bear market it works the other way. A five wave pattern defining a declining trend, which is then reversed by a 3 wave rally, which eventually reverses and another five wave pattern begins to the downside.

Finding a wave pattern that completes at a strong Fibonacci support or resistance level can be a very reliable indicator of a change in trend.

By having an Elliott Wave pattern complete right "at" a Fibonacci support or resistance level, you in essence have increased the probabilities of being correct.

An excellent book on such patterns is, "Profitable Patterns for Stock Trading" by Larry Pesavento. Larry is an authority on trading patterns, and I studied with him at his home in Arizona some years ago.

Although both Fibonacci support and resistance levels and Elliott Wave theory are good tools, they fail too many times to be used for market timing. Many would disagree with this statement, but research shows that over the years they will give accurate forecasts only about 50% of the time.