Using Fibonacci To Determinate Market Goals- Part IV

Using Fibonacci To Determinate Market Goals- Part IV

Firstly, I whish to remark that the different Technical tools named in this work, were used to make diagnostics about the probable price behavior, find the triggers (sell price and buy price), and to calculate the stop loss, and the price target, every day since more than a year.

Model’s description

Firstly, I whish to remark that the different Technical tools named in this work, were used to make diagnostics about the probable price behavior, find the triggers (sell price and buy price), and to calculate the stop loss, and the price target, every day since more than a year.

Well now, to develop this work as objective as possible, and get rid of all subjective coming from trader criteria, in order to apply the concepts developed above, we use a simple Microsoft Excel model, where we try to find, in historical data the accomplish of this system objectives.

The population defined for each currency pair under study, could be seen in the following tables:

– EURUSD:

– CHFUSD:

– GBPUSD:

YENUSD:

Step 1

Using Metatrader trading platform, V 4.00, we are able to see the currencies prices in real time. This system allows us to see the different quotation charts of all majors currencies in Forex and besides, the quotation of NYSE most important stocks, and gold.

This application not only let us see real time quotation, but also keeps historical record of each pair in it’s different time frames.

We proceed to isolate a significant number of records (sessions) in a continuous time serie: date (and hour, in the case of 4 hours sessions) maximum price of the session (HIGH), minimum price (LOW), opening price (OPEN) and close price (CLOSE or LAST PRICE).
o LAST PRICE).

Ex.: EUR/USD, Dialy

Then we proceed to apply the Zigzag oscillator in the chart, in order to identify the bullish or bearish rallies, their end and duration for each studied session. In the case of bullish rallies, we take the minimum price of the session (low) as start, and the maximum (high) as the end. This last one, becomes the next bearish rally beginning.

To explain the graph analysis, we choose a random set of time for EURUSD quotation, and applied the ZigZag oscillator.

In the following chart of a week session (Chart 4) you can see a bullish rally that starts on 09/03/2003 with a minimum price at 1.0762, that ends on 12/30/2004 at 1.3665 USD dollars against Euro.

To this bullish rally of 2903 basic points, we apply the ZIGZAG oscillator (red line) showing 3 trend lines:
The first one bullish till 1.2930 day 02/19/2004, second bearish until 1.1759 day 04/26/04 to finally return the bullish trend with it’s third leg.

After isolating the major trend, in this particular case for week sessions, we start analyzing the currency behavior inside it. That’s why we apply the ZigZag oscillator to a 1 day chart (next inferior time frame) in order to find out through charts the minor trends or sub trends, and it’s corrections.

Then we proceed to isolate the first week dominant trend (Chart 5) starting at 1.0762 ending day 02/18/2004 at 1.2930 in the maximum of the session. When we apply the ZigZag oscillator, we found out 5 sub trend lines: 3 bullish (A1, A3 and A5), and 2 bearish (B2 and B4).

According to what we say before, we can see that A1, A3, and A5 are minor bullish trends that correspond with the major one, while B2 and B4 are just price corrections.

Continuing with the model development, we put together the tables for each currency under study, where we list every price rally, showing it trend: Bullish or Bearish and the start and end price. In the particular case of EURUSD, daily session we came out with the following results.

As you can see on table 8 the Number 2 rally, starts on day 05/18/1995 at 1.3380 dollars per Euro, and ends the day 05/26/1995, with a maximum price of 1.4235. This rally last 7 days, or 168 hours and represents 855 basic points.

Facundo Molina is founder and director of MolFX - Management, a company fully specialized in Foreign Exchange Markets, with an important client portfolio through Capital Markets Services LLC (CMS). He has a BA Business Management at the Universidad Nacional del Sur (Argentina), where he has a doctorate degree based on the application of Fibonacci theory into financial markets. He also acts as professor of new and experiments traders.