Trading Basics by Thomas N. Bulkowski

Author:Thomas N. Bulkowski [Bulkowski, Thomas N.]
Language: eng
Format: epub
ISBN: 9781118488386
Publisher: Wiley
Published: 2012-10-30T04:00:00+00:00

The extension can be 38, 50, 62 percent, and so on. Software programs often show the EF move as 100 percent and point G might be 162 percent (or 62 percent longer than the EF move).

I programmed my computer to find the four turns (EFHG) shown in the figure and compared the EF move to FG. The test used 926 stocks and found 31,919 samples from March 2000 to April 2011. That period included two bear markets and two bull ones.

Figure 5.4 shows a frequency distribution of the extension (the FG move) as a percentage of the EF move for both bull and bear markets.

In a bull market, for example, 8 percent of the samples showed an FG move of between 0 and 10 percent. In another example, 7 percent of the samples reached the 15 percent target. That means the FG move was just 15 percent of the EF move.

The longer the extension, the fewer the number of stocks showed price reaching that far.

If Fibonacci extensions worked, then I would expect to see a cluster of samples at the more popular numbers, such as 38 percent (point A), 50 percent (B), and 62 percent (C). The chart does not show any spikes at those levels.

However, at 100 percent, point D, we see a slight increase in the number of samples. In other words, 2 percent of the samples had the FG move matching the EF move compared to 1 percent of samples on either side of 100 percent. It is as if traders decided to cash in their profits once they doubled their money. Even so, the increase is slight. Due to round off, the actual change for 95, 100, and 105 percent bins are a frequency of 1.5, 1.6, and 1.3 percent, respectively. That is hardly a rousing endorsement.

For the data I used and results found, it appears that Fibonacci extensions are no more accurate than randomly choosing any price as a possible turning point.

Fibonacci extensions are no more accurate than any other tool for determining where price might reverse.

Download

Copyright Disclaimer:
This site does not store any files on its server. We only index and link to content provided by other sites. Please contact the content providers to delete copyright contents if any and email us, we'll remove relevant links or contents immediately.