Fibonacci, Gann & Pivot
The opinion of many traders is that price movements follow certain patterns, so it is possible to make price predictions. Mathematicians have developed number series based on forms occurring in nature, such as a snowflake, which can now also be used for trading.
Fibonacci & Retracements
Some theories say that markets move dynamically in rhythms. It should therefore be possible to predict prices on the basis of patterns and thus also with the help of mathematics. A very popular approach for trading is the consideration of Fibonacci numbers.
What are Fibonacci numbers? Fibonacci series are numbers that start with 1 and add the previous number to get the forward number. Therefore 1 + 1 = 2, 2 + 1= 3, 3+2 = 5, 5+3 = 8, 8+5 = 13, 13+8 = 21 and so on. These generate the Fibonacci series 1,2,3,5,8,13,13,21. The series continues indefinitely, but for example we stop at 21. If the previous number for a Fibonacci series is divided into the forward number and vice versa, there is a variation of .618. This is called the golden ratio found in nature, e.g. the curvature of a snail’s shell or the formation of galaxies, ice crystals, etc. The .382 is obtained by dividing a number by two forward or forward spaces in the sequence.
A Fibonacci retracement is a term used in technical analysis that refers to areas of support or resistance. Fibonacci retracement levels use horizontal lines to indicate areas of support or resistance at the major Fibonacci levels before the trend continues in the original direction. These levels are generated by drawing a trend line between high and low and then dividing the vertical distance by the main Fibonacci ratios of 23.6%, 38.2%, 50%, 61.8% and 100%. Fibonacci retracements are a very popular tool used by many technical traders to identify strategic levels for orders to be placed, such as entries, price targets or stop losses. After a significant price move up or down, the new support and resistance levels are often on or near these lines. Fibonacci retracement levels are static prices that do not change as opposed to moving averages. The static nature of price levels allows quick and easy identification. This allows traders and investors to act with foresight and prudence when reviewing price levels. These levels are important price levels at which some kind of price action is expected, either a rejection or a break
Trading Fibonacci Retracements:
These retracements can be used as entry levels for resets during an uptrend. It is advisable to have a momentum indicator such as a stochastic or MACD oscillator to identify the best entries. In downtrends, levels can be used for short trades when the price bounces off a Fibonacci level. A Fibonacci retracement is not useful to determine general price trends but can help predict the extent of support and resistance within a large price reversal so that traders can anticipate and trade medium price fluctuations.
Gann angles are a popular analysis and trading tool that measures key elements such as pattern, price and time. The most discussed topic of discussion among technical analysts is that past, present and future all exist simultaneously under one Gann angle.
When analyzing or trading on the course of a particular market, the analyst or trader tries to get an idea of where the market has been, where he is in relation to that former floor, and how he can use the information to predict future price movements.
Gann angle versus trend lines
Of all the trading techniques available from W.D. Gann, drawing trading and forecasting angles is probably the most popular analytical tool for traders. Many traders still draw them manually on charts. These angles are often compared to trend lines, but many people do not know that they are not the same.
A Gann angle is a diagonal line that moves at a steady speed. A trend line is created by linking lows to lows in the case of an uptrend and high to high in the case of a downtrend. The advantage of drawing a Gann angle over a trend line is that it moves at a steady speed. This allows the analyst to predict where the price will be at a certain point in the future. This is not to say that a Gann angle always predicts where the market will be, but the analyst will know where the Gann angle will be, which will help measure the strength and direction of the trend. A trend line, on the other hand, has some predictive value, but due to the constant adjustments that normally take place, it is unreliable for long-term forecasts.
Past, present and future
As already mentioned, the key concept in working with Gann angles is that the past, present and future all exist simultaneously on the angles. However, the Gann angle can be used to predict support and resistance, directional strength, and timing of top and bottom.
Using a Gann angle to predict support and resistance is probably the most popular way they are used. Once the analyst determines the period in which he wants to trade (monthly, weekly, daily) and scales the chart correctly, the trader simply draws the three main Gann angles: the 1X2, 1X1 and 2X1 from the main top and bottom. This technique forms the framework for the market so that the analyst can read the movement of the market within this framework.
Upward angles provide support and downward angles provide resistance. Since the analyst knows where the angle is on the chart, he can decide whether to buy on support or sell on resistance.
Traders should also be aware of how the market rotates from angle to angle. This is called the “rule of all angles”. This rule states that when the market crosses an angle, it moves in the direction of the next one.
Another way to determine support and resistance is to combine angles and horizontal lines. For example, a downward Gann angle often exceeds a 50% retracement level. This combination then represents an important resistance point. The same applies to ascending angles that exceed a 50% limit. This area becomes an important supporting point. If you have a long-term chart, you will sometimes see many angles concentrated at or near the same price. These are called price clusters. The more angles are concentrated in a zone, the more important the support or resistance is.
A pivot point is a technical analysis indicator used to determine the overall development of the market over different time periods. The pivot point (daily pivot) itself is simply the average of the high, low and close prices of the previous trading day. The next day, it is assumed that trading above the pivot point indicates a sustained uptrend, while trading below the pivot point indicates a downtrend.
Pivot point analysis is often used in conjunction with the calculation of support and resistance values, similar to trend line analysis. In a pivot point analysis, the first support and resistance levels are calculated using the width of the trading range between the pivot point and the high or low prices of the previous day. The second support and resistance levels are calculated over the full width between the high and low prices of the previous day.
Pivot points are commonly used intraday indicators for trading futures, commodities and stocks. Unlike moving averages or oscillators, they are static and remain at the same prices throughout the day. Data from the previous day’s trading area is used as input to generate five possible pivot levels. The pivot stages consist of one pivot, two higher resistance levels known as R1 and R2, and two lower pivot supports known as S1 and S2.
Each resistance level is regarded as a fulcrum. Some dealers add additional pivot points to add up to four additional support and resistance pivot points to the range. Pivot points are often considered in algorithms and high frequency trading programs. Traders often place stop orders at or near pivot points. Most trading platforms offer these as indicators or studies that can be placed on a chart.
Using a pivot point
A pivot point is a responsive price level. A pivot point is considered supportive or a support level if the underlying asset is traded higher than the pivot point. A pivot point at a higher price than the underlying is considered a price resistance level. Prices tend to stop or distract when a pivot point is tested for the first time. Combining pivot points with other trend indicators is common practice among traders. A pivot that also overlaps or converges with a moving average of 50 periods or 200 periods becomes a stronger price support or resistance level.
Risk Warning: Trading Foreign Exchange and Contracts for Difference (CFDs) is highly speculative and may not be suitable for all investors. The leverage created by trading on margin can work against you as well as for you. Only invest with money you can afford to lose and ensure that you fully understand the risks involved. You should also precisely inform yourself about all the risks associated with trading currencies and in case of doubt, consult an independent financial consultant.