ZigZag on Parabolic + Fibo + Channel:
Author: Nikolay Kositsin
newdigital, 2013.09.26 08:26
The Zig-Zag indicator is extremely useful for determining price trends, support and resistance areas, and classic
chart patterns like head and
shoulders, double bottoms and double tops. The Zig-Zag
indicators uses both swing highs and swing lows in its calculation:
The Zig-Zag indicator can use both percentages or points in its construction.
To construct the Zig-Zag indicator, there must be a certain percentage or number
of points between a swing high and a swing low before a line will be drawn. The
chart below of the E-mini Nasdaq 100 Futures contract visually illustrates the
difference between a price retracement Zig-Zag of 3% and a price retracement
Zig-Zag of 5%:
Notice how in the chart above that a Zig-Zag with a retracement percentage of 3%
makes more distinct lines than the Zig-Zag with a retracement percentage of 5%.
The purpose of using a Zig-Zag with a larger retracement percentage is to help
eliminate price noise that is not significant for the trader's analysis.
Zig-Zag indicator is extremely
effective at uncovering stock cycles while screening out short-term price
The Zig-Zag indicator is extremely effective in filtering short-term noise and identifying significant trends and significant changes in market prices.
Below is a chart of the E-mini S&P 500 Futures contract that illustrates
how effective the Zig-Zag indicator was in finding areas of support and resistance and price
The chart above of the e-mini uses a 5% Zig-Zag retracement value; therefore,
only price changes of 5% or greater are shown, helping a long-term trader or
investor determine important areas of support, resistance, and areas of price
On the left of the chart, the S&P 500 was forming a triangle consolidation pattern. When
prices broke resistance, a long-term buy was generated. During the middle of the
chart, the Zig-Zag indicator was effective in illustrating that the S&P 500
was in an upward price channel. Buying in areas where price touched the lower
support trendline and selling when prices touched the upper resistance line
would have proved extremely profitable.
Using the Zig-Zag indicator for shorter-term trades can prove profitable as
well. The chart below of Intel (INTC) shows a classic chart head and shoulder pattern
easily seen by the Zig-Zag indicator ($1 retracement):
The easily identified head and shoulders pattern gave a sell signal when price
on the right shoulder broke the upward slanting trendline.
The Zig-Zag indicator is an excellent technical analysis tool for identifying
classic charting patterns. The Zig-Zag indicator is also effective in reducing
noise and helping the technical trader see the true market direction.
Indicators: Fibonacci retracement
newdigital, 2013.11.21 12:06
Fibonacci Retracements (based on stockcharts article)
Fibonacci Retracements are ratios used to identify potential reversal
levels. These ratios are found in the Fibonacci sequence. The most
popular Fibonacci Retracements are 61.8% and 38.2%. Note that 38.2% is
often rounded to 38% and 61.8 is rounded to 62%. After an advance,
chartists apply Fibonacci ratios to define retracement levels and
forecast the extent of a correction or pullback. Fibonacci Retracements
can also be applied after a decline to forecast the length of a counter
trend bounce. These retracements can be combined with other indicators
and price patterns to create an overall strategy.
This article is not designed to delve too deep into the mathematical
properties behind the Fibonacci sequence and Golden Ratio. There are
plenty of other sources for this detail. A few basics, however, will
provide the necessary background for the most popular numbers. Leonardo
Pisano Bogollo (1170-1250), an Italian mathematician from Pisa, is
credited with introducing the Fibonacci sequence to the West. It is as
0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377, 610……
The sequence extends to infinity and contains many unique mathematical properties.
1.618 refers to the Golden Ratio or Golden Mean, also called Phi. The
inverse of 1.618 is .618. These ratios can be found throughout nature,
architecture, art and biology. In his book, Elliott Wave Principle,
Robert Prechter quotes William Hoffer from the December 1975 issue of
….the proportion of .618034 to 1 is the mathematical basis for the
shape of playing cards and the Parthenon, sunflowers and snail shells,
Greek vases and the spiral galaxies of outer space. The Greeks based
much of their art and architecture upon this proportion. They called it
the golden mean.
Retracement levels alert traders or investors of a potential trend
reversal, resistance area or support area. Retracements are based on the
prior move. A bounce is expected to retrace a portion of the prior
decline, while a correction is expected to retrace a portion of the
prior advance. Once a pullback starts, chartists can identify specific
Fibonacci retracement levels for monitoring. As the correction
approaches these retracements, chartists should become more alert for a
potential bullish reversal. Chart 1 shows Home Depot retracing around
50% of its prior advance.
The inverse applies to a bounce or corrective advance after a decline.
Once a bounce begins, chartists can identify specific Fibonacci
retracement levels for monitoring. As the correction approaches these
retracements, chartists should become more alert for a potential bearish
reversal. Chart 2 shows 3M (MMM) retracing around 50% of its prior
Keep in mind that these retracement levels are not hard reversal points.
Instead, they serve as alert zones for a potential reversal. It is at
this point that traders should employ other aspects of technical
analysis to identify or confirm a reversal. These may include
candlesticks, price patterns, momentum oscillators or moving averages.
The Fibonacci Retracements Tool at StockCharts shows four common
retracements: 23.6%, 38.2%, 50% and 61.8%. From the Fibonacci section
above, it is clear that 23.6%, 38.2% and 61.8% stem from ratios found
within the Fibonacci sequence. The 50% retracement is not based on a
Fibonacci number. Instead, this number stems from Dow Theory's assertion
that the Averages often retrace half their prior move.
Based on depth, we can consider a 23.6% retracement to be relatively shallow. Such retracements would be appropriate for flags
or short pullbacks. Retracements in the 38.2%-50% range would be
considered moderate. Even though deeper, the 61.8% retracement can be
referred to as the golden retracement. It is, after all, based on the
Shallow retracements occur, but catching these requires a closer watch
and quicker trigger finger. The examples below use daily charts covering
3-9 months. Focus will be on moderate retracements (38.2-50%) and
golden retracements (61.8%). In addition, these examples will show how
to combine retracements with other indicators to confirm a reversal.
Chart 3 shows Target (TGT) with a correction that retraced 38% of the
prior advance. This decline also formed a falling wedge, which is
typical for corrective moves. The combination raised the reversal alert.
Chaikin Money Flow turned positive as the stock surged in late June,
but this first reversal attempt failed. Yes, there will be failures. The
second reversal in mid July was successful. Notice that TGT gapped up,
broke the wedge trend line and Chaikin Money Flow turned positive (green
Chart 4 shows Petsmart (PETM) with a moderate 38% retracement and other
signals coming together. After declining in September-October, the stock
bounced back to around 28 in November. In addition to the 38%
retracement, notice that broken support turned into resistance in this
area. The combination served as an alert for a potential reversal.
William %R was trading above -20% and overbought as well. Subsequent
signals affirmed the reversal. First, Williams %R moved back below -20%.
Second, PETM formed a rising flag and broke flag support with a sharp
decline the second week of December.
Chart 4 shows Pfizer (PFE) bottoming near the 62% retracement level.
Prior to this successful bounce, there was a failed bounce near the 50%
retracement. The successful reversal occurred with a hammer on high
volume and follow through with a breakout a few days later.
Chart 5 shows JP Morgan (JPM) topping near the 62% retracement level.
The surge to the 62% retracement was quite strong, but resistance
suddenly appeared with a reversal confirmation coming from MACD
(5,35,5). The red candlestick and gap down affirmed resistance near the
62% retracement. There was a two day bounce back above 44.5, but this
bounce quickly failed as MACD moved below its signal line (red dotted
Fibonacci retracements are often used to identify the end of a
correction or a counter-trend bounce. Corrections and counter-trend
bounces often retrace a portion of the prior move. While short 23.6%
retracements do occur, the 38.2-61.8% covers the more possibilities
(with 50% in the middle). This zone may seem big, but it is just a
reversal alert zone. Other technical signals are needed to confirm a
reversal. Reversals can be confirmed with candlesticks, momentum indicators, volume or chart patterns. In fact, the more confirming factors the more robust the signal.
Forum on trading, automated trading systems and testing trading strategies
newdigital, 2014.06.13 07:43
Traders can use the Fibonacci tool available in most trading platforms
to define the move, and then levels at the proper intervals of .236,
.382, .500, .618, and .786 can be drawn in. So, when prices move down to
the .236 line, we can say that 23.6% of that trend has been retraced.
Or if prices move down the .618 level, 61.8% of the trend has been