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In a message dated 97-12-21 12:23:38 EST, you write:
<< Also, I recall having
read in "Traders World" several issues ago, an article debunking the
golden ratio stating that all summation series would be related by
..618. Any comments ?
Dr.Narayan. >>
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First, I have to thank Norman Winski for correcting the "Lewis" to Lucas
Numbers and now Dr. Narayan. I always have a problem remembering Lucas and
call it Lewis instead. Now to the main point. Using fib in trading on a
practical way.
The point of my fib calculations was not to debunk fib but to show 2 vital
points to traders. First, since all summation series end in 1.618 ratios,
this means we CAN expect to see these ratios on ANY chart regardless of
whether fib numbers are present or not. If fib ratios were ONLY valid for
charts with fib numbers, the application could be quite limited -- so limited
that there might be a mad rush to find fib numbers on a chart before you could
expect a fib ratio.
Second, everyone FORGETS that fib numbers (or Lucas numbers or any numbers)
are SUMMATION numbers. You add 2 numbers to get a 3rd number which then
establishes a fib ratio. I see traders looking for a fib retracement, which
is a fib ratio, after EVERY move. In theory, 2 moves or 2 waves should be
combined (added) before you get a fib retracement. I have NEVER seen anyone
write about this but like everything else, once we have it explained, it
becomes "obvious".
This is why so many tests of each wave reveal nothing significant. In effect,
these tests prove that fib does not work for every move but what they fail to
realize is that it was never claimed to work this way EXCEPT in the minds of
traders who perverted the original statement of a "fib relationship only on
SUMMATION numbers". Math, and nature, only claim that AFTER 2 or more numbers
are added together, do you get the fib ratio. And the more numbers added
together, the CLOSER you get to 1.618 or .618.
Do you know why so many traders miss a W2 correction which sets a beautiful
trading opportunity for a big W3 move? Because once W2 retraces more than
.618, they stop looking at it. Many, if not most, W2's retrace more than .618
but they are also so close to a previous W5 that traders are afraid to take
the trade. However, once you realize that a W2 is NOT supposed to be a fib
ratio, it allows you to view the entire pattern more objectively. It is just
as important to know when NOT to expect a fib ratio as it is to know when TO
expect it.
This entire analysis challenged a widely held theory and shifted the focus to
what the theory really says. Once you know the truth, it will set you free.
The theory works and once you have a valid theory, it will lead you to the
valid facts which will improve your trading. Good Luck.
Lynn
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