Forex and Stocks Trading: Baby Bird Capital

The Fibonacci sequence is a sequence such that each number is a sum of two preceeding ones.  Fibonacci numbers play a role in determining the strength of the waves and their length. The fibonacci sequence helps us to obtain the fibonacci ratios by dividing one number in the sequence by the next number. For example, the Fibonacci sequence is 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144 etc. Hence dividing  34 by 55 (34/55) gives the fibonnacci ratio of 0.618. There are five types of Fibonacci trading tools. These are a rcs, fans, retracements, extensions and timezones. We are going to focus on the application of Fibonacci retracement levels to the Elliott wave. Fibonacci retracement levels are horizontal lines that can be used to draw support lines, identify resistance levels, identify levels for placing stop loss orders and target profit levels. They are used to dertermine critical points where price action is likely to reverse. The Fibonacci ratios are 23.6%, 38.2%, 50%, 61.8% a...

The Elliott wave theory was discovered by Ralph Nelson Elliott.  According to the Elliott wave principle, market prices follow some recurrent cycles called waves.  Waves are patterns of directional movement. Prices change their dynamics based on crowd behaviour. The Elliott wave principle is predictive in nature. It gives some insight about the probable future direction of the market.  Elliott suggests that there is a five wave pattern. This five wave pattern consists of impulse waves and corrective waves.  There are three impulse waves going alongside the major trend and two corrective waves going against the major trend. Elliott wave guidelines • Wave 1, wave 3 and wave 5 determine the direction of the market • Wave 2 and wave 4 are counter waves to wave 1, wave 3 and wave 5 • Wave two never retraces more than 100% of wave one. • Wave 3 is usually the largest and most powerful • Wave four does not overlap with the price territory of wave one.  Elli...

A motive wave is a price movement in the direction of the main trend.  Motive waves always subdivide into five smaller waves. Guidelines for identifying Motive waves correctly • Wave two never retraces more than 100% of wave one • Wave four never retraces more than 100% of wave three • Wave three is often the longest and most powerful wave • Wave three always travels beyond the end of wave one Sub waves of Motive waves are always denoted by numbers There are two types of motive waves: Impulse and Diagonal waves Impulse waves This is the most common type of motive wave and they are easy to identify In this type of wave, wave four never enters wave one`s price territory. The primary objective is to propel the market to move in a certain direction, hence, wave 1, 3 and 5 are the motive waves and sub wave 3 is specifically an impulse wave. Wave Extensions Most impulse waves contain Extensions An extension is usually present in only one of the three impulse waves 1, 3 and 5. Ex...

There are twenty one corrective a, b, c patterns. These patterns are made up of three formations: Zigzag formation, the Flat formation and the Triangle formation. The Zigzag formation A single zigzag pattern is a simple three wave pattern labelled A-B-C. The sub waves of a zigzag follow a 5-3-5 pattern Wave B never retraces more than 100% of wave Correction patterns can sometimes have wave extensions. When the Zigzag pattern is extended it can form a double zigzag or a triple zigzag.  These patterns are separated by a 3 wave pattern.  A zigzag pattern is usually found in wave two. The Flat formation The difference between a flat formation and a zigzag is that the sub wave sequence of a flat is 3-3-5. Wave B usually retraces up to the start of wave A and wave C does not move beyond the end of wave A.  Flats are more common in fourth waves. A flat wave extension may result in the formation of a double flat. Triangles Triangles contain 5 waves that are labelled a-b-c-d-e. T...