All rights reserved. No part of this work may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying and recording, or by any information storage or retrieval system without the prior written permission of the copyright owner unless such copying is expressly permitted by federal copyright law. ISBN 0-934-3SO-36-8 Published by TRADERS PRESS, INC. The material contained herein is not to be taken as advice to buy or to sell specific securities. The information presented is based on sources we believe to be reliable and has been carefully checked for completeness and accuracy but cannot be guaranteed. TRADERS PRESS I N C O R P O R A T ED PO BOX 6206 Greenville, SC 29606 Books and Gifts for Investors and Traders 800-927-8222 Fax 864-298-0221 [email protected] HTTT://Traderspress.com TABLE OF CONTENTS Preface Introduction Clues from the Cosmos Harmonic and Vibratory Numbers Geometric Characteristics of a Price Chart The Primary Patterns Classical Chart Patterns Using Ratios and Proportion The "Butterfly" Pattern The Opening Price Entry Techniques Appendices Additional Readings Books and Gifts for Investors and Traders Publishers of: Commodity Spreads: A Historical Chart Perspective (Dobson) The Trading Rule That Can Make You Rich* (Dohson) Viewpoints of a Commodity Trader (Longstreet) Commodities: A Chart Anthology (Dobson) Profitable Grain Trading (Ainsworth) A Complete Guide to Trading Profits (Paris) Traders Guide to Technical Analysis (Hardy) The Professional Commodity Trader (Kroll) Jesse Livermore: Speculator-King (Sarnoff) Understanding Fibonacci Numbers (Dobson) Wall Street Ventures & Adventures through Forty Years (Wyckoff) Winning Market Systems (Appel) How to Trade in Stocks (Livermore) Stock Market Trading Systems (Appel & Hitschler) Study Helps in Point and Figure Technique (Wheelan) Commodity Spreads: Analysis, Selection and Trading Techniques (Smith) Comparison of Twelve Technical Trading Systems (Lukac, Brorsen, & Irvvin) Day Trading with Short Term Price Patterns and Opening Range Breakout (Crabel) Understanding Bollinger Bands (Dobson) Chart Reading for Professional Traders (Jenkins) Geometry of Stock Market Profits (Jenkins) Please write or call for our current catalog describing these and many other books and gifts of interes investors and traders. 1-800-927-8222 FAX 864-298-0221 [email protected] HTTI'://Traderspress.com This book is dedicated to Benida. You are the reason I am still here to enjoy all of my friends and family. Everyone deserves to have someone love them this much in a lifetime. PREFACE Over the past 20 years the use and misuse of These patterns repeat with a great deal of the Fibonacci Summation Series proliferated regularity. My best students have been air- to the point that commentators on the nation's line pilots. They seem to approach trading TV business channels now present them- like they approach flying, following a flight selves as resident experts. 1 lay no claim to plan. The similarities to trading are numer- being an expert. However, my studies always ous. included an extensive examination of Fi- bonacci numbers. My pragmatic position on Finally, one of my goals in writing this book anything I learned is that it I could not use is to expose you to the subject of ancient ge- what I was studying to help in trading, then I ometry. Fibonacci numbers are an integral was not interested in pursuing it any further. part of the numbers that make up the subject If this material stimulates your interest in the of ancient geometry. It will be of interest to subject, then introducing you to it will be some of you that many of these sacred ratios worthwhile. A word of caution, this material trace their origin to the cosmos. 1 will not is based on the probabilities of trading. The spend a significant amount of time relating art of trading is one of risk management. my experiences in astro-harmonics research. Amos Hosteller, one of the founders of Com- The subject is too vast for me to consider. modity Corporation in Princeton, New Jer- More importantly, it is not necessary for prof- sey, used to say, "take care of losses and the itable trading. profits will take care of themselves." 1 refer to this quote a lot because it is very impor- tant! The pattern recognition methodology illus- trated in the text will be of interest to anyone who ever traded using technical charts. I can say with confidence there arc very few who researched patterns to the extent I have. Some of the references date back to the early 1900's. Each of these patterns is based on ratio and proportion. A technical chart is nothing more than a road map with a price and time axis. INTRODUCTION Leonardo de Pisa de Fibonacci 21, 34, 55, 89, 144 to infinity. Dividing one and Beyond number by the next after the eighth sequence yields 21/ 34= .618. This just happens to be On the eastern seaboard about an hour's drive the relationship of the height of the Great from Florence, Italy lies the town of Pisa. It Pyramid to 1/2 its base. This additive series of was here that Fibonacci was born. He was a numbers is based on the equation thirteenth century mathematician who prima- rily worked for the royal families of Italy. The work for which he is most famous is the Libre Abaci (Book of Calculations). His award for this work was the present day equivalent of the Nobel Peace Prize. Fi- bonacci was largely responsible for the use of arithmetic numbers versus Roman numer- als. Before Fibonacci, the number 30 was written XXX. After his Libre Abaci, it was written 30. Phi + 1 = Phi squared Legend describes his journey to Egypt as one (0 + 1 = 02). of great discoveries. He went to Egypt to Base = 2.00 study the mathematical relationships con- Half Base = 1.00 tained in the pyramids. Height = .618 Slope = 1.618 Those of you who really want to study the math contained in the pyramids should read Peter Thompkin's book The Secret of the Diagonal = 1.902 V(2.618+1) Great Pyramids. It is not my intention to ex- plore all of the geometry in the pyramids, only the Fibonacci Summation series. Fibonacci found this series when he studied the Great Pyramid at Giza. The series is the sum of the two previous numbers 0, 1, 1, 2, 3, 5, 8, 13,