Price Time Book

Price & Time Fibonacci & Gann Introduction and User Guide

Please do not distribute this book to others. It is for your use only Copyright © 2005 David Rivera, All Rights Reserved Reproduction or translation of any part of this work by any means, electronic or mechanical, including photocopying, beyond that permitted by Copyright Law, without permission of the author, is unlawful. All charts and option quotes are courtesy of Barchart.com

Risk Disclosure Statement The risk of loss in trading stocks, commodity futures and options can be substantial. Before trading, one should carefully consider their financial position to determine if futures trading is appropriate. One should realize that when trading futures and/or granting/writing options one could lose the full balance of their account. It is also possible to lose more than the initial deposit when trading futures and/or granting/writing options. All funds committed should be purely risk capital. Past performance is not indicative of future results. David Rivera and Rivera Publishing do not intend to give investment advice. The contents of this book are for informational purposes only.

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TABLE OF CONTENTS Introduction

4

Fibonacci Basics Examples

5 6

Gann Basics Examples

14 15

Using The Software

23

Final Word

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Introduction This book should be used as a reference to the basic techniques of trading price and time. This will not be an all intensive study on these techniques. I will explain the basics and will give you examples of trading with both Gann and Fibonacci. I will then explain how to use the software. The software is needed to calculate the potential Price and Time points. Both techniques you will learn, in essence, teach the same thing. That a market will make a move after Time and Price meet. What does this mean? Most of us, when analyzing a market based on technical analysis, will look at the chart patterns. We look at the highs and lows of the patterns. There are also traders which trade by dates. They trade by spotting seasonal patterns. Some trade by 45 day cycles or even by full moons. The trading philosophy you will read about in this manual is based on trading with both price and time in mind.

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Fibonacci Basics

Fibonacci was an Italian mathematician born around 1175. He was one of the first people to introduce the Decimal Number system into Europe. Different trading methods are a result of his work and the fact that in nature, plants and flowers grow naturally within the “Fibonacci Series”. I would only like to cover the basics of this as it concerns trading. This is because human behavior of the masses also follows this pattern. Traders that utilize fibonacci in their trading are primarily looking for potential reversal points. There are different ratios based upon the Fibonacci numbers. The basic ones are .382, .50 and .618. We are looking for the market to reverse at these ratios. The distance between the high to low or low to high will be calculated. Then it will be multiplied by .382, .50 or .618. If Soybeans move from 600 to 900, we would take the difference of 300 and multiply it by the fibonacci ratios. Then take that numbers and subtract them from the second price. 300x.382 -900 = 785.40 300x.50 -900 = 750 300x.618 -900 = 714.60 These would be the potential price reversal points. The ratios for the date is the same concept. If the move between the first price and the second price was 30 days, then multiply 30 times the 3 ratios: .382, .5, .618. 30 x .382 = 11.46 30x .50 = 15 30x .618 = 18.54 So if we round off the ratios we have roughly 11, 15 and 19 days for our potential time points. When any of the potential price ratios hit with any of the potential time ratios, we are looking for a reversal in the market.

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Let's look at the high of this stock on June 8th. It's high is roughly 18. It's low on June 23rd is roughly 10. We plug in these numbers with the dates if we want. We now can see the possible reversals. When any of the price and time points match up, we have a potential reversal. The price hit the .382 ratio of 13.06 and it happened on the .618 ratio for the time at 7/02/04.

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The low and high on this chart is roughly 12.25 and 26.5. The date for the low is May 10th and the date for the high is July 1st. The price hit the 50 percent ratio of 19.38 and the time just missed the 50 percent ratio of July 27 by one day.

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The biggest move on this chart is from 76 down to 71. If we plug in these numbers into Fibonacci, we will come up with 3 potential prices. When we plug in the 2 dates, we come up with 3 potential dates. The ratios do not have to be the same. Just because the price stopped at the .618 ratio does not mean the time should stop there as well. The .618 ratio of 74.09 was the approximate high on June 7. The date we have for the 50 percent ratio is June 6th. June 6th was a weekend. Besides, one day different is fine. We have a possible retracement after these 2 points hit.

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After one reversal already in May, you are waiting to see if there will be another one. You plug in 440 to 375 and notice that a potential reversal is at 407.50. The market touched that price and reversed on June 1st, one day before a potential time reversal.

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Gann Basics Gann was a Stock and Commodity trader in the early 1900’s. There is a debate about his trading prowess. One of his trading arsenals was the Square of Nine. The square of nine looks like a pyramid if you can visualize it in 3 dimension. It is based on mathematical principals. Each price has a counterpart that is a certain degree away from it. If you break 360 degrees into small 45 degree angles, you will have 8 sections. You can use 2-4 digits with the Gann calculations and turn any fraction into a whole unit. With Gann, the reversal does not have to be in a different direction than the original price. If you used a high as your beginning price and the market goes lower and then turns higher, your Gann point might be a high that will reverse to a low. Any trend that is about to possibly reverse regardless of the direction of the market. The time degrees on the Square of Nine are based on the 360 degree revolution of the earth. There are 4 equinoxes: spring, summer, fall and winter. There will always be 4 potential Time points. When the potential Price points and the potential Time points meet, we will look for a reversal.

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Looking back on this stock you notice that the low was 22 on May 10th. You are in June and you wonder at what price might there be a reversal of the trend. You plug in the time and price. As it turns out the next trading day after June 25th, the market hit 31.4. You are off by one trading day and .60 in price but it is very close. It is a possible reversal.

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August 16th this stock climbed higher from a low of roughly 43. After the market moves higher we are looking for possible reversal points. We can see from the calculations that the price 69 and the date October 1 are both potential ponts in Price and Time. The price hits 69 and barely goes over it one trading day after the potential Date.

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There was a high of 341 on April 8th. You enter these potential points. One trading day before the first Gann angle (May 24th) the market hit a price angle at 280.

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After reaching 799 on March 24, beans hit a couple of Gann Price and Time points. On June 25th, one day after the Gann angle, the market hit 703, one of the Gann price angles. The next place where Time and Price meet is on August 11th, one day after a Gann Time angle. The market touched 553. This Price is not on the immediate left where the Gann angles are displayed. You need to look at the chart and you will see the number at the upper left part of the chart. It is 2 lines down from 757, which is in red. If you want to see it on the chart, enter the last number which is 690 and work your way down. Enter the last number from there and keep going as far as you want.

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Using The Software If you can use a calculator, then you can use these programs. Fibonacci You must have a high and low of a particular market. Enter the first price of the market you are looking at. If the market is high and then falls enter the high in the Price 1 area. Enter the low price in the Price 2 area. Next, use the Date1 area to choose the date of the first price. Then find the second price in the Date2 area. Press calculate. The software will calculate what levels the market could touch based on the Fibonacci ratios. You will see lines from left to right and from top to bottom. The lines from left to right are the potential Price areas. The lines from top to bottom are the potential Time points. You can only do the price or time if you want. It will only figure out the ratio’s based on price or time if that is what you want. If you are only interested in the time ratio, then leave the price sections blank. If you are only interested in the price ratio, then do not change the current date that is displayed. After you become experienced with Fibonacci, you can configure the software to calculate different ratios. Normally, we are looking to project prices that are within the range of the high and low. We can also project a price that is beyond the high and lows. If the market made a low and then rebounded, then dropped again, we can calculate how much higher the market will go. Use ratios of 1.382, 1.50 and 1.618. You do not have to use both time and price. See what works best with your style of trading.

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Gann With Gann, we will just need one price and one date. This could be any high or low. Preferably a major high or low. Enter this price and find the date this occurred from the drop down Date menu. The program will find 8 potential prices above the market and 8 below. These are where the lines cross through the prices. The number with the black surrounding is the price you entered. The numbers with the blue surroundings are the prices above the price you entered. The numbers with the red surroundings are the prices below the price you entered. You can look on the chart to get more prices by looking above and below where the line crosses. Also, if you want more numbers to be displayed to the left, just enter the high or low listed and start again. If you want to see the next 8 prices above the market, enter the highest number you see as the starting price and calculate again. If you want to see the next 8 low prices enter the lowest number you see. You will see 8 Dates displayed. These are all Dates in the future where there is a potential reversal. As with fibonacci, you don’t need to enter both Price and Time. You will find with the Gann Square of Nine that there are many more situations where the price hits but the time does not. Use your experience and study these situations.

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Saving You can save all calculations and notes for future reference. Choose a project name and click the save button. Name the file so you will recognize it easy in the future. Something like CornJuly2. When you want to refer to that file again, click “Open” and find the file. To erase the current calculation and start over, click “New”. Export To save the calculations and your notes in a text file, click the “Export” button. You can print these out and keep in a file. Printing You can either print to file or print to your printer. If you print to file, you will be able to open it up in your web browser or through a program like paintbrush.

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Final Word Both Fibonacci and Gann can be used as stand alone methods of technical analysis. There are many traders that swear by these techniques. I recommend that you combine what you already know with these techniques. Use with any other fundamental or technical indicators. Make a folder on your desktop and save all your exported notes and print to file and save all the details. In your notes, write about why you think the trade will turn around.

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