Better Trader

How a Fibonacci Cluster Showed an Important Resistance Level in Gold

How a Fibonacci Cluster Showed an Important Resistance Level in Gold
Senior Analyst Jeffrey Kennedy shares techniques that helped spot a trading opportunity.

By Elliott Wave International

If you use Elliott in your technical analysis, you may already use Fibonacci ratios to determine targets and retracement levels in your charts.

But have you heard of "Fibonacci Clusters?"

Elliott Wave Junctures editor Jeffrey Kennedy shares his charts to illustrate this technique, which he recently used to identify a critical turning point in Gold. The following lesson is adapted from his March 26 video. Get more lessons from Jeffrey in the free report, 6 Lessons to Help You Spot Trading Opportunities in Any Market.

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Performing multiple Fibonacci calculations of a price move often yields concentrations of Fibonacci levels, which act as barriers to price moves.

How do you create a Fibonacci Cluster of support or resistance?

In the following chart, you can see how to draw a line from the most recent swing high to the relevant low� and then connect previous higher highs to the same pivotal low. In the rectangular box, notice where the advance in GCA reversed from a cluster:

Kennedy covers other examples to explain how slingshots, reverse divergence and positive/negative reversals highlight the same momentum signature:

A bullish slingshot forms when prices make higher lows while underlying momentum surpasses previous extremes. Conversely, a bearish slingshot occurs when prices make lower highs while momentum exceeds prior readings.

In subsequent days, Gold prices fell to below $1550.

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Learn How You Can Use Fibonacci to Improve Your Trading If you'd like to learn more about Fibonacci and how to apply it to your trading strategy, download the entire 14-page free eBook, How You Can Use Fibonacci to Improve Your Trading. EWI Senior Tutorial Instructor Wayne Gorman explains: The Golden Spiral, the Golden Ratio, and the Golden Section How to use Fibonacci Ratios/Multiples in forecasting How to identify market targets and turning points in the markets you trade And more! See how easy it is to use Fibonacci in your trading. Download your free eBook today >>

This article was syndicated by Elliott Wave International and was originally published under the headline How a Fibonacci Cluster Showed an Important Resistance Level in Gold. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

Top 3 Technical Tools Part 3: MACD

(Video) Top 3 Technical Tools Part 3: MACD
Enhance your trading confidence with a 2-minute lesson on how to combine Moving Average Convergence Divergence with other technical tools.

By Elliott Wave International

"Guessing or going by gut instinct won't work over the long run. If you don't have a defined trading methodology, then you don't have a way to know what constitutes a buy or sell signal. Moreover, you can't even consistently correctly identify the trend."

-Jeffrey Kennedy

Jeffrey Kennedy is an accomplished teacher and a Senior Analyst here at EWI. Yet he often says that the Wave Principle alone is not a trading methodology. It does not tell you how much trading capital you can afford to risk, or specific guidance about which entry or exit levels are best suited for your trading style or where to set your protective stop.

Kennedy also says that along with risk management and emotional discipline, the right technical tools are a vitally important part of supporting your wave count.

To enhance trading confidence, Jeffrey's 3 favorite technical tools are Japanese candlesticks, RSI, and MACD. (read Part 1 on Japanese Candlesticks and Part 2 on RSI ). Today's lesson shows you how MACD can help identify trading opportunities with an example from USDCAD.

This 2-minute video and overview of MACD are adapted from Jeffrey's Elliott Wave Junctures educational service (which empowers subscribers with information on nearly every aspect of trading. Try it risk-free for 30-days >> ).

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Moving average convergence divergence (MACD) is a momentum indicator developed by Gerald Appel. It consists of two exponential moving averages, the MACD line and Signal line. The difference between these two lines yields an additional indicator, MACD Histogram.

Since these studies evaluate momentum, they work optimally in trending markets. When combined with reversal candlestick patterns, MACD and MACD Histogram can increase confidence in these patterns as well as continuation of the larger trend.

MACD divergence occurs when prices move one way and MACD moves the other. Bearish divergence forms when prices make new highs and MACD does not. Conversely, new price lows without lower MACD readings is bullish divergence. These conditions aid traders in identifying potential changes in momentum and trend.

MACD is constructed using two lines referred to as the MACD line and the Signal line.

When the MACD line appears to penetrate the Signal line, but fails to do so, a hook forms. The significance of a hook is that it coincides with countertrend price moves.

MACD is excellent technical tool provided you know how to use it and what to look for.

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Learn the Best Technical Indicators for Successful Trading This free report from Elliott Wave International will teach you how to incorporate technical indicators into your analysis to improve your trading decisions. You'll learn which technical indicators are best for analyzing chart patterns, which are best for anticipating price action, and which are best for spotting high-confidence trade setups. You'll also learn how technical indicators can be used to complement Elliott wave and other technical methods. Get your technical indicators report now >>

This article was syndicated by Elliott Wave International and was originally published under the headline (Video) Top 3 Technical Tools Part 3: MACD. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

Top 3 Technical Tools Part 2: Relative Strength Index (RSI)

By Elliott Wave International

EWI senior analyst Jeffrey Kennedy shows you how to identify quality trade setups with supporting technical indicators.

EWI's senior analyst shows you a beautiful example of how supporting indicators help identify a trade setup in Halliburton (HAL). Read more.

How Market Losers Think, and How to Stop Doing It

To become an independent investor, you have to crawl before you walk and walk before you run.

Even after you're on your feet, the first step isn't easy: A nudge in the right direction can help.

Robert Prechter's recent keynote speech, "How Market Losers Think, and How to Stop Doing It," is that nudge.

It was only a few months ago -- in a packed ballroom at the world's largest investment conference with attendees on the edge of their seats -- that Prechter overturned several of the most widespread investment myths.

In turn, he provided the evidence-based alternative for market causality.

Only the few hundred people who sat in that room have seen this presentation -- until now.

If you mistrust the conventional notions that markets are always efficient, investors are always rational and prices always reflect value, give Prechter 23 minutes of your time.

In those 23 minutes, you will discover …

    How events like 9/11 and the Enron scandal have a relationship to markets that is shockingly different than what you think.
    The surprising link between interest rates and stocks.
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    Central bankers' supposed power to turn trends.
    What new data says about the long-term viability of investment models based on earnings and value.
    And more, including the secret force that drives the decisions of futures traders, investment advisors, money managers, hedge fund managers and economists.

The video is free, and it's just a couple of clicks away. Find a quite location, and watch it now.

Follow this link to learn more and to watch Prechter's speech now -- it's free

Top 3 Technical Tools Part 1: Japanese Candlesticks

By Elliott Wave International

EWI senior analyst Jeffrey Kennedy shows you how to identify quality trade setups with supporting technical indicators.

Learn how Japanese Candlesticks can help support your technical trading decisions. Read more.

Bollinger Band Basics

Moving Averages Can Identify a Trade - FREE Lesson

By Elliott Wave International

These 3 charts help you understand how moving averages work.

If you trade with Elliott, you may use supporting indicators in your analysis of the markets. Here's a brief lesson that shows you three ways that moving averages can help you determine the market trend. Read more.

Learn to Label Elliott Waves More Accurately

By Elliott Wave International

EWI Senior Analyst Jeffrey Kennedy shows you how to use momentum patterns to confirm your count.

Take a moment to learn one way you can use supporting indicators to strengthen your wave count! Read more.

How to Identify High Confidence Reversal Zones

By Elliott Wave International

Senior Analyst Jeffrey Kennedy shows you to how to use 3 technical tools to find price reversals.

Learn to combine technical indicators to locate a very tight zone in which you may locate a probable reversal in your charts. Read more.

Learn to apply Moving Averages to your Trading with this Free eBook

Robert Prechter’s Elliott Wave International (EWI) has just released a free 10-page trading eBook: How You Can Find High-Confidence Trading Opportunities Using Moving Averages, by Senior Analyst Jeffrey Kennedy.

Moving averages are one of the most widely-used methods of technical analysis because they are simple to use, and they work. Now you can learn how to apply them to your trading and investing in this free eBook. Let EWI's Jeffrey Kennedy teach you step-by-step how moving averages can help you find high-confidence trading opportunities. Jeffrey's trading eBooks have been downloaded thousands of times because he knows how to take complex trading methods and teach them in a way you can immediately understand and apply. You'll be amazed at how quickly you can benefit from Moving Averages with just this quick, 10-page lesson.

Improve your trading and investing with Moving Averages!