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2002issue C031-3

Constructing Fibonacci ratio grids from a peak and a trough

One completed peak-to-trough swing can be drawn as Fibonacci retracement horizontals, trendline fans and arcs, and Elliott-wave ratio legs. A 38.2 percent buy stop then tests whether a reversal has printed, rather than naming a bottom.

  • The standard construction ratios are 38.2 percent, 61.8 percent, and 100 percent, taken from the sequence property that each term is about 0.618 times the next term.
  • After a downswing, a long-side buy stop is built at a 38.2 percent retracement on the working rule that a print through that level can continue toward 61.8 percent and then 100 percent.
  • Fans, arcs, and horizontal retracements are all built from one trendline between a peak and a trough, with the fan drawn from the high and the arcs from the low.
  • The construction withholds a reversal label until a measured retracement prints, so a bounce that never reaches 38.2 percent is not treated as a completed turn.
Entries in this reading3 entries
Elliott wave analysis94 readingsFibonacci retracement97 readingsCurrent trackTrendline128 readings

Three readings of one swing

Editorial reading: Fibonacci retracement, trendline fans, and Elliott-wave ratio legs can be taught as three ways to read the same high-low range. The archive workflow begins with one completed peak-to-trough swing, not with a named market bottom.

Fibonacci retracement places fixed-ratio horizontals on that completed range and treats them as candidate support, resistance, or stop prices. Elliott-wave analysis measures impulsive and corrective legs with the same ratio family. The trendline between the peak and the trough is the shared anchor for fans, arcs, radials, and manual retracement horizontals.

Ratios and a constructed buy stop

The standard ratios used to construct the studies are 38.2 percent, 61.8 percent, and 100 percent. They are taken from the sequence property that each term is about 0.618 times the next term.

After a downswing, a long-side buy stop is constructed at a 38.2 percent retracement of that range. The working rule is that a print through that level can continue toward 61.8 percent and then 100 percent.

In the illustrated decline from 58.8 to 33.4, 38.2 percent of the 25-point range produces a constructed buy-stop price of 43.

AOL $58.8-to-$33.4 swing and the 38.2% buy stop

A 38.2 percent retracement of AOL’s completed drop from 58.8 to the April 4 low at 33.4 sits at 43, so a buy stop there tests whether a reversal has printed instead of naming the trough. Price never made that bounce on the way down, then ran to 58.5 — the 97 percent retracement labeled on the pane. Turning points were read from the SuperCharts daily candlesticks; the 58.8 high, 33.4 low, 43 stop and 58.5 print are the figures the article states.
A 38.2 percent retracement of AOL’s completed drop from 58.8 to the April 4 low at 33.4 sits at 43, so a buy stop there tests whether a reversal has printed instead of naming the trough. Price never made that bounce on the way down, then ran to 58.5 — the 97 percent retracement labeled on the pane. Turning points were read from the SuperCharts daily candlesticks; the 58.8 high, 33.4 low, 43 stop and 58.5 print are the figures the article states.America Online (AOL) · Daily · 2001-01-29T00:00:00.000Z to 2001-08-20T00:00:00.000Z

The 43 stop is 38.2 percent of the 25-point range, rounded as the article instructs. Intermediate prices are visible swing turns sampled from the daily candles, not a close-by-close tape.

One trendline for fans, arcs, and horizontals

Fans, arcs, and horizontal retracements are all built from one trendline between a peak and a trough. The fan is drawn from the high and the arcs from the low.

The same horizontals can be built with a calculator and a trendline by marking 38.2 percent, 50 percent, and 61.8 percent of the swing at 43, 46, and 49 and extending those lines forward. For plotting, 38.2 percent and 61.8 percent may be rounded to 38 percent and 62 percent.

The expanded horizontal set listed for construction is 23.6 percent, 32.8 percent, 50 percent, 61.8 percent, 100 percent, 161.8 percent, and 261.8 percent of the prior range.

A fan analogue and recast levels

A fan analogue is constructed by drawing a vertical between the same high and low and radiating trendlines through the 38 percent and 62 percent points on that vertical. That construction is drawn in the same manner as one-third and two-thirds speed lines.

A push through the 38 percent fan line recasts that line as support and the 62 percent line as resistance. A push through 62 percent recasts 62 percent as support and raises a 100 percent retracement as the next measured level.

Wait for a measured print

The construction is presented as a way to withhold a reversal label until a measured retracement prints. A bounce that never reaches 38.2 percent is not treated as a completed turn.

Educational research material, not investment advice. Historical source context does not establish present-day performance.
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20021-3 pp.Next on TrendlineEvaluate trendline geometry before trusting a breakoutAn external trendline sits on successive minor highs or minor lows and does not cut through the price path, so a later close through it is a warning of possible trend change, not proof the trend has flipped.
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  45. 2010Support and resistance as falsifiable chart hypotheses
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