Fibonacci Number and Ratio Analysis
conjunction with other indicators, and especially so when a resistive or supportive
confluence is present at one of the Fibonacci numbered peaks or troughs.
We observe that, though only approximate (that is, give and take a few candle-
sticks at each peak and trough), the Fibonacci number count works fairly well in
forecasting potential reversals on the EURUSD weekly chart from point A all the
way up to point L. For example, the number of bars or candlesticks from trough
A to peak B is approximately 13, and from peak B to trough C approximately 21.
Fibonacci number counts may be made from:■ (^) Peak to Peak
■ (^) Trough to Trough
■ (^) Peak to Trough
■ (^) Trough to Peak
In our example, we measured the number of bars or candlesticks from peak to
trough and trough to peak repeatedly from point A to point L. The trick to using
the Fibonacci number counts effectively is to locate other nearby potential resis-
tance or support levels as price approaches the next Fibonacci number count. It
is extremely rare that the reversal will always occur on the exact Fibonacci count
itself, but more likely slightly before or after an expected peak or trough. Fibo-
nacci number counts are best used as signals, requiring price confirmation before
an entry or exit is initiated. The Fibonacci count at point F coincided with a 161.8
percent Fibonacci projection level of the price range CD, measured from point
E. This tends to make the signal somewhat more reliable and provides an extra
reason why price could reverse within the vicinity of the approaching Fibonacci
count. Notice also that price is retesting a previous peak formed at point B as it
consolidates around point G. Point G is also located just north of a 100 percent
Fibonacci projection level. Again, this adds to the reliability of any Fibonacci
count found around the vicinity of point G. Finally, we observe that the Fibonacci
count around point K occurs at a channel support, giving the Fibonacci count a
little more credibility.
10.22.6 Fibonacci‐based wave Counts
Fibonacci counts may also be in the form of wave counts, instead of just count-
ing the number of bars or candlesticks. Wave counts are in essence an extension
of number counts. This is easy to understand when we realize that a sequence of
bars on a chart in fact represents a wave in motion. Assigning Fibonacci counts to
waves provides the technical analyst with yet another means of forecasting price
action. Hence it is not surprising that Fibonacci wave counts naturally became an
integral and significant part of Elliott Wave Theory. Figure 10.93 illustrates how
Fibonacci‐based wave counts are incorporated into Elliott waves. As we can see,
at the highest level, that is, the highest wave cycle, the full market cycle is complete
after a two‐wave move, comprised of one impulsive wave up followed by a cor-
rective wave down. The highest wave cycle is itself composed of smaller waves,
that is, subwaves, being that of a five‐wave up followed by a three‐wave down.
In this case, the full market cycle is complete after eight subwaves on the lower