Utility Manual for the Precision Ratio Compass - Elliott Wave ...
Utility Manual for the Precision Ratio Compass - Elliott Wave ...
Utility Manual for the Precision Ratio Compass - Elliott Wave ...
Create successful ePaper yourself
Turn your PDF publications into a flip-book with our unique Google optimized e-Paper software.
<strong>Elliott</strong> <strong>Wave</strong> Educational Video Series<br />
<strong>Utility</strong> <strong>Manual</strong><br />
<strong>for</strong> <strong>the</strong><br />
<strong>Precision</strong> <strong>Ratio</strong><br />
<strong>Compass</strong><br />
Workbook 7
The <strong>Elliott</strong> <strong>Wave</strong> Educational Video Series — Workbook 7: <strong>Utility</strong> <strong>Manual</strong> <strong>for</strong> <strong>the</strong> <strong>Precision</strong> <strong>Ratio</strong> <strong>Compass</strong><br />
WORKBOOK<br />
<strong>for</strong> <strong>the</strong><br />
ELLIOTT WAVE EDUCATIONAL VIDEO SERIES<br />
WORKBOOK 7<br />
UTILITY MANUAL <strong>for</strong> <strong>the</strong> PRECISION RATIO COMPASS<br />
Copyright © 1985, 1987 and 1995<br />
by Robert R. Prechter, Jr.<br />
Printed in <strong>the</strong> United States of America<br />
First Edition: June 1985<br />
Second Edition: September 1987<br />
Third Edition: April 1995<br />
For in<strong>for</strong>mation, address <strong>the</strong> publishers:<br />
<strong>Elliott</strong> <strong>Wave</strong> International<br />
P.O. Box 1618<br />
Gainesville, Georgia 30503<br />
ISBN: 0-932750-25-7<br />
<strong>Elliott</strong> <strong>Wave</strong> Educational Video Series<br />
10 Volume videotape set including workbooks<br />
ISBN: 0-932750-13-3<br />
<strong>Elliott</strong> <strong>Wave</strong> Educational Video Series<br />
Tape 7 and Workbook 7:<br />
Introduction to <strong>the</strong> <strong>Elliott</strong> <strong>Wave</strong> Principle<br />
NOTICE<br />
All charts are copyright © Robert R. Prechter, Jr. 1990 or have been previously<br />
copyrighted by <strong>Elliott</strong> <strong>Wave</strong> International, Robert R. Prechter, Jr., or o<strong>the</strong>r<br />
entities. All rights are reserved. The material in this volume may not be reprinted<br />
or reproduced in any manner whatsoever without <strong>the</strong> written permission of <strong>the</strong><br />
copyright holder. Violators will be prosecuted to <strong>the</strong> fullest extent of <strong>the</strong> law.<br />
2
The <strong>Elliott</strong> <strong>Wave</strong> Educational Video Series — Workbook 7: <strong>Utility</strong> <strong>Manual</strong> <strong>for</strong> <strong>the</strong> <strong>Precision</strong> <strong>Ratio</strong> <strong>Compass</strong><br />
Page<br />
5 Introduction<br />
CONTENTS<br />
7 PART 1: FIBONACCI AND THE COMPASS<br />
9 What are Fibonacci <strong>Ratio</strong>s?<br />
13 Why Fibonacci <strong>Ratio</strong>s?<br />
15 <strong>Compass</strong> Terminology and Procedure<br />
16 <strong>Compass</strong> Scales<br />
16 What <strong>the</strong> <strong>Compass</strong> Does<br />
17 Chart Scales<br />
17 Price and Time<br />
19 PART II: ELLIOTT WAVE APPLICATIONS<br />
21 Typical <strong>Wave</strong> Structure<br />
22 Using <strong>the</strong> <strong>Compass</strong><br />
25 Fibonacci <strong>Ratio</strong> Relationships<br />
26 Contracting Fibonacci <strong>Ratio</strong>s (<strong>for</strong> “Retracements”)<br />
31 Expanding Fibonacci <strong>Ratio</strong>s (<strong>for</strong> “Multiples” and extensions)<br />
35 A Complete List of Known Reliable Relationships Within Patterns<br />
35 Impulse <strong>Wave</strong>s<br />
35 Fifth <strong>Wave</strong>s When <strong>Wave</strong> Three is Extended<br />
35 Extensions in First or Fifth <strong>Wave</strong>s<br />
3
The <strong>Elliott</strong> <strong>Wave</strong> Educational Video Series — Workbook 7: <strong>Utility</strong> <strong>Manual</strong> <strong>for</strong> <strong>the</strong> <strong>Precision</strong> <strong>Ratio</strong> <strong>Compass</strong><br />
36 Corrective <strong>Wave</strong>s<br />
36 Zigzag Corrections<br />
37 B <strong>Wave</strong>s in Zigzags<br />
38 C <strong>Wave</strong>s in Zigzags<br />
38 Flat and Irregular Corrections<br />
39 B <strong>Wave</strong>s in Flats<br />
40 C <strong>Wave</strong>s in Flats<br />
40 B <strong>Wave</strong>s in Irregular Corrections<br />
41 C <strong>Wave</strong>s in Irregular Corrections<br />
41 Subwaves in Double and Triple Threes<br />
42 Subwaves in Contracting, Ascending and Descending Triangles<br />
43 Subwaves in Expanding Triangles<br />
44 Advanced <strong>Ratio</strong> Application — A Comprehensive Forecasting Method<br />
46 Real-Time Examples of Fibonacci Multiples and Retracements<br />
46 The Bond Market<br />
49 The Stock Market<br />
53 The Gold Market<br />
59 PART III: GANN ANALYSIS<br />
61 Gann Analysis<br />
61 The Gann-Blitz Approach<br />
62 Squaring of Time and Price<br />
64 1 x 1 lines<br />
64 1 x 2 lines<br />
64 2 x 1 lines<br />
65 Unequal Chart Divisions<br />
65 Gann Range Subdivisions<br />
67 Erroneous Use of <strong>the</strong> <strong>Compass</strong><br />
67 Conclusion<br />
4
The <strong>Elliott</strong> <strong>Wave</strong> Educational Video Series — Workbook 7: <strong>Utility</strong> <strong>Manual</strong> <strong>for</strong> <strong>the</strong> <strong>Precision</strong> <strong>Ratio</strong> <strong>Compass</strong><br />
INTRODUCTION<br />
R.N. <strong>Elliott</strong> used a time-saving Fibonacci ratio<br />
calculation device, and his mention of it in “Nature’s<br />
Law” has prompted many requests <strong>for</strong> a similar tool.<br />
<strong>Elliott</strong>’s design necessitated a two-step recording procedure,<br />
since he did not have access to a compass specifically<br />
made <strong>for</strong> his purposes. Ra<strong>the</strong>r than create a copy of<br />
that more cumbersome tool, we decided to see if we could<br />
find a compass which would suit our specific needs. A<br />
long search finally turned up a company that produced a<br />
Golden <strong>Ratio</strong> compass, but <strong>the</strong> construction was cheap<br />
and <strong>the</strong> tolerated error much too great. As any trader<br />
knows, a few cents’ difference on a stock or commodity<br />
chart can mean <strong>the</strong> difference between a perfect entry<br />
and a missed opportunity.<br />
After much additional searching, we found a<br />
manufacturer which made compass tools <strong>for</strong> professional<br />
draftsmen. We felt that any less quality was unacceptable.<br />
We’re extremely happy with <strong>the</strong> tool we’ve found and<br />
hope you will be, too.<br />
Your <strong>Precision</strong> <strong>Ratio</strong> <strong>Compass</strong> is constructed of<br />
chromium plated solid brass, machine tooled to virtual<br />
precision. The PRC is a slim, handsome professional<br />
draftsman’s tool, built <strong>for</strong> a lifetime of use. The spread<br />
between points can be firmly locked so <strong>the</strong> compass won’t<br />
slip when being moved from one position on <strong>the</strong> chart to<br />
ano<strong>the</strong>r. The compass points are sharp and true, so <strong>the</strong>ir<br />
position on <strong>the</strong> chart can be read with a minimum of<br />
ef<strong>for</strong>t. In sum, <strong>the</strong> <strong>Precision</strong> <strong>Ratio</strong> <strong>Compass</strong> has been<br />
thoughtfully designed to give you years of trouble-free<br />
service.<br />
The uses of <strong>the</strong> <strong>Precision</strong> <strong>Ratio</strong> <strong>Compass</strong> are many<br />
and varied. Fibonacci retracements, Fibonacci price and<br />
time ratios, as well as all o<strong>the</strong>r ratios (from 1:10 to 10:1),<br />
can all be marked on a chart with a quick movement and<br />
a minimum of ef<strong>for</strong>t.<br />
5
The <strong>Elliott</strong> <strong>Wave</strong> Educational Video Series — Workbook 7: <strong>Utility</strong> <strong>Manual</strong> <strong>for</strong> <strong>the</strong> <strong>Precision</strong> <strong>Ratio</strong> <strong>Compass</strong><br />
The following pages will show you in detail how to apply <strong>the</strong><br />
<strong>Compass</strong>. Undoubtedly <strong>the</strong>re are uses <strong>for</strong> it which we have yet to<br />
discover. If you find any, please let us know. Perhaps your ideas will<br />
appear in <strong>the</strong> next edition of this manual.<br />
Robert R. Prechter, Jr.<br />
<strong>Elliott</strong> <strong>Wave</strong> International<br />
ACKNOWLEDGEMENTS<br />
This manual would not be here in its present <strong>for</strong>m without <strong>the</strong><br />
ef<strong>for</strong>t and talents of David A. Allman. His editing and illustrative<br />
skills, as well as his dedication to <strong>the</strong> project, were invaluable in<br />
attaining <strong>the</strong> quality we required <strong>for</strong> <strong>the</strong> final product.<br />
Background charts <strong>for</strong> some of <strong>the</strong> illustrations were provided<br />
courtesy of <strong>the</strong> following sources:<br />
Trendline (a division of Standard and Poor’s Corp.),<br />
345 Hudson St., New York, NY 10014<br />
Daily Graphs (a division of William O’Neil & Co., Inc.),<br />
P.O. Box 24933, Los Angeles, CA 90024<br />
Commodity Researach Bureau,<br />
75 Montgomery Street, Jersey City, NJ 07302<br />
6
The <strong>Elliott</strong> <strong>Wave</strong> Educational Video Series — Workbook 7: <strong>Utility</strong> <strong>Manual</strong> <strong>for</strong> <strong>the</strong> <strong>Precision</strong> <strong>Ratio</strong> <strong>Compass</strong><br />
PART I<br />
FIBONACCI AND THE COMPASS<br />
7
The <strong>Elliott</strong> <strong>Wave</strong> Educational Video Series — Workbook 7: <strong>Utility</strong> <strong>Manual</strong> <strong>for</strong> <strong>the</strong> <strong>Precision</strong> <strong>Ratio</strong> <strong>Compass</strong><br />
8
The <strong>Elliott</strong> <strong>Wave</strong> Educational Video Series — Workbook 7: <strong>Utility</strong> <strong>Manual</strong> <strong>for</strong> <strong>the</strong> <strong>Precision</strong> <strong>Ratio</strong> <strong>Compass</strong><br />
WHAT ARE FIBONACCI RATIOS?<br />
Fibonacci <strong>Ratio</strong>s are <strong>the</strong> ratios between numbers<br />
at a distance infinitely far along in any sequence which<br />
is derived by adding a number to <strong>the</strong> previous number to<br />
obtain <strong>the</strong> next. Like pi, <strong>the</strong>se ratios are irrational numbers,<br />
i.e., <strong>the</strong>y cannot be expressed precisely in ei<strong>the</strong>r<br />
fractional or decimal <strong>for</strong>m. The “Fibonacci Sequence” is<br />
<strong>the</strong> best known and <strong>the</strong> most basic additive sequence of<br />
this type. It is derived by adding each number, starting<br />
with <strong>the</strong> number 1, to <strong>the</strong> one just prior to it to obtain <strong>the</strong><br />
next number. Thus, 1 added to nothing gives a second 1.<br />
1 + 1 gives 2, 2 + 1 gives 3, 3 + 2 gives 5, 5 + 3 gives 8,<br />
and so on. The first sixteen terms in <strong>the</strong> sequence are 1,<br />
1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377, 610 and<br />
987. A full ma<strong>the</strong>matical description of <strong>the</strong> Fibonacci<br />
sequence can be found in FIBONACCI NUMBERS by<br />
N. Vorobev, and a description of its relevance to <strong>the</strong> financial<br />
markets can be found in Chapters 3 and 4 of<br />
ELLIOTT WAVE PRINCIPLE (New Classics Library,<br />
$29).<br />
Figure 1<br />
9
The <strong>Elliott</strong> <strong>Wave</strong> Educational Video Series — Workbook 7: <strong>Utility</strong> <strong>Manual</strong> <strong>for</strong> <strong>the</strong> <strong>Precision</strong> <strong>Ratio</strong> <strong>Compass</strong><br />
Figure 2<br />
10
The <strong>Elliott</strong> <strong>Wave</strong> Educational Video Series — Workbook 7: <strong>Utility</strong> <strong>Manual</strong> <strong>for</strong> <strong>the</strong> <strong>Precision</strong> <strong>Ratio</strong> <strong>Compass</strong><br />
As infinity is approached, <strong>the</strong> ratio between<br />
adjacent Fibonacci numbers, smaller over larger, is<br />
.6180339... (phi), commonly abbreviated as .618; <strong>the</strong><br />
inverse (larger over smaller), gives 1.618.<br />
As infinity is approached, <strong>the</strong> ratio between<br />
alternate Fibonacci numbers, smaller over larger, is<br />
.382; <strong>the</strong> inverse (larger over samller), gives 2.618.<br />
The ratios <strong>for</strong> second alternate Fibonacci<br />
numbers are .236 and 4.236.<br />
The ratios <strong>for</strong> third alternate Fibonacci numbers<br />
are .146 and 6.854.<br />
This progression can be continued <strong>for</strong>ever, as<br />
demonstrated in <strong>the</strong> bottom row and far right column<br />
of Figure 2 (from “Historical and Ma<strong>the</strong>matical Background”<br />
chapter of <strong>Elliott</strong> <strong>Wave</strong> Principle). Note that<br />
each of <strong>the</strong> decreasing ratios is <strong>the</strong> result of multiplying<br />
<strong>the</strong> preceding ratio by .618 and each of <strong>the</strong> increasing<br />
ratios is <strong>the</strong> result of multiplying <strong>the</strong> preceding<br />
ratio by 1.618. It is <strong>for</strong> this reason that any<br />
Fibonacci ratio can be calculated with only one or<br />
two quick and simple steps with <strong>the</strong> PRC.<br />
The spiral-like <strong>for</strong>m of market action is repeatedly<br />
shown to be governed by <strong>the</strong> Golden <strong>Ratio</strong>, and,<br />
as has often been observed, even <strong>the</strong> Fibonacci numbers<br />
<strong>the</strong>mselves appear in market statistics more often<br />
than mere chance would allow. However, it is crucial<br />
to understand that <strong>the</strong> numbers <strong>the</strong>mselves have no<br />
<strong>the</strong>oretic weight in <strong>the</strong> grand concept of <strong>the</strong> <strong>Wave</strong> Principle.<br />
It is <strong>the</strong> ratio which is <strong>the</strong> key to growth patterns<br />
of this type because, although it is rarely pointed out<br />
in <strong>the</strong> literature, <strong>the</strong> Fibonacci ratio results from this<br />
type of additive sequence no matter what two numbers<br />
start <strong>the</strong> sequence. Take, <strong>for</strong> instance, two randomly<br />
selected numbers and add <strong>the</strong>m to produce a third, continuing<br />
in that manner to produce additional numbers.<br />
11
The <strong>Elliott</strong> <strong>Wave</strong> Educational Video Series — Workbook 7: <strong>Utility</strong> <strong>Manual</strong> <strong>for</strong> <strong>the</strong> <strong>Precision</strong> <strong>Ratio</strong> <strong>Compass</strong><br />
You will find that as this sequence approaches infinity,<br />
<strong>the</strong> ratio between adjacent terms in <strong>the</strong> sequence will<br />
approach .618... This relationship becomes obvious generally<br />
be<strong>for</strong>e <strong>the</strong> tenth term is produced (see Figure 3,<br />
using <strong>the</strong> starting numbers 17 and 352). Thus, while specific<br />
numbers making up <strong>the</strong> Fibonacci sequence are not<br />
necessarily important in markets, <strong>the</strong> Fibonacci ratio is a<br />
basic law of geometric progression, and does govern<br />
many relationships in data series relating to natural<br />
phenomena of growth and decay.<br />
Figure 3<br />
12
The <strong>Elliott</strong> <strong>Wave</strong> Educational Video Series — Workbook 7: <strong>Utility</strong> <strong>Manual</strong> <strong>for</strong> <strong>the</strong> <strong>Precision</strong> <strong>Ratio</strong> <strong>Compass</strong><br />
WHY FIBONACCI RATIOS?<br />
The occurrence of Fibonacci ratios in markets is<br />
not coincidence, and it is not a mystical numerological<br />
<strong>the</strong>ory developed in an ivory tower and <strong>for</strong>ced into real<br />
life situations. When <strong>Elliott</strong> began to research <strong>the</strong> markets,<br />
he had no idea that <strong>the</strong> Fibonacci sequence would<br />
be representative of his eventual discovery. What he<br />
found initially was that <strong>the</strong> basic Dow Theory idea that<br />
primary bull markets traveled in three upward phases<br />
applied to all degrees of market trend, from hourly waves<br />
to those lasting centuries. From this discovery, he developed<br />
a system of naming and labeling <strong>the</strong> different sizes<br />
of waves, and soon realized that <strong>the</strong> total number of waves<br />
in each degree turned out to be a different Fibonacci number.<br />
In fact, <strong>the</strong>se totals not only produced <strong>the</strong> Fibonacci<br />
sequence, but did so exactly, with no omissions and no<br />
repetitions.<br />
The discussion below is a reprint from <strong>the</strong> “Historical<br />
and Ma<strong>the</strong>matical Background” chapter of <strong>Elliott</strong><br />
<strong>Wave</strong> Principle, and illustrates this concept.<br />
We can generate <strong>the</strong> complete Fibonacci sequence<br />
by using <strong>Elliott</strong>’s explanation of <strong>the</strong> natural progression<br />
of markets. If we start with <strong>the</strong> simplest<br />
expression of <strong>the</strong> concept of a bear swing, we get<br />
one straight line decline. A bull swing, in its<br />
simplest <strong>for</strong>m, is one straight line advance. A<br />
complete cycle is two lines. In <strong>the</strong> next degree<br />
of complexity, <strong>the</strong> corresponding numbers are<br />
3, 5 and 8. As illustrated, this sequence can be<br />
taken to infinity.<br />
<strong>Elliott</strong> came to <strong>the</strong> conclusion, and rightly so, that<br />
<strong>the</strong> stock market, as a measure of <strong>the</strong> value of<br />
man’s productive capacity, is a direct recording of<br />
changes in mankind’s progress and regress through<br />
history. The fact that this process is governed by<br />
<strong>the</strong> Fibonacci sequence, fur<strong>the</strong>rmore, led to<br />
13
The <strong>Elliott</strong> <strong>Wave</strong> Educational Video Series — Workbook 7: <strong>Utility</strong> <strong>Manual</strong> <strong>for</strong> <strong>the</strong> <strong>Precision</strong> <strong>Ratio</strong> <strong>Compass</strong><br />
Figure 4<br />
<strong>Elliott</strong>’s ultimate <strong>the</strong>ory that man’s progress<br />
through history was following a natural law of<br />
growth often found in nature’s growth/decay and<br />
expansion/contraction phenomena.<br />
The Fibonacci ratio enters <strong>the</strong> picture when we<br />
realize that <strong>the</strong> number of waves in a correction approximates<br />
61.8% of <strong>the</strong> number of waves in <strong>the</strong> preceding<br />
impulse wave of <strong>the</strong> same degree. The ideal<br />
irrational number phi (.618...) is approached by<br />
14
The <strong>Elliott</strong> <strong>Wave</strong> Educational Video Series — Workbook 7: <strong>Utility</strong> <strong>Manual</strong> <strong>for</strong> <strong>the</strong> <strong>Precision</strong> <strong>Ratio</strong> <strong>Compass</strong><br />
this method <strong>the</strong> fur<strong>the</strong>r on breaks down <strong>the</strong> wave, that<br />
is, <strong>the</strong> greater <strong>the</strong> number of subwaves one counts. Empirical<br />
evidence reveals, moreover, that Fibonacci ratio<br />
relationships occur throughout <strong>the</strong> price structure in markets.<br />
The following pages will give specific examples of<br />
<strong>the</strong> most common occurrences.<br />
COMPASS TERMINOLOGY AND PROCEDURE<br />
For <strong>the</strong> purpose of this manual, we will refer to<br />
<strong>the</strong> compass as having points AB (top, narrow end) and<br />
points CD (bottom, wide end), as shown in Figure 5. The<br />
procedure <strong>for</strong> setting <strong>the</strong> center guide is as follows: Close<br />
<strong>the</strong> compass, loosen <strong>the</strong> center guide nut, set <strong>the</strong> scale as<br />
desired, and tighten <strong>the</strong> nut. The ratio you have chosen<br />
will remain fixed <strong>for</strong> whatever distance you now open<br />
<strong>the</strong> compass. For <strong>the</strong> balance of this manual, all distances<br />
will be designated by a bar underneath <strong>the</strong> points in question.<br />
For example, <strong>the</strong> distance between points A and B<br />
will be referred to as AB.<br />
15
The <strong>Elliott</strong> <strong>Wave</strong> Educational Video Series — Workbook 7: <strong>Utility</strong> <strong>Manual</strong> <strong>for</strong> <strong>the</strong> <strong>Precision</strong> <strong>Ratio</strong> <strong>Compass</strong><br />
COMPASS SCALES<br />
Generally, proportional dividers are used <strong>for</strong> dividing<br />
lines into equal parts, <strong>for</strong> enlarging or reducing<br />
length by different ratios, or <strong>for</strong> dividing <strong>the</strong> circumference<br />
of a circle into equal parts. The left hand scale of<br />
this compass is used <strong>for</strong> length multiples while <strong>the</strong> right<br />
hand scale is used <strong>for</strong> circle division.<br />
To relate <strong>the</strong> two scales, notice that <strong>the</strong> sequence<br />
of Fibonacci ratios, 1.618, 2.618, 4.236, 6.854, 11.090,<br />
17.944, 29.034, 46.978, 76.012..., when multiplied by<br />
pi, 3.1416..., yields <strong>the</strong> series 5 + .1, 8 + .2, 13 + .3, 21 +<br />
.5, 34 + .8, 55 + 1.3, 89 + 2.1 +.1, 144 + 3.4 + .2, 233 +<br />
5.5 + .3... Notice that <strong>the</strong> numbers of <strong>the</strong> first sequence<br />
on <strong>the</strong> left-hand (lines) scale of <strong>the</strong> PRC correspond to<br />
<strong>the</strong> numbers of <strong>the</strong> second sequence on <strong>the</strong> right-hand<br />
(circles) scale fo <strong>the</strong> PRC. One <strong>for</strong>mula illustrating <strong>the</strong><br />
eternal relationship between pi and phi is as follows:<br />
F n ≈ 100 x π 2 x φ (15-n) , where φ = .618..., n<br />
represents <strong>the</strong> numerical position of <strong>the</strong> term in <strong>the</strong><br />
sequence and F n represents <strong>the</strong> term itself. The<br />
number ‘1’ is represented only once. This F 1 ≈ 1,<br />
F 2 ≈ 2, F 3 ≈ 3, F 4 ≈ 5, etc.<br />
For example, let n = 7. Then<br />
F 7 ≈ 100 x 3.1416 2 x .6180339 (15-7)<br />
≈ 986.97 x .6180339 8<br />
≈ 986.97 x .02129 ≈ 21.01 ≈ 21<br />
WHAT THE COMPASS DOES<br />
Very simply, <strong>the</strong> distance between points C and<br />
D will be <strong>the</strong> multiple of <strong>the</strong> distance between points<br />
A and B which is indicated on <strong>the</strong> left-hand scale of<br />
<strong>the</strong> compass. For example, if <strong>the</strong> compass is set on<br />
“5”, CD will be 5 times as long as AB. AB, in turn,<br />
will be 1/5 as long as CD. Because of space<br />
16
The <strong>Elliott</strong> <strong>Wave</strong> Educational Video Series — Workbook 7: <strong>Utility</strong> <strong>Manual</strong> <strong>for</strong> <strong>the</strong> <strong>Precision</strong> <strong>Ratio</strong> <strong>Compass</strong><br />
restrictions, <strong>the</strong> Golden section marking <strong>for</strong> length has<br />
been placed on <strong>the</strong> right-hand scale.<br />
When <strong>the</strong> left hand scale of <strong>the</strong> compass is set at<br />
Fibonacci multiples, CD will be a Fibonacci multiple of<br />
AB, while AB will equal <strong>the</strong> inverse Fibonacci multiple<br />
of CD. For example, when <strong>the</strong> center guide reference is<br />
placed at “GS”, Golden Section (on <strong>the</strong> right-hand scale<br />
of <strong>the</strong> compass), <strong>the</strong> distance at <strong>the</strong> narrow end AB will<br />
always equal .618 of <strong>the</strong> distance of <strong>the</strong> wide end CD.<br />
Conversely, CD = 1.618 x AB. We frequently refer to <strong>the</strong><br />
right-hand scale under “USING THE COMPASS” because<br />
<strong>the</strong>re is often a convenient equivalent marking<br />
correspoinding to <strong>the</strong> Fibonacci ratio we wish to locate<br />
on <strong>the</strong> left-hand scale.<br />
CHART SCALES<br />
All <strong>the</strong> charts in this manual use arithmetic scale.<br />
The difference between arithmetic and semi-logarithmic<br />
chart scale is that equal vertical distances on arithmetic<br />
charts reflect an equal number of points traveled whereas<br />
equal vertical distances on semi-log charts reflect equal<br />
percentage changes. Empirical research confirms that<br />
Fibonacci relationships in markets, in almost all cases,<br />
are based upon <strong>the</strong> number of actual points traveled, an<br />
observation which is consistent with <strong>the</strong> <strong>the</strong>oretical basis<br />
<strong>for</strong> <strong>the</strong> <strong>Wave</strong> Principle. To obtain true multiples, <strong>the</strong> PRC<br />
must always be used on charts with arithmetic scale. Fortunately,<br />
this requirement fits <strong>the</strong> industry standard since<br />
9 out of 10 chart services use arithmetic scale.<br />
PRICE AND TIME<br />
All examples under “USING THE COMPASS”<br />
refer to Fibonacci price relationships. These relationships<br />
are always determined by <strong>the</strong> vertical<br />
17
The <strong>Elliott</strong> <strong>Wave</strong> Educational Video Series — Workbook 7: <strong>Utility</strong> <strong>Manual</strong> <strong>for</strong> <strong>the</strong> <strong>Precision</strong> <strong>Ratio</strong> <strong>Compass</strong><br />
Figure 6<br />
distance covered on a chart by a wave. In <strong>the</strong>se<br />
examples, do not measure from <strong>the</strong> actual beginning<br />
of a wave to <strong>the</strong> actual end, a process which would<br />
include time in <strong>the</strong> calculation, but ra<strong>the</strong>r vertically<br />
to <strong>the</strong> price level of <strong>the</strong> end of <strong>the</strong> wave.<br />
You will see that in each of <strong>the</strong> calculations, <strong>the</strong><br />
PRC is placed with one point at <strong>the</strong> origin of <strong>the</strong> wave<br />
to be measured and <strong>the</strong> o<strong>the</strong>r point vertically equivalent<br />
to <strong>the</strong> terminus of that same wave. (See Figure 6.)<br />
Although experience reveals that Fibonacci time<br />
realtionships are less commonly found in markets than<br />
Fibonacci price relationships, <strong>the</strong> PRC can be used to<br />
discover where in <strong>the</strong> past or future <strong>the</strong> Fibonacci time<br />
multiples lie. Just apply <strong>the</strong> <strong>Compass</strong> in exactly <strong>the</strong> same<br />
manner as described under “USING THE COMPASS,”<br />
but do it along <strong>the</strong> horizontal axis instead of <strong>the</strong> vertical.<br />
When reading <strong>the</strong> instructions, replace <strong>the</strong> word “vertical”<br />
with <strong>the</strong> word “horizontal” and <strong>the</strong> word “wave”<br />
with <strong>the</strong> words “time segment.”<br />
18
The <strong>Elliott</strong> <strong>Wave</strong> Educational Video Series — Workbook 7: <strong>Utility</strong> <strong>Manual</strong> <strong>for</strong> <strong>the</strong> <strong>Precision</strong> <strong>Ratio</strong> <strong>Compass</strong><br />
PART II<br />
ELLIOTT WAVE APPLICATIONS<br />
19
The <strong>Elliott</strong> <strong>Wave</strong> Educational Video Series — Workbook 7: <strong>Utility</strong> <strong>Manual</strong> <strong>for</strong> <strong>the</strong> <strong>Precision</strong> <strong>Ratio</strong> <strong>Compass</strong><br />
20
The <strong>Elliott</strong> <strong>Wave</strong> Educational Video Series — Workbook 7: <strong>Utility</strong> <strong>Manual</strong> <strong>for</strong> <strong>the</strong> <strong>Precision</strong> <strong>Ratio</strong> <strong>Compass</strong><br />
TYPICAL WAVE STRUCTURE<br />
This graph of one rendition of an ideal <strong>Elliott</strong> wave<br />
has been created as a reference <strong>for</strong> this manual. It contains<br />
all of <strong>the</strong> multiples and retracements discussed on<br />
<strong>the</strong> following pages. The index numbers starting at 1000<br />
are <strong>for</strong> an imaginary market. Actual real-time examples<br />
begin on page 46.<br />
Figure 7<br />
The exercises under “USING THE COMPASS”<br />
on <strong>the</strong> following pages involve ratio relationships which<br />
are commonly found in real-life markets. They will show<br />
you how to apply <strong>the</strong> PRC quickly and efficiently to<br />
project targets based upon many of <strong>the</strong>se measurements.<br />
Once you’ve mastered <strong>the</strong> PRC, you should memorize<br />
<strong>the</strong> complete list of known reliable wave relationships,<br />
which begins on page 35.<br />
21
The <strong>Elliott</strong> <strong>Wave</strong> Educational Video Series — Workbook 7: <strong>Utility</strong> <strong>Manual</strong> <strong>for</strong> <strong>the</strong> <strong>Precision</strong> <strong>Ratio</strong> <strong>Compass</strong><br />
USING THE COMPASS<br />
1.00 (equality)<br />
After closing <strong>the</strong> PRC, <strong>the</strong> center guide may be set at any<br />
point on <strong>the</strong> scale and ei<strong>the</strong>r end may be used depending<br />
upon <strong>the</strong> length of <strong>the</strong> wave in question. Place point A<br />
(or C) at one end and point B (or D) at a vertical equivalent<br />
to <strong>the</strong> o<strong>the</strong>r end of a recently completed move to<br />
determine its length. Then, transfer this distance to <strong>the</strong><br />
extreme point of <strong>the</strong> most recent move to project an<br />
equivalent length.<br />
Sample Objective: You wish to mark <strong>the</strong> level of a 1.00<br />
multiple of wave (A) as an estimate <strong>for</strong> <strong>the</strong> low of wave<br />
(C). Refer to Figure 8.<br />
Example: wave (A) = wave (C)<br />
.50<br />
Procedure: Close <strong>the</strong> PRC. Set <strong>the</strong> center guide at 2 on<br />
<strong>the</strong> left hand scale. Place point C at one end and point D<br />
at a vertical equivalent to <strong>the</strong> o<strong>the</strong>r end of a recently completed<br />
move. Flip <strong>the</strong> compass. AB = .50 x CD.<br />
Sample Objective: You wish to mark a standard 50%<br />
retracement of <strong>the</strong> entire advancing wave from ((0)) 0<br />
through 5 as an estimate <strong>for</strong> <strong>the</strong> next correction. A 50%<br />
correction is likely since it is quite near <strong>the</strong> typical<br />
retracement point marked by <strong>the</strong> previous fourth wave<br />
low at 4. Refer to Figure 9.<br />
Example: Next major correction = .50 x entire wave<br />
22
The <strong>Elliott</strong> <strong>Wave</strong> Educational Video Series — Workbook 7: <strong>Utility</strong> <strong>Manual</strong> <strong>for</strong> <strong>the</strong> <strong>Precision</strong> <strong>Ratio</strong> <strong>Compass</strong><br />
Figure 8<br />
Figure 9<br />
23
The <strong>Elliott</strong> <strong>Wave</strong> Educational Video Series — Workbook 7: <strong>Utility</strong> <strong>Manual</strong> <strong>for</strong> <strong>the</strong> <strong>Precision</strong> <strong>Ratio</strong> <strong>Compass</strong><br />
As you may have already deduced, all desired ratios<br />
from 1:10 to 10:1 may be obtained by simply adjusting<br />
<strong>the</strong> setting on <strong>the</strong> left-hand scale (or <strong>the</strong> right-hand<br />
scale equivalent) of <strong>the</strong> PRC. For orientation, if you were<br />
to set <strong>the</strong> center guide at 1 on <strong>the</strong> left-hand scale (lowest<br />
hash mark), <strong>the</strong> distance between points A and B, AB,<br />
and points C and D, CD, would be identical (AB = CD).<br />
The compass settings <strong>for</strong> AB/CD relationships most useful<br />
<strong>for</strong> market analysis are listed below.<br />
.50/2.00. Set PRC at 2.00 on <strong>the</strong> left-hand scale.<br />
AB = .50 x CD, and CD = 2.00 x AB.<br />
.618/1.618. Set PRC at GS on <strong>the</strong> right-hand scale.<br />
AB = .618 x CD, and CD = 1.618 x AB.<br />
.382/2.618. Set PRC at 8.2 on <strong>the</strong> right-hand scale.<br />
AB = .382 x CD, and CD = 2.618 x AB.<br />
.236/4.236. Set PRC at 13.3 on <strong>the</strong> right-hand scale.<br />
AB = .236 x CD, and CD = 4.236 x AB.<br />
.146/6.854. Set PRC at 6.854 on <strong>the</strong> left-hand scale.<br />
AB = .146 x CD, and CD = 6.854 x AB.<br />
For <strong>the</strong> most precise application of all Fibonacci<br />
ratios using <strong>the</strong> <strong>Precision</strong> <strong>Ratio</strong> <strong>Compass</strong>, however, keep<br />
<strong>the</strong> setting on GS. To understand why, take a few minutes<br />
to study <strong>the</strong> unique properties of <strong>the</strong> Fibonacci ratio,<br />
phi, as presented in <strong>the</strong> following tables.<br />
24
The <strong>Elliott</strong> <strong>Wave</strong> Educational Video Series — Workbook 7: <strong>Utility</strong> <strong>Manual</strong> <strong>for</strong> <strong>the</strong> <strong>Precision</strong> <strong>Ratio</strong> <strong>Compass</strong><br />
FIBONACCI RATIO RELATIONSHIPS<br />
Multiplicative<br />
.618 x .618 = .382<br />
.382 x .618 = .236<br />
.236 x .618 = .146<br />
.146 x .618 = .090, etc.<br />
Additive<br />
1.000 - .618 = .382<br />
.618 - .382 = .236<br />
.382 - .236 = .146<br />
.236 - .146 = .090, etc.<br />
These properties of <strong>the</strong> Fibonacci ratio are also<br />
true with regard to <strong>the</strong> inverse of phi, 1.618:<br />
Multiplicative<br />
1.618 x 1.618 = 2.618<br />
2.618 x 1.618 = 4.236<br />
4.236 x 1.618 = 6.854, etc.<br />
Additive<br />
1.000 + 1.618 = 2.618<br />
1.618 + 2.618 = 4.236<br />
2.618 + 4.236 = 6.854, etc.<br />
Once you understand <strong>the</strong>se tables, you will quickly<br />
see why all Fibonacci multiples and retracements can<br />
be obtained with <strong>the</strong> PRC without ever changing <strong>the</strong><br />
setting. As a matter of fact, <strong>the</strong> most common multiples<br />
and retracements which are found in everyday markets<br />
can be marked on your charts in a matter of seconds<br />
after a bit of practice with <strong>the</strong> PRC. Simply set <strong>the</strong> center<br />
guide at GS on <strong>the</strong> right-hand scale and use <strong>the</strong> compass<br />
as described in <strong>the</strong> section beginning on page 26.<br />
25
The <strong>Elliott</strong> <strong>Wave</strong> Educational Video Series — Workbook 7: <strong>Utility</strong> <strong>Manual</strong> <strong>for</strong> <strong>the</strong> <strong>Precision</strong> <strong>Ratio</strong> <strong>Compass</strong><br />
Contracting Fibonacci <strong>Ratio</strong>s<br />
(<strong>for</strong> “Retracements”)<br />
Use <strong>the</strong> wide end of <strong>the</strong> PRC (points C and D) to<br />
measure <strong>the</strong> vertical distance of <strong>the</strong> move <strong>for</strong> which you<br />
desire Fibonacci retracements points. See Figure 10a<br />
Figure 10a<br />
Step #1) For .618 retracements: Keeping CD fixed, flip<br />
<strong>the</strong> compass. Now, AB is a .618 retracement of your original<br />
distance. Measure from <strong>the</strong> top down and mark this<br />
point W. See Figure 10b.<br />
Figure 10b<br />
26
The <strong>Elliott</strong> <strong>Wave</strong> Educational Video Series — Workbook 7: <strong>Utility</strong> <strong>Manual</strong> <strong>for</strong> <strong>the</strong> <strong>Precision</strong> <strong>Ratio</strong> <strong>Compass</strong><br />
Step #2) For .382 retracements: Keeping <strong>the</strong> PRC fixed,<br />
measure from <strong>the</strong> bottom up and mark a second point, X.<br />
The remaining length is a .382 retracement of your original<br />
distance. See Figure 10c.<br />
Figure 10c<br />
Set #3) For .236 retracements: Contract <strong>the</strong> PRC, placing<br />
compass points A and B on points W and X. This<br />
length is a .236 retracement of your original distance.<br />
Keeping <strong>the</strong> PRC fixed, measure from <strong>the</strong> top down and<br />
mark point Y. See Figure 10d.<br />
Figure 10d<br />
27
The <strong>Elliott</strong> <strong>Wave</strong> Educational Video Series — Workbook 7: <strong>Utility</strong> <strong>Manual</strong> <strong>for</strong> <strong>the</strong> <strong>Precision</strong> <strong>Ratio</strong> <strong>Compass</strong><br />
Step #4) For .146 retracements: Contract <strong>the</strong> PRC,<br />
placing compass points A and B on points X and Y.<br />
This length is a .146 retracement of your original<br />
distance. Keeping <strong>the</strong> PRC fixed, measure from <strong>the</strong> top<br />
down and mark point Z.<br />
Thus, in four quick steps, you have marked all <strong>the</strong><br />
important retracements of your original distance, CD. See<br />
Figure 10e.<br />
Figure 10e<br />
The above directions are applicable to<br />
retracements of a rally. For retracements of a decline, of<br />
course, you must measure from <strong>the</strong> bottom up in Steps<br />
#1, 3 and 4, and from <strong>the</strong> top down in Step #2.<br />
Once you become adept at using <strong>the</strong> PRC, <strong>the</strong>re<br />
are even more shortcuts possible. For example, if you<br />
want only a .382 retracement, Step #2 works independently.<br />
If you want only a .236 retracement, follow Step<br />
#2, flip <strong>the</strong> compass, and contract it so that its points fit<br />
<strong>the</strong> .382 span. Flip <strong>the</strong> compass again. Now, AB is a .236<br />
retracement of your original distance.<br />
28
The <strong>Elliott</strong> <strong>Wave</strong> Educational Video Series — Workbook 7: <strong>Utility</strong> <strong>Manual</strong> <strong>for</strong> <strong>the</strong> <strong>Precision</strong> <strong>Ratio</strong> <strong>Compass</strong><br />
Let’s apply this method to our textbook graph:<br />
.618<br />
Sample Objective: You wish to mark <strong>the</strong> level of a .618<br />
retracement of wave 1 as an estimate <strong>for</strong> <strong>the</strong> low of wave<br />
2. Refer to Step #1 and Figure 11.<br />
Example: wave 2 = .618 x wave 1<br />
Figure 11<br />
.382<br />
Sample Objective: You wish to mark <strong>the</strong> level of a .382<br />
retracement of wave 3 as an estimate <strong>for</strong> <strong>the</strong> low of wave<br />
4. Refer to Step #2 and Figure 12.<br />
Example: wave 4 = .382 x wave 3<br />
Figure 12<br />
29
The <strong>Elliott</strong> <strong>Wave</strong> Educational Video Series — Workbook 7: <strong>Utility</strong> <strong>Manual</strong> <strong>for</strong> <strong>the</strong> <strong>Precision</strong> <strong>Ratio</strong> <strong>Compass</strong><br />
.236<br />
Sample Objective: You wish to mark <strong>the</strong> level of a .236<br />
retracement of wave (1) as an estimate <strong>for</strong> <strong>the</strong> low of<br />
wave (2). Refer to Steps #2-3 and Figure 13.<br />
Example: wave (2) = .236 x wave (1)<br />
Figure 13<br />
.146<br />
Sample Objective: You wish to mark <strong>the</strong> level of a .146<br />
retracement of wave (3) as an estimate <strong>for</strong> <strong>the</strong> low of<br />
wave (4). Refer to steps #2-4 and Figure 14.<br />
Example: wave (4) = .146 x wave (3)<br />
Figure 14<br />
30
The <strong>Elliott</strong> <strong>Wave</strong> Educational Video Series — Workbook 7: <strong>Utility</strong> <strong>Manual</strong> <strong>for</strong> <strong>the</strong> <strong>Precision</strong> <strong>Ratio</strong> <strong>Compass</strong><br />
Expanding Fibonacci <strong>Ratio</strong>s<br />
(<strong>for</strong> “Multiples” and extensions)<br />
Use <strong>the</strong> narrow end of <strong>the</strong> PRC (points A and B)<br />
to measure <strong>the</strong> vertical distance of <strong>the</strong> move <strong>for</strong> which<br />
you desire Fibonacci multiples.<br />
Step 1) For 1.618 multiples: Flip <strong>the</strong> compass, keeping<br />
<strong>the</strong> spread fixed. CD now measures 1.618 times <strong>the</strong> original<br />
distance. Place point C on <strong>the</strong> chart at <strong>the</strong> point from<br />
which you wish to project a longer wave. Place point D<br />
vertically above or below it. Make a small mark where<br />
point D touches <strong>the</strong> paper. See Figure 15.<br />
Figure 15<br />
31
The <strong>Elliott</strong> <strong>Wave</strong> Educational Video Series — Workbook 7: <strong>Utility</strong> <strong>Manual</strong> <strong>for</strong> <strong>the</strong> <strong>Precision</strong> <strong>Ratio</strong> <strong>Compass</strong><br />
Step 2) For 2.618 multiples: After following <strong>the</strong> above<br />
steps, flip and expand <strong>the</strong> PRC so that <strong>the</strong> narrow end<br />
fits <strong>the</strong> 1.618 multiple distance. Now, CD = 2.618 times<br />
your original distance. Flip <strong>the</strong> compass again and mark<br />
<strong>the</strong> 2.618 multiple. See Figure 16.<br />
Step 3) For 4.236 multiples: The sum of <strong>the</strong> 1.618 and<br />
2.618 multiples yields 4.236 times <strong>the</strong> original distance.<br />
Just flip <strong>the</strong> compass and add AB (which is now <strong>the</strong> 1.618<br />
multiple length) to <strong>the</strong> 2.618 multiple distance. See<br />
Figure 16.<br />
Figure 16<br />
Let’s again apply this method to our textbook graph:<br />
32
The <strong>Elliott</strong> <strong>Wave</strong> Educational Video Series — Workbook 7: <strong>Utility</strong> <strong>Manual</strong> <strong>for</strong> <strong>the</strong> <strong>Precision</strong> <strong>Ratio</strong> <strong>Compass</strong><br />
1.618<br />
Sample Objective: You wish to mark <strong>the</strong> level of a 1.618<br />
multiple of wave (1) as an estimate <strong>for</strong> <strong>the</strong> length of wave<br />
(3). Refer to Step #1 and Figure 17.<br />
Example: wave (3) = 1.618 x wave (1)<br />
Figure 17<br />
2.618<br />
Sample Objective: You wish to mark <strong>the</strong> level of a 2.618<br />
multiple of wave 1 as an estimate <strong>for</strong> <strong>the</strong> length of wave<br />
3. Refer to Steps #1-2 and Figure 18.<br />
Example: wave 3 = 2.618 x wave 1<br />
Figure 18<br />
33
The <strong>Elliott</strong> <strong>Wave</strong> Educational Video Series — Workbook 7: <strong>Utility</strong> <strong>Manual</strong> <strong>for</strong> <strong>the</strong> <strong>Precision</strong> <strong>Ratio</strong> <strong>Compass</strong><br />
4.236<br />
Sample Objective: You wish to corroborate your<br />
preferred count by finding additional internal<br />
Fibonacci relationships between waves. Refer to Steps<br />
#1-3 and Figure 19.<br />
Example: wave 3 = 4.236 x wave 2<br />
Figure 19<br />
Smaller or larger multiples can be obtained<br />
with <strong>the</strong> PRC by adding or subtracting multiples of<br />
first generation ratios. For example, .236 - .146 = .090,<br />
while 2.618 + 4.236 = 6.854. Note: While <strong>the</strong>se<br />
methods can be followed infinitely, we have found<br />
little evidence that <strong>the</strong> extremely large or extremely<br />
small Fibonacci ratios are of any practical value.<br />
34
The <strong>Elliott</strong> <strong>Wave</strong> Educational Video Series — Workbook 7: <strong>Utility</strong> <strong>Manual</strong> <strong>for</strong> <strong>the</strong> <strong>Precision</strong> <strong>Ratio</strong> <strong>Compass</strong><br />
A COMPLETE LIST OF KNOWN RELIABLE<br />
RELATIONSHIPS WITHIN PATTERNS<br />
developed by<br />
R.N. ELLIOTT and R.R. PRECHTER, JR.<br />
The following pages list <strong>the</strong> most common and<br />
useful Fibonacci ratio relationships in markets.<br />
IMPULSE WAVES<br />
Fifth <strong>Wave</strong>s When <strong>Wave</strong> Three is Extended<br />
(see Figure 20)<br />
The most common multiple is 1.00 times <strong>the</strong> length<br />
of wave 1. Transfer <strong>the</strong> fixed length of wave 1 to <strong>the</strong> end<br />
of wave 4 to project <strong>the</strong> end of wave 5.<br />
The next most common multiple is .618 times <strong>the</strong><br />
length of wave 1. Follow Step #1 under “Retracements”<br />
on page 26 to project this target.<br />
The next most common multiple is 1.618 times<br />
<strong>the</strong> length of wave 1. Follow Step #1 under “Multiples”<br />
on page 31 to project this target.<br />
Extensions in First or Fifth <strong>Wave</strong>s<br />
(see Figure 20)<br />
By far <strong>the</strong> most common multiple <strong>for</strong> <strong>the</strong><br />
extended wave is 1.618 times <strong>the</strong> net price advance<br />
of <strong>the</strong> o<strong>the</strong>r two impulse waves. Thus, when wave 5 is<br />
extended, <strong>the</strong> most common multiple <strong>for</strong> its length is<br />
1.618 times <strong>the</strong> length of wave 1 through wave 3.<br />
Similarly, when wave 1 is extended, <strong>the</strong> most common<br />
multiple <strong>for</strong> its length is 1.618 times <strong>the</strong> length<br />
of waves 3 through 5. Follow Step #1 under “Multiples”<br />
to project this target.<br />
35
The <strong>Elliott</strong> <strong>Wave</strong> Educational Video Series — Workbook 7: <strong>Utility</strong> <strong>Manual</strong> <strong>for</strong> <strong>the</strong> <strong>Precision</strong> <strong>Ratio</strong> <strong>Compass</strong><br />
Figure 20<br />
CORRECTIVE WAVES<br />
Zigzag Corrections<br />
The most common retracement is 61.8% of <strong>the</strong><br />
previous impulse wave and is most likely when <strong>the</strong><br />
correction itself is in <strong>the</strong> “wave 2” position. Follow<br />
Step #1 under “Retracements” to project this target.<br />
See Figure 21.<br />
Figure 21<br />
36
The <strong>Elliott</strong> <strong>Wave</strong> Educational Video Series — Workbook 7: <strong>Utility</strong> <strong>Manual</strong> <strong>for</strong> <strong>the</strong> <strong>Precision</strong> <strong>Ratio</strong> <strong>Compass</strong><br />
The next most common retracement is 50%. See<br />
page 22 to project this target.<br />
The least common retracement is 38.2%. Follow<br />
Step #2 under “Retracements” to project this target.<br />
Figure 22<br />
B <strong>Wave</strong>s in Zigzags<br />
(See Figure 22)<br />
The most common retracement of wave A is<br />
38.2%. Follow Step #2 under “Retracements” to project<br />
this target.<br />
The next most common retracement is 61.8% of<br />
wave A. Follow Step #1 under “Retracements” to project<br />
this target.<br />
The next most common retracement is 50%. See<br />
page 22 to project this target.<br />
These same relationships also apply in regard to<br />
X waves as retracements of first or second zigzags in a<br />
double or triple zigzag <strong>for</strong>mation. (See Figure 23).<br />
37
The <strong>Elliott</strong> <strong>Wave</strong> Educational Video Series — Workbook 7: <strong>Utility</strong> <strong>Manual</strong> <strong>for</strong> <strong>the</strong> <strong>Precision</strong> <strong>Ratio</strong> <strong>Compass</strong><br />
Figure 23<br />
C <strong>Wave</strong>s in Zigzags<br />
(See Figure 23)<br />
By far <strong>the</strong> most common multiple is 1.00 times<br />
<strong>the</strong> length of wave A. Transfer <strong>the</strong> fixed length <strong>for</strong> wave<br />
A to <strong>the</strong> end of wave B to project <strong>the</strong> end of wave C.<br />
The next most common multiple is 1.618 times<br />
<strong>the</strong> length of A. Follow step #1 under “multiples” to<br />
project this target.<br />
The least common multiple is .618 times <strong>the</strong> length<br />
of A. Follow Step #1 under “Retracements” to project<br />
this target.<br />
These same relationships apply to second zigzags<br />
relative to first zigzags in a double zigzag pattern.<br />
Flat and Irregular Corrections<br />
By far <strong>the</strong> most common retracement is 38.2% of<br />
<strong>the</strong> previous impulse wave. Follow Step #2 under<br />
“Retracements” to project this target. See Figure 24.<br />
38
The <strong>Elliott</strong> <strong>Wave</strong> Educational Video Series — Workbook 7: <strong>Utility</strong> <strong>Manual</strong> <strong>for</strong> <strong>the</strong> <strong>Precision</strong> <strong>Ratio</strong> <strong>Compass</strong><br />
Figure 24<br />
Figure 25<br />
The next most common retracement is 23.6%.<br />
Follow Steps #2-3 under “Retracements” to project this<br />
target.<br />
The least common retracements are 50% and<br />
61.8%, which occur only when <strong>the</strong> correction itself is in<br />
<strong>the</strong> wave B or wave 2 position. See page 22 or follow<br />
Step #1 under “Retracements” respectively to project<br />
<strong>the</strong>se targets.<br />
B <strong>Wave</strong>s in Flats<br />
The only retracement is 100% of <strong>the</strong> preceding A<br />
wave. Expect wave B to end at <strong>the</strong> same level from which<br />
wave A began. See Figure 25.<br />
39
The <strong>Elliott</strong> <strong>Wave</strong> Educational Video Series — Workbook 7: <strong>Utility</strong> <strong>Manual</strong> <strong>for</strong> <strong>the</strong> <strong>Precision</strong> <strong>Ratio</strong> <strong>Compass</strong><br />
C <strong>Wave</strong>s in Flats<br />
By far <strong>the</strong> most common multiple is just over 1.00<br />
times <strong>the</strong> length of A. Transfer <strong>the</strong> fixed length <strong>for</strong> wave<br />
A to <strong>the</strong> end of wave B to project <strong>the</strong> end of wave C.<br />
Then look <strong>for</strong> <strong>the</strong> market to turn slightly beyond that point.<br />
See Figure 25.<br />
Figure 26<br />
B <strong>Wave</strong>s in Irregular Corrections<br />
The most reliable multiple with respect to irregular<br />
corrections is <strong>the</strong> relationship between <strong>the</strong> lengths of<br />
waves A and C (see Figure 26). However, often B waves<br />
will fit one of <strong>the</strong>se two cases:<br />
The most common Fibonacci multiple <strong>for</strong> <strong>the</strong><br />
length of wave B is 1.236 times <strong>the</strong> preceding A wave.<br />
Follow Steps #2-3 under “Retracements” and add this<br />
length to <strong>the</strong> beginning of wave A to project a 1.236<br />
multiple.<br />
40
The <strong>Elliott</strong> <strong>Wave</strong> Educational Video Series — Workbook 7: <strong>Utility</strong> <strong>Manual</strong> <strong>for</strong> <strong>the</strong> <strong>Precision</strong> <strong>Ratio</strong> <strong>Compass</strong><br />
The next most common Fibonacci multiple is<br />
1.382 times <strong>the</strong> preceding A wave. Follow Step #2 under<br />
“Retracements” and add this length to <strong>the</strong> beginning of<br />
wave A to project a 1.382 multiple.<br />
C <strong>Wave</strong>s in Irregular Corrections<br />
By far <strong>the</strong> most common multiple is 1.618 times<br />
<strong>the</strong> length of wave A. Follow Step #1 under “Multiples”<br />
to project this target. See Figure 26.<br />
The next most common multiple is 2.618 times<br />
<strong>the</strong> length of A. Follow Steps #1-2 under “Multiples” to<br />
project this target.<br />
Figure 27<br />
Figure 28<br />
Subwaves in Double and Triple Threes<br />
(See Figures 27, 28)<br />
The most common relationship is that each “three”<br />
is 1.00 times <strong>the</strong> length of <strong>the</strong> adjacent “threes.” Expect<br />
<strong>the</strong> second and third three each to end just beyond <strong>the</strong><br />
level at which <strong>the</strong> first “three” ended.<br />
41
The <strong>Elliott</strong> <strong>Wave</strong> Educational Video Series — Workbook 7: <strong>Utility</strong> <strong>Manual</strong> <strong>for</strong> <strong>the</strong> <strong>Precision</strong> <strong>Ratio</strong> <strong>Compass</strong><br />
The next most common relationship is that<br />
alternate “threes” are related by 1.618. Follow Step<br />
#1 under “Multiples” to project this target.<br />
The least common relationship is that adjacent<br />
“threes” are related by 1.618. Follow Step #1 under<br />
“Multiples” to project this target.<br />
Figure 29<br />
Subwaves in Contracting, Ascending<br />
and Descending Triangles<br />
(See Figure 29)<br />
The most common relationship is that each<br />
subwave is .618 times <strong>the</strong> length of <strong>the</strong> previous<br />
alternate subwave, i.e., wave e = .618 x wave c =<br />
.382 x wave a; wave d = .618 x wave b. Follow Step #1<br />
under “Retracements” to project <strong>the</strong>se targets.<br />
The next most common relationship is that each<br />
subwave is .618 times <strong>the</strong> length of <strong>the</strong> previous<br />
adjacent subwave, i.e., wave e = .618 x wave d = .382<br />
x wave c = .236 x wave b = .146 x wave a. Follow<br />
Step #1 under “Retracements” to project <strong>the</strong>se targets.<br />
42
The <strong>Elliott</strong> <strong>Wave</strong> Educational Video Series — Workbook 7: <strong>Utility</strong> <strong>Manual</strong> <strong>for</strong> <strong>the</strong> <strong>Precision</strong> <strong>Ratio</strong> <strong>Compass</strong><br />
Figure 30<br />
Subwaves in Expanding Triangles<br />
(See Figure 30)<br />
The most common relationship is that each<br />
subwave is 1.618 times <strong>the</strong> length of <strong>the</strong> previous<br />
alternate subwave, i.e., wave e = 1.618 x wave c =<br />
2.618 x wave a; wave d = 1.618 x wave b. Follow<br />
Step #1 under “Multiples” to project <strong>the</strong>se targets.<br />
The next most common relationship is that each<br />
subwave is 1.618 times <strong>the</strong> length of <strong>the</strong> previous<br />
adjacent subwave, i.e., wave e = 1.618 x wave d =<br />
2.618 x wave c = 4.236 x wave b = 6.854 x wave a.<br />
Follow Step #1 under “Multiples” to project <strong>the</strong>se<br />
targets.<br />
43
The <strong>Elliott</strong> <strong>Wave</strong> Educational Video Series — Workbook 7: <strong>Utility</strong> <strong>Manual</strong> <strong>for</strong> <strong>the</strong> <strong>Precision</strong> <strong>Ratio</strong> <strong>Compass</strong><br />
ADVANCED RATIO APPLICATION —<br />
A COMPREHENSIVE FORECASTING METHOD<br />
Keep in mind that all degrees of trend are always<br />
operating on <strong>the</strong> market at <strong>the</strong> same time. There<strong>for</strong>e, at<br />
any given moment <strong>the</strong> market will be full of Fibonacci<br />
ratio relationships, all occurring with respect to <strong>the</strong> various<br />
wave degrees unfolding. It follows that points which<br />
are found to be in Fibonacci relationship to several<br />
market lengths have a greater likelihood of marking a<br />
turning point in <strong>the</strong> future than a point which is in<br />
Fibonacci relationship to only one length.<br />
The group-ratio approach works best when <strong>the</strong><br />
guidelines of <strong>the</strong> <strong>Elliott</strong> <strong>Wave</strong> Principle are kept in mind.<br />
For instance, if a .618 retracement of a Primary wave 1<br />
by a Primary wave 2 gives a particular target, and within<br />
it, a 1.618 multiple of Intermediate wave (A) in an irregular<br />
correction gives <strong>the</strong> same target <strong>for</strong> Intermediate<br />
wave (C), and within that, a 1.00 multiple of Minor wave<br />
1 gives <strong>the</strong> same target yet again <strong>for</strong> Minor wave 5, <strong>the</strong>n<br />
you have a most powerful argument <strong>for</strong> expecting a turn<br />
at that calculated price level. Figure 31 illustrates this<br />
example.<br />
Figure 31<br />
At <strong>the</strong> target market by <strong>the</strong> arrow,<br />
2 = .618 1, (C) = 1.618 (A), and 5=1<br />
44
The <strong>Elliott</strong> <strong>Wave</strong> Educational Video Series — Workbook 7: <strong>Utility</strong> <strong>Manual</strong> <strong>for</strong> <strong>the</strong> <strong>Precision</strong> <strong>Ratio</strong> <strong>Compass</strong><br />
If one of <strong>the</strong> above calculations were to yield<br />
one level, but two of <strong>the</strong>m were to yield ano<strong>the</strong>r level,<br />
<strong>the</strong> level supported by two calculations is more likely<br />
<strong>the</strong> valid one.<br />
Years of experience have proved this to be<br />
<strong>the</strong> most valid, reliable and useful approach to price<br />
<strong>for</strong>ecasting in markets. The graph on page 21 is full<br />
of such confirming ratios, and serves as a good<br />
illustration of how markets often build an interlocking<br />
grid of Fibonacci relationships.<br />
45
The <strong>Elliott</strong> <strong>Wave</strong> Educational Video Series — Workbook 7: <strong>Utility</strong> <strong>Manual</strong> <strong>for</strong> <strong>the</strong> <strong>Precision</strong> <strong>Ratio</strong> <strong>Compass</strong><br />
REAL-TIME EXAMPLES OF<br />
FIBONACCI MULTIPLES AND RETRACEMENTS<br />
Ra<strong>the</strong>r than give <strong>the</strong> reader ‘doctored-up’ examples<br />
and charts of what might transpire with regard to<br />
Fibonacci multiples and retracements, we have chosen<br />
real-time examples of how Fibonacci relationships were<br />
actually applied in <strong>for</strong>ecasting future market turning<br />
points. The following paragraphs are excerpted from past<br />
issues of The <strong>Elliott</strong> <strong>Wave</strong> Theorist:<br />
THE BOND MARKET<br />
November 1983<br />
“Now it’s time to attempt a more precise<br />
<strong>for</strong>ecast <strong>for</strong> bond futures prices. <strong>Wave</strong> (a) in<br />
December futures dropped 11 3/4 points, so<br />
a wave (c) equivalent subtracted from <strong>the</strong><br />
wave (b) peak at 73 1/2 last month projects<br />
a downside target of 61 3/4. It is also <strong>the</strong><br />
case that alternate waves within symmetrical<br />
triangles are usually related by .618. As<br />
it happens, wave B fell 32 points. 32 x .618<br />
= 19 3/4 points, which should be a good<br />
estimate <strong>for</strong> <strong>the</strong> length of wave D. 19 3/4<br />
points from <strong>the</strong> peak of wave C at 80<br />
projects a downside target of 60 1/4. There<strong>for</strong>e,<br />
<strong>the</strong> 60 1/4 - 61 3/4 area is <strong>the</strong> best<br />
point to be watching <strong>for</strong> <strong>the</strong> bottom of <strong>the</strong><br />
current decline. This target zone fits <strong>the</strong> fact<br />
that futures contracts lose premium, and if<br />
<strong>the</strong> 10 3/8 bond projects an equivalent of 63<br />
on a “cash” basis, an additional point or two<br />
would probably be lost in <strong>the</strong> price of <strong>the</strong><br />
futures contract over <strong>the</strong> time period of <strong>the</strong><br />
decline.” [See Figure 32.]<br />
46
The <strong>Elliott</strong> <strong>Wave</strong> Educational Video Series — Workbook 7: <strong>Utility</strong> <strong>Manual</strong> <strong>for</strong> <strong>the</strong> <strong>Precision</strong> <strong>Ratio</strong> <strong>Compass</strong><br />
Figure 32<br />
April 3, 1984 [adjusting and confirming <strong>the</strong><br />
target after (b) ended in a triangle itself]<br />
“...<strong>the</strong> ultimate downside target will probably<br />
occur nearer <strong>the</strong> point at which wave D is<br />
.618 times as long as wave B, which took<br />
place from June 1980 to September 1981 and<br />
traveled 32 points basis <strong>the</strong> weekly continuation<br />
chart. Thus, if wave D travels 19 3/4<br />
points, <strong>the</strong> nearby contract should bottom at<br />
60 1/4. In support of this target is <strong>the</strong> five<br />
wave (A), which indicates that a zigzag<br />
decline is in <strong>for</strong>ce from <strong>the</strong> May 1983 highs.<br />
Within zigzags, waves (A) and (C) are typically<br />
of equal length. Basis <strong>the</strong> June contract,<br />
47
The <strong>Elliott</strong> <strong>Wave</strong> Educational Video Series — Workbook 7: <strong>Utility</strong> <strong>Manual</strong> <strong>for</strong> <strong>the</strong> <strong>Precision</strong> <strong>Ratio</strong> <strong>Compass</strong><br />
wave (A) fell 11 points. 11 points from <strong>the</strong><br />
triangle peak at 70 3/4 projects 59 3/4,<br />
making <strong>the</strong> 60 zone (+ or - 1/4) a point of<br />
strong support and a potential target. As a<br />
final calculation, thrusts following triangles<br />
usually fall approximately <strong>the</strong> distance of <strong>the</strong><br />
widest part of <strong>the</strong> triangle. Based on <strong>the</strong><br />
accompanying chart, that distance is 10 1/2<br />
points, which subtracted from <strong>the</strong> triangle<br />
peak gives 60 1/4 as a target.”<br />
June 4, 1984<br />
“The bond market ended a one-year decline<br />
on May 30, hitting <strong>the</strong> long-standing <strong>Elliott</strong><br />
target of ‘59 3/4-60 1/4’ basis <strong>the</strong> nearby<br />
futures with a dramatic reversal off [an<br />
intraday] spike low at 59 1/2 on <strong>the</strong> June<br />
contract [closing that day at 59 31/32]. In <strong>the</strong><br />
2 1/2 days following that low, bonds have<br />
rebounded two full points.” [See Figure 33].<br />
Figure 33<br />
48
The <strong>Elliott</strong> <strong>Wave</strong> Educational Video Series — Workbook 7: <strong>Utility</strong> <strong>Manual</strong> <strong>for</strong> <strong>the</strong> <strong>Precision</strong> <strong>Ratio</strong> <strong>Compass</strong><br />
THE STOCK MARKET<br />
November 7, 1983 [See Figure 34.]<br />
“A break of Dow 1206 will virtually confirm<br />
that Primary 1 has peaked and assure a continuation<br />
of <strong>the</strong> decline. If 1158 is broken, <strong>the</strong><br />
next point of support is 1090, which marks a<br />
.382 retracement of Primary 1”.<br />
Figure 34<br />
March 5, 1984<br />
Downside Targets<br />
“As <strong>the</strong> correction progresses, we should be<br />
able to get closer and closer to estimating<br />
where <strong>the</strong> final bottom will actually occur.<br />
Here are <strong>the</strong> calculations:<br />
1) Primary wave 2 will retrace .382 of<br />
Primary wave 1 at 1094.20.<br />
2) Within <strong>the</strong> ABC decline, wave C will be<br />
.618 times as long as wave A at 1089.19.<br />
June 4, 1984 [See Figures 35, 36.]<br />
“In terms of price, <strong>the</strong> downside target of 1090<br />
was first computed seven months ago in <strong>the</strong><br />
November 7, 1983 issue. That basic target was<br />
reiterated in <strong>the</strong> March and April issues,<br />
49
The <strong>Elliott</strong> <strong>Wave</strong> Educational Video Series — Workbook 7: <strong>Utility</strong> <strong>Manual</strong> <strong>for</strong> <strong>the</strong> <strong>Precision</strong> <strong>Ratio</strong> <strong>Compass</strong><br />
with ‘buy’ strategy outlined (with minor<br />
variations) <strong>for</strong> <strong>the</strong> 1087-1099 area. The hourly<br />
low on May 30 was 1087.93.<br />
Figure 35<br />
The list of Fibonacci wave relationships now<br />
in place is so perfect as to be a compelling<br />
argument all by itself that a low is in <strong>the</strong><br />
making.<br />
1) <strong>Wave</strong> (C) at 90.99 points, is .22 of a<br />
Dow point from being exactly .618 times as<br />
long as wae (A) at 146.88 points, a typical<br />
relationship in zigzags.<br />
2) <strong>Wave</strong> (B) at 35.27 points, is 1/2 point<br />
from being exactly .382 times as long as wave<br />
(C).<br />
3) Not only is wave (A) 1.618 times as long<br />
as wave (C), which is 2.618 times as long as<br />
wave (B), but <strong>the</strong> actual lengths are remarkably<br />
close to Fibonacci numbers: 146.88<br />
points (Fibonacci 144), 90.99 points (Fibonacci<br />
89), and 35.27(Fibonacci 34).<br />
4) <strong>Wave</strong> (A) lasted 5 weeks, wave (B)<br />
lasted 13 weeks, and wave (C) lasted 3 weeks,<br />
just as <strong>for</strong>ecast in <strong>the</strong> May issue. The two<br />
impulse waves totaled 8 weeks. The entire<br />
50
The <strong>Elliott</strong> <strong>Wave</strong> Educational Video Series — Workbook 7: <strong>Utility</strong> <strong>Manual</strong> <strong>for</strong> <strong>the</strong> <strong>Precision</strong> <strong>Ratio</strong> <strong>Compass</strong><br />
correction lasted 21 weeks. Thus, <strong>the</strong> time<br />
lengths create <strong>the</strong> Fibonacci sequence, 3, 5, 8,<br />
13, 21, revealing that each time period, as<br />
precisely defined by <strong>the</strong>ir <strong>Elliott</strong> <strong>Wave</strong><br />
structures, is related to each of <strong>the</strong> o<strong>the</strong>rs by<br />
a Fibonacci ratio.<br />
5) Even <strong>the</strong> Minor moves are related<br />
precisely by Fibonacci ratios (see March and<br />
April issues).<br />
6) The Dow Jones Transports have<br />
retraced exactly 50% of <strong>the</strong>ir 1982-1984<br />
advance as of <strong>the</strong> low on May 30.”<br />
Figure 36<br />
June 24, 1984<br />
“Today’s slight new closing low in <strong>the</strong> Dow at<br />
1086.57 generated ‘sell signals’ all over Wall<br />
Street. However, it appears to me that, just<br />
like <strong>the</strong> May 30 low and <strong>the</strong> June 15 low, this<br />
minor decline is actually providing ano<strong>the</strong>r<br />
excellent opportunity to buy.<br />
Based on typical Fibonacci relationships, I<br />
doubt that our ‘stop’ at Dow 1070 hourly<br />
reading will be taken out.”<br />
51
The <strong>Elliott</strong> <strong>Wave</strong> Educational Video Series — Workbook 7: <strong>Utility</strong> <strong>Manual</strong> <strong>for</strong> <strong>the</strong> <strong>Precision</strong> <strong>Ratio</strong> <strong>Compass</strong><br />
August 6, 1984<br />
“The leap out of that bottom (as if you hadn’t<br />
heard) has been one <strong>for</strong> <strong>the</strong> record books, and<br />
is powerful enough virtually to confirm that<br />
Primary wave 3 has begun. The first<br />
important level of resistance is Dow<br />
1290-1340.” [See Figure 37.]<br />
Figure 37<br />
52
The <strong>Elliott</strong> <strong>Wave</strong> Educational Video Series — Workbook 7: <strong>Utility</strong> <strong>Manual</strong> <strong>for</strong> <strong>the</strong> <strong>Precision</strong> <strong>Ratio</strong> <strong>Compass</strong><br />
THE GOLD MARKET<br />
The quotes presented below detail 5 consecutive<br />
<strong>for</strong>ecasts, which were made in The <strong>Elliott</strong> <strong>Wave</strong> Theorist<br />
between November 1979 and January 1982, as follows:<br />
1) Gold should drop to $477.<br />
Outcome: Dropped to $474.<br />
2) Gold should rise to $710.<br />
Outcome: Rose to $710.<br />
3) Gold should drop to $388.<br />
Outcome: Dropped to $388.<br />
4) Gold should undergo a rise to new highs.<br />
Outcome: Short 3-month rise followed by<br />
renewed decline. But because of stop<br />
placement, <strong>the</strong> loss on <strong>the</strong> erroneous<br />
<strong>for</strong>ecast was only $10.<br />
5) Gold going lower. Move back to <strong>the</strong> short side.<br />
Outcome: Gold dropped ano<strong>the</strong>r $90 to $296.75.<br />
Here are <strong>the</strong> exact comments which appeared:<br />
November 18, 1979<br />
“London gold appears to be in its final blowoff<br />
rally on a long term basis. One all-important<br />
question, in <strong>Elliott</strong> terms, is whe<strong>the</strong>r <strong>the</strong><br />
1967-68 rise in gold stocks was actually wave I<br />
of <strong>the</strong> long term gold bull market. If <strong>the</strong> true<br />
first wave was masked by <strong>the</strong> artifical price<br />
controls on gold at $34 per ounce, <strong>the</strong>n we are<br />
witnessing <strong>the</strong> peak of <strong>the</strong> final fifth wave<br />
advance in gold from a true low in 1967! [For<br />
<strong>the</strong> time being, I will proceed under <strong>the</strong><br />
assumption that only wave III is peaking.]”<br />
53
The <strong>Elliott</strong> <strong>Wave</strong> Educational Video Series — Workbook 7: <strong>Utility</strong> <strong>Manual</strong> <strong>for</strong> <strong>the</strong> <strong>Precision</strong> <strong>Ratio</strong> <strong>Compass</strong><br />
Figure 38<br />
March 9, 1980<br />
“Fibonacci support levels <strong>for</strong> gold are $565,<br />
$477 and $388. An ideal <strong>Elliott</strong> scenario <strong>for</strong><br />
gold over <strong>the</strong> next year or two would be an A<br />
wave down to $477, <strong>for</strong>ming <strong>the</strong> first<br />
retracement of <strong>the</strong> extended fifth wave within<br />
wave III. Then a strong rally would ensue<br />
<strong>for</strong>ming wave B, followed by a declining<br />
wave C down to <strong>the</strong> final target of $388. The<br />
$388 level would correspond with a .618<br />
retracement of wave III and with <strong>the</strong> area of<br />
<strong>the</strong> previous fourth wave of lesser degree, a<br />
normal <strong>Elliott</strong> support level. The $388 level is<br />
<strong>the</strong> most reasonable target <strong>for</strong> <strong>the</strong> eventual<br />
end to <strong>the</strong> large wave IV correction.” [See<br />
Figure 38.]<br />
54
The <strong>Elliott</strong> <strong>Wave</strong> Educational Video Series — Workbook 7: <strong>Utility</strong> <strong>Manual</strong> <strong>for</strong> <strong>the</strong> <strong>Precision</strong> <strong>Ratio</strong> <strong>Compass</strong><br />
Figure 39<br />
April 6, 1980<br />
“Gold has since declined to a low of $474 on<br />
March 18.” [See Figure 39.]<br />
May 12, 1980<br />
“There is nothing to add to my expectations<br />
<strong>for</strong> gold. ...a .618 retracement of <strong>the</strong> decline<br />
to just over $700 should be <strong>the</strong> maximum<br />
potential of any intermediate rally.”<br />
July 6, 1980<br />
“I still feel that <strong>the</strong> $710 level is a very likely<br />
target <strong>for</strong> this rally.”<br />
55
The <strong>Elliott</strong> <strong>Wave</strong> Educational Video Series — Workbook 7: <strong>Utility</strong> <strong>Manual</strong> <strong>for</strong> <strong>the</strong> <strong>Precision</strong> <strong>Ratio</strong> <strong>Compass</strong><br />
Figure 40<br />
September 23, 1980 (<strong>the</strong> day of <strong>the</strong> high)<br />
“Gold has now hit its minimum target of $710<br />
per ounce London fixing. From here on out,<br />
I’d ra<strong>the</strong>r let <strong>the</strong> o<strong>the</strong>r guy have <strong>the</strong> profits.<br />
The ‘guaranteed’ part of <strong>the</strong> rise is behind us.”<br />
[See Figure 40.]<br />
56
The <strong>Elliott</strong> <strong>Wave</strong> Educational Video Series — Workbook 7: <strong>Utility</strong> <strong>Manual</strong> <strong>for</strong> <strong>the</strong> <strong>Precision</strong> <strong>Ratio</strong> <strong>Compass</strong><br />
Figure 41<br />
August 5, 1981<br />
“Yesterday <strong>the</strong> Fibonacci ratio target of $388<br />
per ounce computed a year and a half ago was<br />
satisfied quite closely, and <strong>the</strong> time zone of<br />
‘mid-1981,’ refined last May to ‘August<br />
1981,’ is upon us.” [See Figures 41, 42.]<br />
Figure 42<br />
57
The <strong>Elliott</strong> <strong>Wave</strong> Educational Video Series — Workbook 7: <strong>Utility</strong> <strong>Manual</strong> <strong>for</strong> <strong>the</strong> <strong>Precision</strong> <strong>Ratio</strong> <strong>Compass</strong><br />
September 8, 1981<br />
“The exact low on <strong>the</strong> COMEX nearby futures<br />
contract was $388.00 and <strong>the</strong> lowest price <strong>for</strong><br />
a cash bullion sale was $388.00 by <strong>the</strong> Bank<br />
of Nova Scotia, both on <strong>the</strong> same date.”<br />
January 11, 1982<br />
“[The a-b-c rally into <strong>the</strong> September 1981<br />
high] in gold is indicating that a break of <strong>the</strong><br />
$388 level is now extremely likely. If gold<br />
fixes below $380, I suggest reinstating your<br />
short position. The net result will be as if we<br />
had never exited <strong>the</strong> short side at all.”<br />
While most commodities’ wave structures clearly indicated<br />
that wave I began in 1967, some uncertainty had<br />
existed in bullion’s pattern due to government-imposed<br />
price controls. The subsequent break of <strong>the</strong> $388 level<br />
conclusively resolved this matter, confirming <strong>the</strong> wave<br />
count shown below.<br />
Figure 43<br />
58
The <strong>Elliott</strong> <strong>Wave</strong> Educational Video Series — Workbook 7: <strong>Utility</strong> <strong>Manual</strong> <strong>for</strong> <strong>the</strong> <strong>Precision</strong> <strong>Ratio</strong> <strong>Compass</strong><br />
PART III<br />
GANN ANALYSIS<br />
59
The <strong>Elliott</strong> <strong>Wave</strong> Educational Video Series — Workbook 7: <strong>Utility</strong> <strong>Manual</strong> <strong>for</strong> <strong>the</strong> <strong>Precision</strong> <strong>Ratio</strong> <strong>Compass</strong><br />
60
The <strong>Elliott</strong> <strong>Wave</strong> Educational Video Series — Workbook 7: <strong>Utility</strong> <strong>Manual</strong> <strong>for</strong> <strong>the</strong> <strong>Precision</strong> <strong>Ratio</strong> <strong>Compass</strong><br />
GANN ANALYSIS<br />
The PRC is ideally suited <strong>for</strong> many of <strong>the</strong><br />
methods pracaticed by <strong>the</strong> late W.D. Gann. We do<br />
not attempt to evaluate Gann <strong>the</strong>ory in this manual,<br />
ra<strong>the</strong>r to illustrate <strong>the</strong> usefulness of <strong>the</strong> PRC to those<br />
already convinced of <strong>the</strong> benefits of Gann analysis.<br />
THE GANN-BLITZ APPROACH<br />
Those researchers with ei<strong>the</strong>r computers or a<br />
good deal of spare time may wish to explore a method<br />
similar to that used by Gann. Of course, <strong>the</strong> basis of<br />
Gann’s choice of “important numbers” is strictly numerological,<br />
and <strong>the</strong> long list of numbers he considered important<br />
leaves almost no number untouched. However,<br />
his idea of finding groups of such numbers to reveal highreliability<br />
future turning points can be applied successfully<br />
to Fibonacci ratios. This method is essentially a<br />
“shotgun” approach, in which <strong>the</strong> analyst takes every applicable<br />
Fibonacci ratio (2.618, 1.618, 1.00, .618, .382,<br />
... etc.), applies it to each discernible market swing on<br />
<strong>the</strong> chart, and plots every one of <strong>the</strong>se points in order to<br />
find “clusters” which might reveal “magnets” <strong>for</strong> price<br />
turning points.<br />
This approach is not as useful as that which takes<br />
into account <strong>the</strong> guidelines of <strong>the</strong> <strong>Elliott</strong> <strong>Wave</strong> Principle<br />
(see ADVANCED RATIO APPLICATION). However,<br />
<strong>for</strong> those who have no desire to learn or apply <strong>the</strong> tenets<br />
of <strong>the</strong> <strong>Wave</strong> Principle, this exercise will certainly reveal<br />
price levels which are worth watching <strong>for</strong> changes in<br />
trend. Any single price level or time zone which were to<br />
come up repeatedly during a long series of Fibonacci<br />
calculations is one that an analyst should not fail to watch<br />
closely.<br />
61
The <strong>Elliott</strong> <strong>Wave</strong> Educational Video Series — Workbook 7: <strong>Utility</strong> <strong>Manual</strong> <strong>for</strong> <strong>the</strong> <strong>Precision</strong> <strong>Ratio</strong> <strong>Compass</strong><br />
Procedure:<br />
1) Choose <strong>the</strong> most recent swing in <strong>the</strong> market of <strong>the</strong><br />
largest degree in which you are interested and apply all<br />
<strong>the</strong> functions under “USING THE COMPASS” to that<br />
swing. Add (and subtract) each of <strong>the</strong> results to (and from)<br />
both <strong>the</strong> beginning and end of that swing and of<br />
<strong>the</strong> preceding swing of <strong>the</strong> same degree. Lightly<br />
mark all resulting price levels on <strong>the</strong> chart.<br />
2) Choose <strong>the</strong> most recent swing of <strong>the</strong> next smaller size<br />
and repeat <strong>the</strong> process.<br />
3) Continue this process until <strong>the</strong> computations have been<br />
per<strong>for</strong>med on <strong>the</strong> smallest applicable swing from <strong>the</strong><br />
available data.<br />
4) Mark with heavy lines <strong>the</strong> boundaries around those<br />
price levels which cluster, or which appear a greater than<br />
average number of times in your calculations. Look <strong>for</strong><br />
<strong>the</strong>se areas to coincide with turning points. Experience<br />
shows that Fibonacci relationships are generally quite<br />
precise, so “clusters” should be tight where market turns<br />
are indeed likely.<br />
This method is best accomplished using a<br />
computer.<br />
SQUARING OF TIME AND PRICE<br />
By far <strong>the</strong> most widely used Gann approach is<br />
that of squaring time and price. This approach is based<br />
upon <strong>the</strong> concept that lines determined by certain points<br />
of intersection of time and price will provide support<br />
and resistance <strong>for</strong> future activity. Once a top or bottom<br />
has been identified, measure <strong>for</strong>ward ‘x’ time units<br />
(i.e., hours, days, weeks, months, years) and up or down<br />
‘x’ price units (i.e., cents, dollars, points), tracing out<br />
<strong>the</strong> top (or bottom) and right side of a “square”. The<br />
diagonal of <strong>the</strong> “square”, moving <strong>for</strong>ward in time is,<br />
in <strong>the</strong>ory, significant in determining turning points in <strong>the</strong><br />
62
The <strong>Elliott</strong> <strong>Wave</strong> Educational Video Series — Workbook 7: <strong>Utility</strong> <strong>Manual</strong> <strong>for</strong> <strong>the</strong> <strong>Precision</strong> <strong>Ratio</strong> <strong>Compass</strong><br />
Figure 44<br />
market. This line is referred to as a 1x1 line (1 time<br />
unit by 1 price unit).<br />
O<strong>the</strong>r frequently drawn lines regarded by<br />
Gannophiles as having significance are 2x1 lines (2 time<br />
units by 1 price unit) and 1x2 lines (1 time unit by 2<br />
price units).<br />
An alternate method of ‘squaring’ is accomplished<br />
by measuring <strong>for</strong>ward in time a number<br />
of time units equal to <strong>the</strong> number of price units<br />
represented by <strong>the</strong> levels of prior significant turning<br />
points. For example, a ‘square’ <strong>for</strong> a stock with a peak at<br />
$100 per share would occur at 100 hours, days, weeks,<br />
month, years, etc. from that peak, and allegedly indicate<br />
a turning point in price at that point in time.<br />
(Note: The method described on page 64 requires <strong>the</strong><br />
use of chart paper where equal units are used <strong>for</strong><br />
time and price. An alternate method is described on<br />
page 65 <strong>for</strong> paper with unequal units.)<br />
63
The <strong>Elliott</strong> <strong>Wave</strong> Educational Video Series — Workbook 7: <strong>Utility</strong> <strong>Manual</strong> <strong>for</strong> <strong>the</strong> <strong>Precision</strong> <strong>Ratio</strong> <strong>Compass</strong><br />
1x1 lines<br />
Procedure: Place point C at <strong>the</strong> beginning or end of <strong>the</strong><br />
move from which <strong>the</strong> line will be drawn. Place point D<br />
<strong>for</strong>ward in time at a price equivalent to point C. Keeping<br />
point D fixed, pivot <strong>the</strong> PRC so that point C is at a time<br />
equivalent to point D (above D <strong>for</strong> bottoms, below D <strong>for</strong><br />
tops). Make a small mark. Connect <strong>the</strong> extreme point of<br />
<strong>the</strong> move to <strong>the</strong> mark, and extend <strong>the</strong> line into <strong>the</strong> future.<br />
You have just drawn a 1x1 (45 degree) line to your initial<br />
point.<br />
1x2 lines<br />
Procedure: Set <strong>the</strong> center guide at 2 on <strong>the</strong> left-hand<br />
scale. Place point A at <strong>the</strong> beginning or end of <strong>the</strong> move<br />
from which <strong>the</strong> line will be drawn. Place point B <strong>for</strong>ward<br />
in time at a price equivalent to point A. Make a small<br />
mark. Flip <strong>the</strong> compass. Place point C at <strong>the</strong> mark you<br />
have just made. Keeping point C fixed, pivot <strong>the</strong> PRC so<br />
that point D is at a time equivalent to point C (above C<br />
<strong>for</strong> bottoms, below C <strong>for</strong> tops). Make ano<strong>the</strong>r small mark.<br />
Connect <strong>the</strong> extreme point of <strong>the</strong> move to <strong>the</strong> second<br />
mark, and extend <strong>the</strong> line into <strong>the</strong> future. You have just<br />
drawn a 1x2<br />
2x1 lines<br />
Procedure: Set <strong>the</strong> center guide at 2 on <strong>the</strong> left-hand<br />
scale. Place point C at <strong>the</strong> beginning or end of <strong>the</strong> move<br />
from which <strong>the</strong> line will be drawn. Place point D <strong>for</strong>ward<br />
in time at a price equivalent to point C. Make a<br />
small mark. Flip <strong>the</strong> compass. Place point A at <strong>the</strong> mark<br />
you have just made. Keeping point A fixed, pivot <strong>the</strong> PRC<br />
so that point B is at a time equivalent to point A (above A<br />
<strong>for</strong> bottoms, below A <strong>for</strong> tops). Make ano<strong>the</strong>r small mark.<br />
Connect <strong>the</strong> extreme point of <strong>the</strong> move to <strong>the</strong> second<br />
mark, and extend <strong>the</strong> line into <strong>the</strong> future. You have just<br />
drawn a 2x1 line to your initial point.<br />
64
The <strong>Elliott</strong> <strong>Wave</strong> Educational Video Series — Workbook 7: <strong>Utility</strong> <strong>Manual</strong> <strong>for</strong> <strong>the</strong> <strong>Precision</strong> <strong>Ratio</strong> <strong>Compass</strong><br />
UNEQUAL CHART DIVISIONS<br />
For chart paper where <strong>the</strong> price units and <strong>the</strong><br />
time units are not equal, Gann lines are still easily<br />
drawn with <strong>the</strong> PRC by adjusting <strong>the</strong> center guide on<br />
<strong>the</strong> PRC to correspond with <strong>the</strong> ratio of time to price<br />
on your chart paper. As an example, suppose your time<br />
units are twice <strong>the</strong> size of your price units (i.e., <strong>the</strong><br />
height of paper used <strong>for</strong> 2 points is equal to <strong>the</strong> length<br />
of paper used <strong>for</strong> 1 day). Your objective is to draw a<br />
1x1 line. Set <strong>the</strong> center guide at 2 on <strong>the</strong> left-hand scale.<br />
Place point C at <strong>the</strong> beginning or end of <strong>the</strong> move from<br />
which <strong>the</strong> line will be drawn. Place point D <strong>for</strong>ward in<br />
time at a price equivalent to point C. Make a small<br />
mark. Flip <strong>the</strong> compass. Place point A at <strong>the</strong> mark you<br />
have just made. Keeping point A fixed, pivot <strong>the</strong> PRC<br />
so that point B is at a time equivalent to point A (above<br />
A <strong>for</strong> bottoms, below A <strong>for</strong> tops). Make ano<strong>the</strong>r small<br />
mark. Connect <strong>the</strong> extreme point of <strong>the</strong> move to <strong>the</strong><br />
second mark, and extend <strong>the</strong> line into <strong>the</strong> future. You<br />
have just drawn a 1x1 line to your initial point,<br />
squaring time and price. For 2x1 lines, you can<br />
<strong>the</strong>n multiply <strong>the</strong> setting chosen by 2. <strong>for</strong> 1x2<br />
lines, multiply <strong>the</strong> setting chosen by 1/2. This<br />
technique can be applied to various scales of chart<br />
paper by setting <strong>the</strong> center guide on <strong>the</strong> left hand<br />
scale at <strong>the</strong> ratio of <strong>the</strong> number of price units in a<br />
certain height of chart paper to <strong>the</strong> number of time<br />
units in <strong>the</strong> same length of chart paper.<br />
GANN RANGE SUBDIVISIONS<br />
Ano<strong>the</strong>r Gann assertion is that certain equal<br />
subdivisions of any important move will provide<br />
levels of support and resistance <strong>for</strong> subsequent<br />
market action. According to Gann, many fractions<br />
were found to be important in this regard, with 1/4,<br />
1/3, 1/8, and 1/16 respectively having <strong>the</strong> most<br />
significance. For example, if <strong>the</strong> previous range was<br />
100 units, <strong>the</strong>n a 1/4 subdivision would result in <strong>the</strong><br />
65
The <strong>Elliott</strong> <strong>Wave</strong> Educational Video Series — Workbook 7: <strong>Utility</strong> <strong>Manual</strong> <strong>for</strong> <strong>the</strong> <strong>Precision</strong> <strong>Ratio</strong> <strong>Compass</strong><br />
conclusion that every 25 unit demarcation would<br />
represent a potential area of support or resistance.<br />
The most widely used range subdivision by Gann<br />
practicioners is that of eighths. The usefulness of<br />
<strong>the</strong> PRC to believers in this method is illustrated<br />
in Figure 45.<br />
Step 1) Set <strong>the</strong> center guide at 2. AB = .50 x CD.<br />
Step 2) Measure <strong>the</strong> wave length with <strong>the</strong> wide<br />
end of <strong>the</strong> PRC. Flip <strong>the</strong> compass. Place point A at one<br />
end and point B at an equivalent point in time to point A.<br />
Mark this point.<br />
Step 3) Flip and contract <strong>the</strong> PRC so that points C<br />
and D fit on <strong>the</strong> smaller length you have marked. Flip <strong>the</strong><br />
compass again. Now AB = .25 x <strong>the</strong> original length.<br />
Step 4) Flip and contract <strong>the</strong> PRC so that points C<br />
and D fit on <strong>the</strong> smallest length you have marked. Flip<br />
<strong>the</strong> compass again. Now AB = .125 x <strong>the</strong> original length.<br />
The subdivisions can be projected into new high<br />
or low price territory <strong>for</strong> levels of resistance or support<br />
as illustrated.<br />
Figure 45<br />
66
The <strong>Elliott</strong> <strong>Wave</strong> Educational Video Series — Workbook 7: <strong>Utility</strong> <strong>Manual</strong> <strong>for</strong> <strong>the</strong> <strong>Precision</strong> <strong>Ratio</strong> <strong>Compass</strong><br />
ERRONEOUS USE OF THE COMPASS<br />
Some people have attempted to find value in<br />
measuring <strong>the</strong> physical length of waves on chart<br />
paper, taking into account both price and time. The<br />
problem with this approach lies in <strong>the</strong> fact that a<br />
physical length as defined above is subject to <strong>the</strong><br />
time and price scales of <strong>the</strong> chart paper which is<br />
used, and thus a retracement or multiple will not<br />
transfer from one type of chart paper to ano<strong>the</strong>r. If<br />
a method is to have significance, it should certainly<br />
not be dependent on chart scale.<br />
CONCLUSION<br />
The <strong>Precision</strong> <strong>Ratio</strong> <strong>Compass</strong> is <strong>the</strong> perfect tool<br />
<strong>for</strong> projecting ratio-based price and time targets in<br />
<strong>the</strong> financial markets. The <strong>for</strong>emost advantage is a<br />
tremendous saving of time, since you will not have to<br />
calculate price or time distances, write down figures,<br />
and <strong>the</strong>n transfer <strong>the</strong> result to your chart. In fact,<br />
you won’t even have to check your records to make<br />
sure of exactly what <strong>the</strong> price levels at <strong>the</strong> turning<br />
points are. The <strong>Compass</strong> knows that when you place<br />
it on <strong>the</strong> chart. The second important advantage is<br />
that you will now have time to investigate all <strong>the</strong><br />
relevant ratio relationships, not just one or two. You<br />
can even experiment with your own special ratio<br />
<strong>the</strong>ories (pi multiples have been suggested). And last<br />
but not least, you will eliminate any possibility of<br />
miscalculation in hitting a wrong button on a<br />
calculator or reading and transferring <strong>the</strong> wrong<br />
number from a chart to <strong>the</strong> keys. The final result<br />
is a quicker and more accurate analysis, leaving you<br />
more time to make trades, with greater confidence<br />
that <strong>the</strong>y’ll be based on complete and accurate<br />
in<strong>for</strong>mation.<br />
67
The <strong>Elliott</strong> <strong>Wave</strong> Educational Video Series — Workbook 7: <strong>Utility</strong> <strong>Manual</strong> <strong>for</strong> <strong>the</strong> <strong>Precision</strong> <strong>Ratio</strong> <strong>Compass</strong><br />
ADDITIONAL CHARTS PRESENTED DURING<br />
CALCULATING FIBONACCI RELATIONSHIPS<br />
Using <strong>the</strong> PRECISION RATIO COMPASS<br />
68
The <strong>Elliott</strong> <strong>Wave</strong> Educational Video Series — Workbook 7: <strong>Utility</strong> <strong>Manual</strong> <strong>for</strong> <strong>the</strong> <strong>Precision</strong> <strong>Ratio</strong> <strong>Compass</strong><br />
69
The <strong>Elliott</strong> <strong>Wave</strong> Educational Video Series — Workbook 7: <strong>Utility</strong> <strong>Manual</strong> <strong>for</strong> <strong>the</strong> <strong>Precision</strong> <strong>Ratio</strong> <strong>Compass</strong><br />
70
The <strong>Elliott</strong> <strong>Wave</strong> Educational Video Series — Workbook 7: <strong>Utility</strong> <strong>Manual</strong> <strong>for</strong> <strong>the</strong> <strong>Precision</strong> <strong>Ratio</strong> <strong>Compass</strong><br />
71
The <strong>Elliott</strong> <strong>Wave</strong> Educational Video Series — Workbook 7: <strong>Utility</strong> <strong>Manual</strong> <strong>for</strong> <strong>the</strong> <strong>Precision</strong> <strong>Ratio</strong> <strong>Compass</strong><br />
72
The <strong>Elliott</strong> <strong>Wave</strong> Educational Video Series — Workbook 7: <strong>Utility</strong> <strong>Manual</strong> <strong>for</strong> <strong>the</strong> <strong>Precision</strong> <strong>Ratio</strong> <strong>Compass</strong><br />
1-770-536-0309 (outside <strong>the</strong> U.S.)<br />
or 1-800-336-1618 (inside <strong>the</strong> U.S.)<br />
73