Question of the Week: 3/20/2006

Do you measure Fibonacci relationships from the beginning to end of a wave or from high to low?


This question was sent in by Ahmad Pesnani. The way in which Fibonacci relatioships should be applied depends on various factors, such as whether the market is in an Impulsive or Corrective pattern, whether the pattern ends with a faliure and whether the correction you are dealing with is of a triangular nature or not.

In general, Fibonacci relationships occur "internally" in Impulsive patterns and "externally" in Corrective patterns. Internal relationships are those in which the length of each wave is measured (independent of the others), then compared. External relationships are identified by noting the price levels where waves start and stop, calculating the distance between those price levels, then identifying relationships between those distances.

This issue is further complicated when patterns do not begin or end at the high or low of a trend. When that occurs, the best approach is to measure the length of each wave from both high to low, and beginning to end, selecting the approach that yields the best relationships for future application.

For a much more detailed discussion of Internal and External Fibonacci relationships, go to page 12-22 of Mastering Elliott Wave.

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