CONFUSION OVER PROJECTIONS!

I think ive found one source of confusion over price projections. my method is well known ,but i think ,as i have stated before, that Vowaters 3 point(a-b-c-) fib extention projections might even be more accurate! lets look at an example. the math is the same ,but instead of adding or subtracting from th start of the move , Vo's program seems to add or subtract from the c point retracement, if i understand it ! for example: this may be even more accurate! observe this chart....

I would like to add a couple of comments to this discussion over which Fibonacci extension method to select (either the original KoolTools method or the ABC method).

In general (not all cases) the KoolTools method is going to give closer targets because they are being extended from the starting point (A) of the initial move. Thus in essence, points A and C are equivalent. Whereas the ABC method (in general) will have point C some distance away from point A giving a wider target set.

If you want the widest possible targets, the ABC method will give you that. Just remember, every tick further you hope the trend to extend comes with a lower probability of being reached. If you want tighter targets which have a higher probability of being reached, the original KoolTools method provides that advantage.

Because this is a mathematical progression where the extension points are related to each other by a common factor (phi), the two methods tend to align. In the second chart above, we see the 261.8% of the KT#2 method aligns with the 161.8% of the ABC method. This alignment is highly dependent on the location of point C in relation to point A. In the top chart for example, points A and C are within 3 ticks of each other, and thus the extension levels of both techniques are correspondingly close (3 ticks apart at each level).

A couple of things I wanted to add about how I use the KB method.

I use both the 1.618 and the 2.618. I've found that the 1.618 lets me know in which direction the market is moving. If I am on the wrong side the market will not get past the 1.618 level for this reason I take half my position off at this point.

If the market moves successfully through the 1.618 level there is a high chance that it will go all the way to the 2.618 level. This gives me the courage to stay in the trade.

If the market passes the 1.618 level and pulls back to it you can use this point to re-enter the trade down to the 2.618 level (see chart).

I've found that the 2.618 level has proven to be a reliable spot for a direction change or at least a bounce or pullback and I've been testing out a 2 trades in 1 method where I reverse my position instead of exiting it for an additional couple points or so.

You can also use the 1.618 level as an entry point in an existing trend (not shown). I will post a chart of that next time I see one.

These same things can probably be done using the ABC method, but I haven't tried it yet.

I don't do spread sheets or extensive back testing, these are just observations I have made.

Very interesting,Mypto! It kind of reinforces the interesting relationship between 1.618 and 2.618 already elaborated on by Vowater! (see charts 12-23-08 i think)

KOOL, when you initiate a trade how closely are you looking at the current trend? For example if you are looking at the 5 min and there is a downtrend- do you favour looking for touches of the upper BB with oscillators in overbought looking for a continued downmove or are you do fade the trend with touches of the lower BB and oscillators in oversold with equal relish. Thanks.

Here's an example of using the 1.618 to enter an existing trend (whether you consider this a trend or just a move depends on your own definition of a trend).

I'm actually drawing an upside projection, but as I mentioned earlier if I'm on the wrong side of the market it won't get past the 1.618 level. Therefore I can use this level as an entry to the downside.

You could do the same with a Fib retrace but then your stuck with which one to take the .50 or .618 etc.

I thought I better come back and and add a few things to avoid any misunderstanding to any people that may be new here.

This is not a trade you would take unless you were reasonably sure that the market was going to continue its downward movement. What I mean to say is that you wouldn't take it just because the 1.618 projection was there. You would have to have a good reason and in this case there were alotta good reasons to think they would go lower.

1. The market had been moving up all day with no real pullback

2. The previous 10 point decline showed some commitment to the down side.

3. It was very late in the day and with Mideast tensions people will be leery of being in over the Holiday.

4. There were other techs that confirmed the move: .618 fib retracement, possible H&S formation, and prob others.



I use this method when either I missed the trade (maybe I got 1 ticked, or just plain missed it) or if I felt I got out too early and want to get back in.