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Post From: Using tools in logarithmic scale

[2013-06-09 10:23:39] Link To Thread - Link To Post [Go To First Post]
User87399 - Posts: 17
1. OK, thank you. The right subject of Fibonacci projections and retracements in stock markets are percentage change of price, not arithmetic. Explanation: Elliot waves are prices changes. Change of price from 1$ to 30$ is 30x while from 10$ to 40$ is just 4x. Arithmeticaly both changes are about equal, but as percentage, change of first wave is 30/4 bigger than of second wave. Is it better to count Fibonacci's arithmeticaly or as percentage of change of price? Investor who invested 1000$ in first wave will earn 29000$ while in second wave just 3000$. Because Elliot Waves are the measure of crowd psychology and percentage change of price is the real earning/loss of investements, it seems that percentage change of price is more important for investors. How it works in practice? For waves above intermediate level (typicaly years) Fibonacci projections and retracements counts well mostly on percentage change of prices. For example typical 5-wave cycle has wave I=V and wave III=1.618*I. Let's say wave I is 500% of price change from 1$ to 5$, wave III 800% of price change from 2.5$ to 20$. If we now count wave V as arithmeticaly equal to wave I it should have lenght of 4$. But retracement of wave III will be bigger than 4$ - usualy 32,8% of wave III = 6,65$. This would suggest that wave 5 will be truncated which is incorrect assumption. Arithmetical projections and retracements can be used on small frame waves, where price changes are smaller, but even here percentage ones seems the righter ones. More information can be found in book "Elliott Wave Principle: Key to Market Behavior" Frost and Prechter pages 69 (real-life example here from Dow Industries 1942-1966: wave 1 traveled 120 points = 129% gain, wave 5 traveled 438 points = 80% gain which is .618 times the 129% gain), 71, 74-76. 2. Can live without it.