Trading Options: Using Technical Analysis to Design Winning Trades, + Website

CHAPTER 5

Derived and Quantitative Analysis

There are many technical methods of analyzing stocks that take on a more quantitative bent or are derived from a technical change in a pattern. Many of these are either directly from Fibonacci analysis or derived from it. This chapter explores some of these: Fibonacci analysis, Elliott Wave principles, and Harmonics, as well as introducing Gann analysis and follow up on Andrews’ Pitchfork analysis presented in Chapter 1. By the end of the chapter you should know the major Fibonacci retracements and extensions, understand rudimentary Elliott Wave analysis, and observe the potential that a Harmonic pattern may be in play. This is getting into more advanced technical analysis, and no one can be an expert from reading one chapter in a book on these subjects. But a basic understanding of their principles will help in forming trading ideas and analysis. As with all other areas, there is suggested additional reading on these subjects at the end of the book. Let’s start with Fibonaccis, as so much is built on them.

■ Fibonacci Analysis

Leonardo da Pisa, better known as Fibonacci, died over 750 years ago, but his influence is still felt today. He led a fascinating life and is responsible for some of the most important aspects of modern mathematics, despite the fact that you may never have learned about him in your math classes. He is credited with bringing the Hindu-Arabic numeral system (a fancy name for what we use today) to Europe, as well ...