fibonacci: dow jones index

Fibonacci Review - Dow Jones Index.

I thought this week we could take a look at a current example using the Dow Jones Index, the US stocks index that many analysts use to determine the state of the market.

The index reached a high in 2000, marked A on your chart, a record high before sellers started to drive prices lower after the end of a strong bull campaign. For most of 2000 and 2001 it travelled sideways before dropping to a low in October 2002.

From this new low, a recovery began to drive prices higher; in March 2003 the index formed a higher bottom and subsequently began to recover much of the lost ground of the previous 2 years.

Now that we have a low in place, marked B on your chart which turns out to be a significant low once the next first higher low is formed, we can use the Fibonacci retracement tool to give us lines of support and resistance.

It is important to know where these levels are, we should not expect each and every one of them to turn a market, rather we should anticipate a reversal around this area and then look for confirming signals to perhaps enter a trade.

Point C shows the market reaching a 23.6% Fibonacci level, at this level it broke the upwards trend and began a creeping downward trend.

The market then continued down and crossed the 38.2% level, an indication as previously mentioned that not all levels will reverse a market. It is interesting to note, however, that some months later in April 2005 marked D the market touched the 38.2% level and almost immediately respected the level and reversed direction.

Then we can see the previously proven 23.6 resistance level marked E on your chart becomes a significant top not just because the market reacts lower, but later on it then breaks above it and retests the level from the top as marked F.

This retest of previous Fibonacci levels can be very profitable for traders, as it signals an upward run is very likely to follow.

From the retest at F, we can then see the market rallies to test the previous all time high made in 2000, it has failed to break through on this occasion but it has made one significant move: The market has reversed down to the 23.6% level that C, E and F have reacted to bringing about the rally that we have seen in the last two weeks.

The reactions to Fibonacci levels can be very lucrative, but remember: Never use any one signal on its own and the more confirming signals, the better.

So there we have it for another week. Please feel free to pass on this newsletter, unedited, to anyone you feel may benefit from it. To help you make more money in the markets with easy to follow examples on these and other great tools, I have produced a trading manual to help you achieve your best results possible. The results you can achieve in trading with the right information and techniques are truly sensational. I am delighted to answer any of your queries after you read the information on the manual on my website at www.tradingwithgods.com

Alan Oliver.

This article is provided freely for your information to demonstrate tools and tactics in the market. This general information is not specific to your financial position and no guidance is intended. You should seek the assistance of a licensed professional before making decisions based on the information in this article.




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