[Fibonacci Practical Notes] Episode 10: Is everyone really watching that wave?
This is a talk from a slightly different angle than last time
Last time,the environment surrounding the market, such as indicator announcements and light tradingwas the topic. This time, we will change the perspective.We will look at whether chart price movements themselves can be called meaningful wavesor not.
Even when the environment is favorable, the shape of the chart can still be vague. This time, we will determine that clearly.
What are meaningful waves?
As written in the second edition, Fibonacci works because many people are looking at the same lines. In other words, meaningful waves are like this.Many participants keep moving in the same direction.I think the waves with that evidence are the ones.
Even just confirming a new high or new low can give you some idea. However, to be honest, with only this, there are many situations where judgment is difficult. There are waves that are easy to understand and waves that are hard to understand. The boundary between them is not a clear line but more like a gradient.
So,a method to confirm the \"evidence that participants are moving in the same direction\" from three angleswill be introduced. By the way, all three can be tested immediately in MT4/MT5.
① Confirm by strength: ADX
ADX (Average Directional Index)is an indicator built into MT4/MT5. It quantifies the strength of price movement on a scale from 0 to 100.
- Below 20: directional strength is weak (participants not aligned)
- 20–25: directional strength starting to emerge
- 25–40: direction is clearly established
- 40 and above: direction is quite strong
If ADX is high, it meansthe buying (or selling) momentum continues. In other words, there is evidence that participants are concentrating their power in one direction. Conversely, if it falls below 20,there is not enough evidence.If so, I think Fibonacci can be put aside.
② Confirm by continuation: ZigZag
ZigZag, which appeared in the fourth edition,can actually be used in a different way.In the fourth edition, I introduced it as a tool for choosing which wave to use as a starting point. But this time is different.It is used as a tool to see whether there is something that can be called a wave at all..
In a trending market, ZigZag is displayed as one large swing.It shows that price continues to move without being overwhelmed by the opposing force. Conversely, in a ranging market, small zigzags appear in succession. The forces of buyers and sellers clash each time. The direction is not yet determined. I also routinely check ZigZag for this purpose.
By displaying ZigZag to see whether it forms a large single line.That provides a gauge of whether participants are aligned or not.
③ Confirm by continuation history: Fractal
The fractal introduced in the fourth edition also confirms the same thing from another angle.Fractalwas about choosing which highs and lows are reliable. This time is different.We look at whether those highs and lows accumulate to create a direction.
Please line up about three of the highs and lows indicated by the fractal from the most recent. Are they rising? Or falling? If so,the buyers (or sellers) are in control of the trend. If they are scattered, no side has control.
Summary: All three look at the same thing
ADX, ZigZag, Fractal.They may look different, but all three are confirming the same thing.Whether the participants’ power is continuing to skew in one direction.
You do not need to use all three. I think one close to your usual toolkit is enough. The important thing is to confirm once.Check before drawing that everyone is looking in the same direction.
The FT S I use displays Fibonacci levels and price. Other indicators like ADX and ZigZag can also be checked on the same chart. I think it is well-suited for combining them to make a judgment.
Details of actual screen and features are listed on the product page.
→Fibonacci Trade System (product page)
Next time
Next time,we will go one level deeper into the calculations of Fibonacci.
In the first edition, we wrote about the basics of SL, TP, lot size, and RR ratio. Next time, we will look at points where actual calculations tend to trip people up, with concrete examples.