ABSTRACT for Bullions 1

8/2/2019 ABSTRACT for Bullions 1

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ABSTRACT

A PROJECT ON TECHNICAL AND FIUNDAMENTAL ANALYSIS ABOUT

BULLION MARKETS

The main stream of the organization is share, commodity and FOREX trading and

Research. Their priority is to make people transform from ignorant to expertise in the chosen

field. Everyone should be aware of investment opportunities in capital markets. Still it is an

untapped and an overflowing market, they create opportunities for clients and they teach clients

how to make a raw chance into an earning opportunities

The main objective of the study is about to find out the technical and fundamental impact

of bullion market which includes the price range of GOLD AND SILVER both in national and

international market. We are going to take the data of Gold and Silver for seven years to analyze

about the fundamental and technical tools involved in the market.

In case of fundamental analysis we are going to use Inflation, Gold Reserve Ratio,

Interest rate, Global indices, and local indices in to consideration.

For technical analysis we going to take Indicators, Oscillators, and some technical tools

in to consideration. In indicators we are going to use methods like

Parabolic SAR

Moving average

Bollinger band

Oscillators

Relative strength Index

Stochastics

MACD


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Tools

Andrews pitch fork

Trend line

Fibonacci retracement levels

From the findings we are going to analyze about the future price variations in bullions

market and will suggest about that to the company.

PRIMARY OBJECTIVE

To find out the technical and fundamental impact of bullion market

To analyze about the impact of gold with global economy

SECONDARY OBJECTIVE

To suggest the clients about the technical move in the market in future period of

time.

SCOPE OF THE STUDY

The study is conducted in a way to calculate the risk and return of bullion market for past ten

years. This will help the investors viz, individuals and the clients of the company to yield them

higher return with lesser risk.


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METHODOLOGY

RESEARCH DESIGN

The type of research design is undertaken in descriptive design since the pricing movements

of bullion markets are analyzed.

SAMPLE DESIGN

For the purpose of this study the daily closing prices of Gold and silver are included

from Multi Commodity Exchange were taken and their price movements are computed and

studied. We will be analyzing the following prices

Global Gold and Silver prices

Dollar index

USDINR prices

Indian Gold price with reference to MCX

SOURCES OF DATA

Secondary source

International Gold prices from MT4 platform

Dollar charts from Windsor brokers

USDINR prices from Indian forex market

Indian gold prices from MCX

Fundamental datas from www.forexfactory.com


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TOOLS USED FOR ANALYSIS

FUNDAMENTAL TOOLS

Inflation

Unemployment claims

Datas related to dollar index

Datas released by IMF

TECHNICAL TOOLS

Candle stick patterns

Line chart patterns

Trend line patterns

Tools with mathematical calculations

Oscillators

Indicators

Andrews pitch fork

Fibonacci retracement levels


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Description for tools used for study

Inflation

The term "inflation" originally referred to increases in the amount of money in

circulation, and some economists still use the word in this way. However, most economists today

use the term "inflation" to refer to a rise in the price level. An increase in the money supply may

be called monetary inflation, to distinguish it from rising prices, which may also for clarity be

called 'price inflation'.

In economics, inflation is a rise in the general level of prices of goods and services in an

economy over a period of time. When the general price level rises, each unit of currency buys

fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing

power of money a loss of real value in the internal medium of exchange and unit of account in

the economy. A chief measure of price inflation is the inflation rate, the annualized percentage

change in a general price index (normally the Consumer Price Index) over time.

Inflation's effects on an economy are various and can be simultaneously positive and

negative. Negative effects of inflation include a decrease in the real value of money and other

monetary items over time, uncertainty over future inflation may discourage investment and

savings, and high inflation may lead to shortages of goods if consumers begin hoarding out of

concern that prices will increase in the future. Positive effects include ensuring central banks can

adjust nominal interest rates (intended to mitigate recessions), and encouraging investment in

non-monetary capital projects.

Economists generally agree that high rates of inflation and hyperinflation are caused by an

excessive growth of the money supply. Views on which factors determine low to moderate rates


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of inflation are more varied. Low or moderate inflation may be attributed to fluctuations in real

demand for goods and services, or changes in available supplies such as during scarcities, as well

as to growth in the money supply. However, the consensus view is that a long sustained period of

inflation is caused by money supply growing faster than the rate of economic growth.

Today, most economists favor a low, steady rate of inflation. Low (as opposed to zero or

negative) inflation reduces the severity of economic recessions by enabling the labor market to

adjust more quickly in a downturn, and reduces the risk that a liquidity trap prevents monetary

policy from stabilizing the economy. The task of keeping the rate of inflation low and stable is

usually given to monetary authorities. Generally, these monetary authorities are the central banks

that control monetary policy through the setting of interest rates, through open market

operations, and through the setting of banking reserve requirements.

Other widely used price indices for calculating price inflation include the following:

Producer price indices

(PPIs) which measures average changes in prices received by domestic producers for

their output. This differs from the CPI in that price subsidization, profits, and taxes may cause

the amount received by the producer to differ from what the consumer paid. There is also

typically a delay between an increase in the PPI and any eventual increase in the CPI. Producer

price index measures the pressure being put on producers by the costs of their raw materials.

This could be "passed on" to consumers, or it could be absorbed by profits, or offset by

increasing productivity. In India and the United States, an earlier version of the PPI was called

the Wholesale Price Index.

Commodity price indices:

It measure the price of a selection of commodities. In the present commodity price

indices are weighted by the relative importance of the components to the "all in" cost of an

employee.

Core price indices:


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Because food and oil prices can change quickly due to changes in supply and demand

conditions in the food and oil markets, it can be difficult to detect the long run trend in price

levels when those prices are included. Therefore most statistical agencies also report a measure

of 'core inflation', which removes the most volatile components (such as food and oil) from a

broad price index like the CPI. Because core inflation is less affected by short run supply and

demand conditions in specific markets, central banks rely on it to better measure the inflationary

impact of current monetary policy.

UNEMPLOYMENT CLAIMS

The employment situation is extremely important for a macroeconomic analysis, so the financial

markets track employment indicators, although this is a low impact indicator compared with the

monthly BLS's "Employment Report". This report tracks how many new people have filed for

unemployment benefits in the previous week. For instance, when more people file for

unemployment benefits, fewer people have jobs, and vice versa. Investors can use this report to

gather pertinent information about the economy, but it's a very volatile data, so the four week

average of jobless claims is monitored.

TECHNICAL TOOLS

CANDLESTICK PATTERNS

Introduction to Candlesticks

History

The Japanese began using technical analysis to trade rice in the 17th century. While this early

version of technical analysis was different from the US version initiated by Charles Dow around

1900, many of the guiding principles were very similar:

The "what" (price action) is more important than the "why" (news, earnings, and so on). All known information is reflected in the price. Buyers and sellers move markets based on expectations and emotions (fear and greed). Markets fluctuate. The actual price may not reflect the underlying value.
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Candlestick charting first appeared sometime after 1850. Much of the credit for candlestick

development and charting goes to a legendary rice trader named Homma from the town of

Sakata. It is likely that his original ideas were modified and refined over many years of trading

eventually resulting in the system of candlestick charting that we use today.

Formation

In order to create a candlestick chart, you must have a data set that contains open, high, low and

close values for each time period you want to display. The hollow or filled portion of the

candlestick is called "the body" (also referred to as "the real body"). The long thin lines above

and below the body represent the high/low range and are called "shadows" (also referred to as

"wicks" and "tails"). The high is marked by the top of the upper shadow and the low by the

bottom of the lower shadow. If the stock closes higher than its opening price, a hollowcandlestick is drawn with the bottom of the body representing the opening price and the top of

the body representing the closing price. If the stock closes lower than its opening price, a filled

candlestick is drawn with the top of the body representing the opening price and the bottom of

the body representing the closing price.


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Compared to traditional bar charts, many traders consider candlestick charts more visually

appealing and easier to interpret. Each candlestick provides an easy-to-decipher picture of price

action. Immediately a trader can see compare the relationship between the open and close as well

as the high and low. The relationship between the open and close is considered vital information

and forms the essence of candlesticks. Hollow candlesticks, where the close is greater than the

open, indicate buying pressure. Filled candlesticks, where the close is less than the open, indicate

selling pressure.

Long Versus Short Bodies

Generally speaking, the longer the body is, the more intense the buying or selling pressure.

Conversely, short candlesticks indicate little price movement and represent consolidation.

Long white candlesticks show strong buying pressure. The longer the white candlestick is, the

further the close is above the open. This indicates that prices advanced significantly from open to

close and buyers were aggressive. While long white candlesticks are generally bullish, much

depends on their position within the broader technical picture. After extended declines, long

white candlesticks can mark a potential turning point orsupport level. If buying gets too

aggressive after a long advance, it can lead to excessive bullishness.
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Long black candlesticks show strong selling pressure. The longer the black candlestick is, the

further the close is below the open. This indicates that prices declined significantly from the open

and sellers were aggressive. After a long advance, a long black candlestick can foreshadow a

turning point or mark a future resistancelevel. After a long decline a long black candlestick can

indicate panic or capitulation.

Even more potent long candlesticks are the Marubozu brothers, Black and White. Marubozu do

not have upper or lower shadows and the high and low are represented by the open or close. A

White Marubozu forms when the open equals the low and the close equals the high. This

indicates that buyers controlled the price action from the first trade to the last trade. Black

Marubozu form when the open equals the high and the close equals the low. This indicates that

sellers controlled the price action from the first trade to the last trade.

Long versus Short Shadows

The upper and lower shadows on candlesticks can provide valuable information about the trading

session. Upper shadows represent the session high and lower shadows the session low.

Candlesticks with short shadows indicate that most of the trading action was confined near the

open and close. Candlestick with long shadows show that traded extended well past the open and

close.
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Candlesticks with a long upper shadow and short lower shadow indicate that buyers dominated

during the session, and bid prices higher. However, sellers later forced prices down from their

highs, and the weak close created a long upper shadow. Conversely, candlesticks with long lower

shadows and short upper shadows indicate that sellers dominated during the session and drove

prices lower. However, buyers later resurfaced to bid prices higher by the end of the session and

the strong close created a long lower shadow.


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Candlesticks with a long upper shadow, long lower shadow and small real body are called

spinning tops. One long shadow represents a reversal of sorts; spinning tops represent indecision.

The small real body (whether hollow or filled) shows little movement from open to close, and

the shadows indicate that both bulls and bears were active during the session. Even though the

session opened and closed with little change, prices moved significantly higher and lower in the

meantime. Neither buyers nor sellers could gain the upper hand and the result was a standoff.

After a long advance or long white candlestick, a spinning top indicates weakness among the

bulls and a potential change or interruption in trend. After a long decline or long black

candlestick, a spinning top indicates weakness among the bears and a potential change or

interruption in trend.

Doji

Doji are important candlesticks that provide information on their own and as components of in a

number of important patterns. Doji form when a security's open and close are virtually equal.

The length of the upper and lower shadows can vary and the resulting candlestick looks like a

cross, inverted cross or plus sign. Alone, doji are neutral patterns. Any bullish or bearish bias is

based on preceding price action and future confirmation. The word "Doji" refers to both the

singular and plural form.


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Ideally, but not necessarily, the open and close should be equal. While a doji with an equal open

and close would be considered more robust, it is more important to capture the essence of the

candlestick. Doji convey a sense of indecision or tug-of-war between buyers and sellers. Prices

move above and below the opening level during the session, but close at or near the opening

level. The result is a standoff. Neither bulls nor bears were able to gain control and a turning

point could be developing.

Different securities have different criteria for determining the robustness of a doji. A $20 stock

could form a doji with a 1/8 point difference between open and close, while a $200 stock might

form one with a 1 1/4 point difference. Determining the robustness of the doji will depend on the

price, recent volatility, and previous candlesticks. Relative to previous candlesticks, the doji

should have a very small body that appears as a thin line. Steven Nison notes that a doji that

forms among other candlesticks with small real bodies would not be considered important.

However, a doji that forms among candlesticks with long real bodies would be deemed

significant.

Doji and Trend

The relevance of a doji depends on the preceding trend or preceding candlesticks. After an

advance, or long white candlestick, a doji signals that the buying pressure is starting to weaken.

After a decline, or long black candlestick, a doji signals that selling pressure is starting to


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diminish. Doji indicate that the forces of supply and demand are becoming more evenly matched

and a change in trend may be near. Doji alone are not enough to mark a reversal and further

confirmation may be warranted.

After an advance or long white candlestick, a doji signals that buying pressure may be

diminishing and the uptrend could be nearing an end. Whereas a security can decline simply

from a lack of buyers, continued buying pressure is required to sustain an uptrend. Therefore, a

doji may be more significant after an uptrend or long white candlestick. Even after the doji

forms, further downside is required for bearish confirmation. This may come as a gap down, long

black candlestick, or decline below the long white candlestick's open. After a long white

candlestick and doji, traders should be on the alert for a potential evening doji star.


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After a decline or long black candlestick, a doji indicates that selling pressure may be

diminishing and the downtrend could be nearing an end. Even though the bears are starting to

lose control of the decline, further strength is required to confirm any reversal. Bullish

confirmation could come from a gap up, long white candlestick or advance above the long black

candlestick's open. After a long black candlestick and doji, traders should be on the alert for a

potential morning doji star.

Long-Legged Doji


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Long-legged doji have long upper and lower shadows that are almost equal in length. These doji

reflect a great amount of indecision in the market. Long-legged doji indicate that prices traded

well above and below the session's opening level, but closed virtually even with the open. After a

whole lot of yelling and screaming, the end result showed little change from the initial open.

LINE CHART PATTERNS

Implication

An Ascending Continuation Triangle is considered a bullish signal. It indicates a possible

continuation of the current uptrend.

Description

An Ascending Continuation Triangle shows two converging trend lines. The lower trend line is

rising and the upper trend line is horizontal. This pattern occurs because the lows are moving

increasingly higher but the highs are maintaining a constant price level. The pattern will have

two highs and two lows, all touching the trend lines. This pattern is confirmed when the price

breaks out of the triangle formation to close above the upper trend line.


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Important Characteristics

Following are important characteristics about this pattern.

Occurrence of a Breakout

Technical analysts pay close attention to how long the Triangle takes to develop to its apex. The

general rule is that prices should break out - clearly penetrate one of the trendlines - somewhere

between three-quarters and two-thirds of the horizontal width of the formation. The break out, in

other words, should occur well before the pattern reaches the apex of the Triangle. The closer the

breakout occurs to the apex the less reliable the formation.

Duration of the Triangle

The Triangle is a relatively short-term pattern. It may take between one and three months to

form.

Shape of Triangle

The horizontal top trendline need not be completely horizontal but it should be close to

horizontal.

Bottom Triangle - Bottom Wedge

Classic Pattern

Implication

Bottom Triangles and Bottom Wedges are considered to be bullish signals that mark a possible

reversal of the current downtrend.

Description

Bottom Triangles and Bottom Wedges make up a group of patterns which have the same general

shape as Symmetrical Triangles, Wedges, Ascending Triangles and Descending Triangles. The

difference is that these particular formations are reversal and not continuation patterns. These

patterns have two converging trend lines. The pattern willdisplay two highs touching the upper


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trend line and two lows touching the lower trend line. Contrary to Triangle formations, Wedges

are characterized by their boundary trend lines both moving in the same direction.

This pattern is confirmed when the price breaks upward out of the Bottom Triangle or Bottom

Wedge formation to close above the upper trend line.

Double Bottom

Implication

A Double Bottom is considered a bullish signal, indicating a possible reversal of the currentdowntrend to a new uptrend.

Description

Double Bottoms are considered to be among the most common of the patterns. Since, they seemto be so easy to identify, the Double Bottom should be approached with caution by the investor.

The Double Bottom is a reversal pattern of a downward trend in a stock's price. The DoubleBottom marks a downtrend in the process of becoming an uptrend.

A Double Bottom occurs when prices form two distinct lows on a chart. A Double Bottom isonly complete, however, when prices rise above the high end of the point that formed the secondlow.


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The two lows will be distinct. The pattern is complete when prices rise above the highest high inthe formation. The highest high is called the "confirmation point".

Flag (Bullish)

Implication

A Flag (Bullish) is considered a bullish signal, indicating that the current uptrend may continue.

Description

A Flag (Bullish) follows a steep or nearly vertical rise in price, and consists of two parallel

trendlines that form a rectangular flag shape. The Flag can be horizontal (as though the wind is

blowing it), although it often has a slight downtrend.

The vertical uptrend, that precedes a Flag, may occur because of buyers' reactions to a favorable

company earnings announcement, or a new product launch. The sharp price increase is

sometimes referred to as the "flagpole" or "mast".


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Head and Shoulders Bottom

Implication

A Head and Shoulders Bottom is considered a bullish signal. It indicates a possible reversal ofthe current downtrend into a new uptrend.

Description

The Head and Shoulders bottom is a popular pattern with investors. This pattern marks a reversalof a downward trend in a financial instrument's price.

Volume is absolutely crucial to a Head and Shoulders Bottom. An investor will be looking forincreasing volumes at the point of breakout. This increased volume definitively marks the end ofthe pattern and the reversal of a downward trend in the price of a stock.

A perfect example of the Head and Shoulders Bottom has three sharp low points created by threesuccessive reactions in the price of the financial instrument. It is essential that this pattern form

following a major downtrend in the financial instrument's price.

The first point - the left shoulder - occurs as the price of the financial instrument in a fallingmarket hits a new low and then rises in a minor recovery. The second point - the head happenswhen prices fall from the high of the left shoulder to an even lower level and then rise again. Thethird point - the right shoulder - occurs when prices fall again but don't hit the low of the head.Prices then rise again once they have hit the low of the right shoulder. The lows of the shoulders


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are definitely higher than that of the head and, in a classic formation, are often roughly equal toone another.

The neckline is a key element of this pattern. The neckline is formed by drawing a lineconnecting the two high price points of the formation. The first high point occurs at the end of

the left shoulder and beginning of the downtrend to the head. The second marks the end of thehead and the beginning of the downturn to the right shoulder. The neckline usually points downin a Head and Shoulders Bottom, but on rare occasions can slope up.

The pattern is complete when the resistance marked by the neckline is "broken". This occurswhen the price of the stock, rising from the low point of the right shoulder moves up through theneckline. Many technical analysts only consider the neckline "broken" if the stock closes abovethe neckline.

Rounded Bottom

Implication

A Rounded Bottom is considered a bullish signal, indicating a possible reversal of the currentdowntrend to a new uptrend.

Description

Rounded Bottoms are elongated and U-shaped, and are sometimes referred to as rounding turns,bowls or saucers. The pattern is confirmed when the price breaks out above its moving average.


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Important Characteristics

Following are important characteristic to look for in a Rounded Bottom.

Shape

The price pattern forms a gradual bowl shape. There should be an obvious bottom to the bowl.Price can fluctuate or be linear; however, the overall curve should be smooth and regular,without obvious spikes. For example, a V-shaped turn would not be considered a roundedbottom.

TREND LINE PATTERNS

A trend line is formed when you can draw a diagonal line between two or more price pivot

points. They are commonly used to judge entry and exit investment timing when trading

securities. It can also be referred to a Dutch line as it was first used in Holland.

A trend line is a bounding line for the price movement of a security. A support trend line

is formed when a securities price decreases and then rebounds at a pivot point that aligns with at

least two previous support pivot points. Similarly a resistance trend line is formed when a

securities price increases and then rebounds at a pivot point that aligns with at least two previous

resistance pivot points.


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Trend lines on a price chart.

Trend lines are a simple and widely used technical analysis approach to judging entry and

exit investment timing. To establish a trend line historical data, typically presented in the format

of a chart such as the above price chart, is required. Historically, trend lines have been drawn by

hand on paper charts, but it is now more common to use charting software that enables trend

lines to be drawn on computer based charts. There are some charting software that will

automatically generate trend lines, however most traders prefer to draw their own trend lines.

When establishing trend lines it is important to choose a chart based on a price interval

period that aligns with your trading strategy. Short term traders tend to use charts based on

interval periods, such as 1 minute (i.e. the price of the security is plotted on the chart every 1

minute), with longer term traders using price charts based on hourly, daily, weekly and monthly

interval periods.

However, time periods can also be viewed in terms of years. For example, below is a chart of the

S&P 500 since the earliest data point until April 2008. Please note that while the Oracle example

above uses a linear scale of price changes, long term data is more often viewed as logarithmic:

e.g. the changes are really an attempt to approximate percentage changes than pure numerical

value. Previous chart from 1950 to about 1990, showing how linear scale obscures details bycompressing the data.Trend lines are typically used with price charts, however they can also be

used with a range of technical analysis charts such as MACD and RSI. Trend lines can be used to

identify positive and negative trending charts, whereby a positive trending chart forms an

upsloping line when the support and the resistance pivots points are aligned, and a negative

trending chart forms a downsloping line when the support and resistance pivot points are aligned.

Trend lines are used in many ways by traders. If a stock price is moving between support

and resistance trend lines, then a basic investment strategy commonly used by traders, is to buy a

stock at support and sell at resistance, then short at resistance and cover the short at support. The

logic behind this, is that when the price returns to an existing principal trend line it may be an

opportunity to open new positions in the direction of the trend, in the belief that the trend line

will hold and the trend will continue further. A second way is that when price action breaks


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through the principal trend line of an existing trend, it is evidence that the trend may be going to

fail, and a trader may consider trading in the opposite direction to the existing trend, or exiting

positions in the direction of the trend.


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OSCILLATORS

THE RELATIVE STRENGTH INDEX (RSI)

The Relative Strength Index (RSI) is a technical indicator used in the technical analysis offinancial markets. It is intended to chart the current and historical strength or weakness of a stock

or market based on the closing prices of a recent trading period. The indicator should not be

confused with relative strength.

The RSI is classified as a momentum oscillator, measuring the velocity and magnitude of

directional price movements. Momentum is the rate of the rise or fall in price. The RSI computesmomentum as the ratio of higher closes to lower closes: stocks which have had more or stronger

positive changes have a higher RSI than stocks which have had more or stronger negative

changes.

The RSI is most typically used on a 14 day timeframe, measured on a scale from 0 to 100, with

high and low levels marked at 70 and 30, respectively. Shorter or longer timeframes are used foralternately shorter or longer outlooks. More extreme high and low levels80 and 20, or 90 and

10occur less frequently but indicate stronger momentum.

The Relative Strength Index was developed by J. Welles Wilder and published in a 1978 book,

New Concepts in Technical Trading Systems, and in Commodities magazine (now Futures

magazine) in the June 1978 issue. It has become one of the most popular oscillator indices.


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INDICATORS

MOVING AVERAGE

In statistics, a moving average, also called rolling average, rolling mean or running

average, is a type of finite impulse response filter used to analyze a set of data points by creating

a series of averages of different subsets of the full data set. Given a series of numbers and a fixed

subset size, the first element of the moving average is obtained by taking the average of the

initial fixed subset of the number series. Then the subset is modified by "shifting forward", that

is excluding the first number of the series and including the next number following the original

subset in the series. This creates a new subset of numbers, which is averaged. This process is

repeated over the entire data series. The plot line connecting all the (fixed) averages is the

moving average. A moving average is a set of numbers, each of which is the average of the

corresponding subset of a larger set of data points. A moving average may also use unequal

weights for each data value in the subset to emphasize particular values in the subset.

A moving average is commonly used with time series data to smooth out short-term

fluctuations and highlight longer-term trends or cycles. The threshold between short-term and

long-term depends on the application, and the parameters of the moving average will be set

accordingly. For example, it is often used in technical analysis of financial data, like stock prices,

returns or trading volumes. It is also used in economics to examine gross domestic product,


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employment or other macroeconomic time series. Mathematically, a moving average is a type of

convolution and so it can be viewed as an example of a low-pass filter used in signal processing.

When used with non-time series data, a moving average filters higher frequency components

without any specific connection to time, although typically some kind of ordering is implied.

Viewed simplistically it can be regarded as smoothing the data.

Andrews' Pitchfork

Introduction

Developed by Alan Andrews, Andrews' Pitchfork is a trend channel tool consisting of

three lines. There is a median trendline in the center with two parallel equidistant trendlines on

either side. These lines are drawn by selecting three points, usually based on reaction highs or

lows moving from left to right on the chart. As with normal trendlines and channels, the outside


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trendlines mark potential support and resistance areas. A trend remains in place as long as the

Pitchfork channel holds. Reversals occur when prices break out of a Pitchfork channel.

Picking Three Points

The first step to using Andrews Pitchfork is selecting three points for drawing. These

points are usually based on reaction highs or reaction lows, also referred to as pivot points. Chart

1 shows McKesson (MCK) with Andrews' Pitchfork extending up from the June low. The first

point selected marks the start of the median line. Points 2 and 3 define the width of the Pitchfork

channel. The median line is based on two points: point one and the midpoint between points 2

and 3. As such, the median line starts a point 1 and bisects points 2 and 3. This controls the slope

(steepness) of the median line. The outside trendlines are then extended parallel to the median

line. The red Andrews' Pitchfork shows an alternative median line based on the July low forpoint 1. Notice that the red median line still bisects the line between points 2 and 3, but it is

steeper than the blue median line. Pitchfork slope depends on the placement of point 1.

Chart 2 shows a downward sloping Andrews' Pitchfork with Accenture (ACN). The blue median

line starts at point 1 and bisects the line between points 2 and 3. The outside trend lines are
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parallel and equidistant from the median line. For slope reference, the red Pitchfork uses the

August low as point 1, which makes the median line steeper.

Fibonacci Retracements

Introduction

Fibonacci Retracements are ratios used to identify potential reversal levels. These ratios arefound in the Fibonacci sequence. The most popular Fibonacci Retracements are 61.8% and38.2%. Note that 38.2% is often rounded to 38% and 61.8 is rounded to 62%. After an advance,chartists apply Fibonacci ratios to define retracement levels and forecast the extent of acorrection or pullback. Fibonacci Retracements can also be applied after a decline to forecast thelength of a counter trend bounce. These retracements can be combined with other indicatorsandprice patternsto create an overall strategy.

The Sequence and Ratios

This article is not designed to delve too deep into the mathematical properties behind theFibonacci sequence and Golden Ratio. There are plenty of other sources for this detail. A fewbasics, however, will provide the necessary background for the most popular numbers. LeonardoPisano Bogollo (1170-1250), an Italian mathematician from Pisa, is credited with introducing theFibonacci sequence to the West. It is as follows:
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0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377, 610

The sequence extends to infinity and contains many unique mathematical properties.

After 0 and 1, each number is the sum of the two prior numbers (1+2=3, 2+3=5, 5+8=13

8+13=21 etc). A number divided by the previous number approximates 1.618 (21/13=1.6153,

34/21=1.6190, 55/34=1.6176, 89/55=1.6181). The approximation nears 1.6180 as the

numbers increase.

A number divided by the next highest number approximates .6180 (13/21=.6190,

21/34=.6176, 34/55=.6181, 55/89=.6179 etc.). The approximation nears .6180 as the

numbers increase. This is the basis for the 61.8% retracement.

A number divided by another two places higher approximates .3820 (13/34=.382,

21/55=.3818, 34/89=.3820, 55/=144=3819 etc.). The approximation nears .3820 as the

numbers increase. This is the basis for the 38.2% retracement. Also, note that 1 - .618 = .

382

A number divided by another three places higher approximates .2360 (13/55=.2363,

21/89=.2359, 34/144=.2361, 55/233=.2361 etc.). The approximation nears .2360 as the

numbers increase. This is the basis for the 23.6% retracement.

Alert Zones

Retracement levels alert traders or investors of a potential trend reversal, resistance area orsupport area. Retracements are based on the prior move. A bounce is expected to retrace aportion of the prior decline, while a correction is expected to retrace a portion of the prior

advance. Once a pullback starts, chartists can identify specific Fibonacci retracement levels formonitoring. As the correction approaches these retracements, chartists should become more alertfor a potential bullish reversal. Chart 1 shows Home Depot retracing around 50% of its prioradvance.


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ABSTRACT for Bullions 1