Trend-Trafficâ„¢ Trader Guide - Fibozachi

© 2013 Fibozachi LLC – www.fibozachi.com. All Rights Reserved.

1

An Overview of Trend-Traffic™: Page 3

Trend-Traffic™ Lights: Stop! … Wait! … Go! Page 4

Fibozachi Inflection Bands™ (FIBs™): Support & Resistance Breakout Bands Page 6

- FIBs™ vs. Bollinger Bands: Sorting Through “White Lies” Page 7

- Finding Truth in the Character of Price Action Page 9

- Isolating Breakout Conditions with FIBs™ Page 10

Trend-Squeeze™ Indicators: Advanced & Flexible Trend Analysis Page 13

- An Overview of the Trend-Squeeze™ Indicators Page 14

- Trend-Squeeze™ Ribbon Page 14

- Trend-Squeeze™ PaintBar Page 15

- Trend-Squeeze™ Oscillator Page 16

Squeeze-Plays: Volatility & Price Explosions Page 17

- Isolating Ideal Squeeze-Play Long Entries Page 18

- Isolating Ideal Squeeze-Play Short Entries Page 19

DOBOS™: Dynamic OverBought/OverSold Levels Page 20

- DOBOS™ Parameters & Input Settings Page 21

A Unified Trading Approach: The Search for Multiple Confluence Page 22

- Bullish Breakout Conditions Page 22

- Bearish Breakout Conditions Page 23

- Trend Neutral Breakout Conditions Page 24

- Continued on Next Page –


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Expert Advice & Tips: Page 25

- Use FIBs to Pinpoint Support & Resistance Levels Page 25

- Locate High-Probability Trend Reversals Page 27

Automated Scanning Capabilities: Finding Squeeze-Plays & Trend Reversals Page 30

- NinjaTrader Market Analyzer Page 30

- TradeStation RadarScreen Page 32

- TradeStation Scanner Tool Page 33

State of the Art “Divergence Engine”: Automatic Divergence Detection Page 35

Beginner’s Guide to Divergences: An Introduction to Divergence Trading Page 36

- Bullish (Positive) Divergence Page 37

- Bearish (Negative) Divergence Page 38

- Filtered Bullish (Positive) Divergence Page 39

- Filtered Bearish (Negative) Divergence Page 40

An Overview of the Divergence Features: Page 41

An Overview of the Divergence Input Settings: Page 43

Extensive Customer Support: Page 45

Risk Disclosure Statement: Page 46


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The Trend-Traffic™ Indicator Package contains a collection of easy-to-use trading

indicators that show an accurate diagnosis of the trend, precise support &

resistance levels, and special volatility-based “Squeeze-Play” signals. Beginners

will benefit from the accurate, trader-friendly Trend-Traffic™ Lights and FIBs™;

meanwhile expert traders will truly appreciate the advanced features and infinite

flexibility offered by the Trend-Squeeze™ Indicators.

The indicators included within the Trend-Traffic™ Indicator Package are:


4

The Trend-Traffic Indicator is used in the same manner as a traffic light, where

Green = Buy, Red = Sell and Yellow = Transitioning or Trend Neutral.

Based purely on mathematical ratios between specific price levels, its

extraordinary accuracy has best served us as a confirming indicator and setup

trigger. Using the default settings, the Trend-Traffic Lights remain ever

sensitive to price change, requiring its user to remain somewhat nimble.

However, the “Length” setting can be modified, allowing you to determine how

much price information will be utilized by the algorithm when calculating the trend.


5

A bullish trend exists when two or more Green Lights plot in succession alongside

increasingly higher closes.

A bearish trend exists when two or more Red Lights plot in succession alongside

increasingly lower closes.

When a Yellow Light plots, it indicates that price action lacks directional

conviction. When appearing amidst a strong trend or a series of consecutive

Green or Red Lights, a single Yellow Light usually coincides with routine profit

taking consolidations. However, a cluster or series of successive Yellow Lights

often signifies an important turning point in an underlying trend, highlighting either

a marked waning of trend or an outright transition.


6

We at Fibozachi have significantly increased the predictive value of Bollinger

Bands by modifying their standard input values of “Length” and “Standard

Deviations” to reflect harmonically reactive numbers and their derivative ratios

rooted in the Fibonacci sequence. We have also coded smoother bands that

much more accurately reflect price action by utilizing an average of the Open,

High, Low and Close (OHLC); this stands in direct contrast with the “default”

calculation of Bollinger Bands, which only measure closing prices.

We believe that this method of averaging OHLC price action enables Fibozachi

Inflection Bands™ to serve as much greater barometers of support and resistance

since their calculation incorporates all aspects of price action rather than simply

the close, which may ignore noteworthy highs and lows.

From data calculation techniques to specific input settings to expert designer tips,

this user guide describes each of our unique modifications alongside detailed

guidelines, specific trading strategies and illustrated examples.


7

If you have ever studied Bollinger Bands, then you might have noted, “These cute

things almost work once in a while;” and if you have attempted to trade with them,

then you must have realized that they do not provide accurate timing signals.

Whether referring to the “20” period or the “2” standard deviation, these almost

arbitrary input settings simply do not accurately reflect the highly recurring, fractal

nature of market cycles. Can you decipher accurately timed buy and sell signals

out of the Bollinger Band example below? We cannot either.


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Now look at the exact same chart overlaid with Trend-Traffic™ Lights and

Fibozachi Inflection Bands™ (FIBs). Upon first glance, your eyes immediately

discern both the direction and the strength of trend. In stark comparison to the

Bollinger Band example above, note how price action continually respects the

FIBs, as if price itself knows exactly where they are. FIBs require NO guesswork

for two simple reasons: first, since price action so clearly respects the FIBs, you

can easily see where the downtrend loses steam, begins to transition, reverses

direction upward and confirms the breakout; second, Trend-Traffic™ Lights

provide an added visual confirmation of trend based upon price action over the

most recent 3-5 bars.


9

Most individual traders tend to focus on trend trading and breakout trading with the

aid of clumsy, lagging indicators like Bollinger Bands. Such lagging indicators do

not provide accurate timing signals and entirely fail to account for the character of

price action. For instance, compare the messages conveyed by the location of

Bollinger Bands versus Fibozachi Inflection Bands™ across numerous dojis and

hammers appearing in the middle of our two chart examples above.

Lagging Bollinger Bands do not anticipate short-term price action or signal

important turning points in the market and can only provide a technician with

generalities to weigh. In marked contrast, leading Fibozachi Inflection Bands™,

specifically designed for trend-based trading strategies with Trend-Traffic™ Lights,

allow you to determine the direction of trend upon first glance while also providing

valuable insight into market character. Where Bollinger Bands fail to account for

the actual trading issues of timing and execution, FIBs™ allow for clear-cut

guidelines, explicit rules and defined strategies to help identify, isolate, time,

execute and manage ideal trades.

We at Fibozachi believe that Bollinger Bands can in fact provide predictive value,

just not in their current form and not with statistically inferior input values. While

simply too voluminous to thoroughly detail here, suffice it to say that the harmonic

rhythm of the Fibonacci sequence does in fact provide a highly accurate

mathematical foundation from which repeatedly occurring market cycles may be

tracked; hence the robust accuracy of our Fibozachi Inflection Bands™.


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We at Fibozachi use the FIBs™ as an extremely accurate and simple way of

assessing both the direction as well as the underlying strength of trend. Unlike

standard Bollinger Bands, which poorly attempt to constrict price within their

Bands, Fibozachi Inflection Bands™ are designed for use in exactly the opposite

way; we patiently wait for price action to breakout either above the Upper FIB or

beneath the Lower FIB and then ‘hop on board’ when Trend-Traffic™ Lights

signal confirmation.

The following chart examples show how you can utilize the Trend-Traffic™ Lights

and Fibozachi Inflection Bands™ to isolate breakouts and accurately trade bullish,

bearish and transitioning or trend neutral market conditions.


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When price closes above the Upper FIB for two or more successive bars and has

generally moved upwards over the last 3-5 bars.

When price closes beneath the Lower FIB for two or more successive bars and

has generally moved downwards over the last 3-5 bars.


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When price is either constricted within the FIBs or is fluttering around the Midline,

the current trend is either neutral or undergoing a transition. For this simple

reason, prudence advises waiting for price action to decisively breakout of the

FIBs and plot at least one addition follow through bar in the same direction

alongside a correspondingly higher or lower closing price.


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Trend-Squeeze™ is a collection of Indicators (Ribbon, PaintBar & Oscillator) that

accurately diagnose and color-code the direction of the trend, while

simultaneously detecting extreme contractions in volatility that are known as

“Squeeze-Plays”.

Unlike other trend-based indicators on the market, the Trend-Squeeze™

Indicators have several advanced features and optional customizations that

enable users to drastically modify how the trend is calculated and plotted. The

algorithm which powers the indicators is quite unique in that it incorporates the

elements of “Inertia” and “Responsiveness” into its calculations. This is incredibly

beneficial to traders because modifying the “Inertia” or “Responsiveness” values

can drastically change how the trend is calculated and how it appears when

plotted. This enables the indicators to be infinitely ‘flexible’, giving you the ability

to ‘hand-craft’ your own perfect trend-based indicator that is ideal for your specific

trading style and personal preferences.


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The Trend-Squeeze™ Indicators come in the various forms of a Ribbon, PaintBar,

and an Oscillator. The following is an overview of each indicator:

The Ribbon is plotted as a small, color-coded bar in a lower subpanel to provide a

quick and simple summary of the current strength and direction of the underlying

trend. The Ribbon is beneficial to traders who wish to prevent or avoid “chart

clutter” as a result from using too many indicators at once.


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The PaintBar color-codes each bar to show the direction and strength of the trend.

The PaintBar is beneficial in that it allows for quicker and easier identification of

the trend. Furthermore, it can also help to avoid “chart clutter” since it does not

have to create an additional subpanel.


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The Oscillator provides an in-depth perspective of the direction and strength of the

trend by plotting the actual values that are calculated by the Trend-Squeeze

algorithm. This enables traders to pinpoint when a bullish or bearish trend may be

waning and losing its momentum, thereby allowing for more accurate chart

analysis and better timed entries and exits. Furthermore, the Oscillator employs

our state-of-the-art Divergence Engine, which transforms it into an incredibly

powerful and robust trading indicator.

Page 33 of this guide contains a full section on the Divergence Engine and how to

use the Oscillator’s divergence features. It is definitely a ‘must-read’ section, so

we strongly urge you to check it out!


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“Squeeze-Plays” are trading signals that highlight extraordinary contractions in

both volatility and Average True Range (ATR) in anticipation of their immediate

and explosive re-expansion alongside powerful thrusts in price action; like a

rubber band stretched to its maximum point of tension.

As price moves up and down, you will begin to notice that the distance between

the Upper FIB and Lower FIB is constantly changing. During periods of

consolidation or sideways price movement, the FIBs™ will often contract and

become very closely together. When the FIBs™ contract beyond a certain

threshold, special Squeeze-Play signals are triggered to alert traders to the

increased likelihood of a big price move. When both volatility and the FIBs™

begin to re-expand, price often explodes to the upside or downside; allowing

traders to make large profits in just a small amount of time (over the course of the

following 5-20 bars).


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1) Identify and Isolate a valid Squeeze-Play signal

2) Analyze the Trend-Squeeze™ Oscillator leading up to the Squeeze-Play

signal, paying particular attention to the degree of slope within the prior downtrend

3) Ensure that the Trend-Squeeze™ Oscillator is transitioning into a bullish

posture with an upward trajectory and a positive divergence

4) Ideal bullish Squeeze-Plays appear either just below the ZeroLine with

confirmation occurring upon an upward penetration of the ZeroLine, or just above

the ZeroLine with confirmation occurring upon a successful retest of the ZeroLine


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1) Identify and Isolate a valid Squeeze-Play signal

2) Analyze the Trend-Squeeze™ Oscillator leading up to the Squeeze-Play

signal, paying particular attention to the degree of slope within the prior uptrend.

3) Ensure that the Trend-Squeeze™ Oscillator is transitioning into a bearish

posture with a downward trajectory and a negative divergence.

4) Ideal bearish Squeeze-Plays appear either just above the ZeroLine with

confirmation occurring upon a downward penetration of the ZeroLine, or just below

the ZeroLine with confirmation occurring upon a failure to reclaim the ZeroLine.


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We at Fibozachi have added an innovative and proprietary new feature to many of

our Indicators called "DOBOS™", which stands for “Dynamic

OverBought/OverSold Levels”. These special OB/OS Levels are calculated using

recent price movements and Indicator values, which help to determine exactly

where the Indicator will become OverBought or OverSold, based on the current

market environment. This is a significantly more accurate and effective method of

determining the OverBought and OverSold Levels of an Indicator. Instead of

always using static values like “80” and “20”, DOBOS™ will automatically

synchronize the OB/OS Levels after each bar so that you remain in perfect

harmony with the current market.

Market environments are rapidly changing and price often behaves much

differently during one period of time than another … this holds true whether you

are trading on a 1-minute chart or a monthly chart. Therefore, it is vital that the

Indicators we use to trade are able to recognize and adapt once a market or price

begins to behave differently. Using static OB/OS Levels that never change is just

not reliable or effective since both price and the market environment is constantly

changing and evolving. Our “DOBOS™” Levels overcome this problem by

adapting to the recent market behavior and pin-pointing the ideal values for where

the OverBought and OverSold Levels should be, based on the current market

environment.


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OB/OS Lookback Period: This is the number of bars used for calculating the

OB/OS values. Since part of the formula references the Min/Max range of

indicator values over the "Lookback Period" number of bars, using a longer

number like the default "200" will provide stable longer-term OB/OS levels,

whereas a shorter setting of say "50" will act more like "Deviation or Bollinger

Bands" in the way that they move (more closely with the indicator's peaks and

troughs).

OB/OS Buffer: This extends the OB/OS levels so that they are more difficult to

penetrate. This setting should be a value between 0 and 1.0 and you can

experiment with it to adjust how 'strict' the OB/OS levels are (how often they are

penetrated).

Show OB/OS Crossovers: These signals occur when the Indicator value

crosses above or below the OB/OS Levels.

Show DOBOS™ Reversals: These reversal signals are a blend of conditions

that must occur along with the Indicator value being either OB/OS and reversing

its slope. If all conditions are satisfied, then a DOBOS™ Reversal signal is

generated and plotted. These signals are rare, yet they are extremely accurate

and often catch major tops and bottoms in price.


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Combining signals from Trend-Traffic™ Lights and Fibozachi Inflection Bands™

with the Trend-Squeeze™ Ribbon, PaintBar and Oscillator provides multiple

confluence based confirmation for higher probability trade setups.

When Green Lights plot while price action closes above or “rides” along the

Upper FIB, initiating or holding a long position is advised/desirable. An ideal

location for a protective stop would be just below the Midline or, if you prefer a

looser stop, just below the Lower FIB. While Trend-Traffic™ Lights anticipate

short-term direction; note how the Trend-Squeeze™ Oscillator and FIBs™ each

continually diagnose the underlying power of trend.


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When Red Lights plot while price closes below or “rides” along the Lower FIB,

initiating or holding a short position is advised/desirable. An ideal location for a

protective stop would be just above the Midline or, if you prefer a looser stop, just

above the Upper FIB.

Once again, note how Trend-Traffic™ Lights anticipate short-term direction and

how price action continually respects the FIBs™. Both the Trend-Squeeze™

Ribbon and Oscillator remained firmly bearish from the onset of the initial

downturn, repeatedly offering short signals at the end of August, the beginning of

September and the final week of September just prior to an outright crash that

lasted well into October.


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When the Lights and FIBs™ are in disagreement (e.g. price action above the

Upper FIB with Yellow or Red Lights), we suggest giving priority to the FIBs™ as

the more dominant indicator between the two. In other words, if price is above the

FIBs™ and Trend-Traffic™ Lights are Yellow or Red it usually signifies profit

taking consolidation rather than a significant trend reversal. Suffice it to say that if

price action were to exhibit a significant directional trend that both the Trend-

Traffic™ Lights and FIBs™ would be in agreement.


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When a wide-range bar gaps or closes significantly outside either the Upper FIB

or the Lower FIB, you should not “hop on board” after such drastic movement.

Instead, price action will often consolidate sideways or back into the closest

Fibozachi Inflection Band™ before then resuming movement in the primary

direction. For example, after a large upwards breakout, price action will usually

consolidate sideways towards the Upper FIB.

Both the Midline and the Lower FIB will then often act as resistance levels for any

countertrend move. Usually the bars will fail to close below the Midline; however,

the lows of some bars may test the Midline or Lower FIB.


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Conversely, after a large downward breakout, price action will usually consolidate

sideways towards the Lower FIB.

Both the Midline and the Upper FIB will then often act as resistance levels for any

countertrend move. Usually the bars will fail to close above the Midline; however,

the highs of some bars may test the Midline or Upper FIB.


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Attempt to isolate securities that have remained in trend either significantly above

or below their FIBs™ for several consecutive bars. If price action consolidates

sideways after a prolonged move outside of the FIBs™, be on high alert for an

upcoming breakout in the opposing direction. In such situations, just one or two

engulfing bars that traverse the Midline can accurately diagnose both a high

probability reversal pattern as well as the onset of a strong new trend.

Diagnosing specific candlestick patterns and correctly interpreting changes in

volatility help a technician confirm that a significant trend reversal is at hand. We

at Fibozachi use our Candlestick X-Ray™ Package to diagnose candlestick

patterns and our V-Coils™ & NR-Breakouts Volatility Compression Package to

highlight only meaningful contractions and expansions in volatility.

In the weekly chart example of USO on the next page, note how every real body

closed above the Upper FIB during the rise from 70 to 120. From the very first

candle, which vaulted off support at the Lower FIB, price action rode along above

the Upper FIB with Green Trend-Traffic™ Lights confirming a strong bullish trend

for long positions until the absolute peak.


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A bearish engulfing Marubozu candle that closed underneath the Midline

alongside a single Yellow Trend-Traffic™ Light confirmed the end of the uptrend.

The next candle kissed the Midline, closed underneath the Lower FIB and

confirmed a strong bearish trend for short positions as Trend-Traffic™ Lights

changed to Red. Over the next seven months, as USO continued to crash from

over 105 to under 30, the Lower FIB accurately contained price action for more

than 75 points without a single real body closing above it!


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On March 4th USO broke above a previous price peak and closed the week with a

real body above the Lower FIB for the first time in over 7 months and 75 points;

note how a single Yellow Trend-Traffic™ Light gave confirmation to cover short

positions.

The next candle was a doji that gave a long overdue touch of the Midline and

constructively closed within both the FIBs™ as well as the top 10% of the previous

candle; even though this weekly candle closed down, notice how the Trend-

Traffic™ Lights confirmed the onset of a new bullish trend as they turned Green.

After successfully testing the exact boundary of the Lower FIB one more time in a

series of 1’s and 2’s, USO followed through to the upside. From March into April,

its real bodies continued to close just inside of the Upper FIB while its lower

shadows continued to find support at the Midline. By the end of April, a larger

series of 1’s and 2’s found completion yet again at the exact boundary of the

Lower FIB where price vaulted above the Upper FIB and continued to run from

26 to 40 in just 7 weeks.


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Trend-Traffic™ also includes a special pre-formatted “Market Analyzer” Indicator

and template for all NinjaTrader users. All of the columns, colors, and text are

completely customizable so that you can personalize it to your own preferences.

As you can see from the screenshots below, using Trend-Traffic™ with the Market

Analyzer allows you to quickly scan an entire list of symbols for the most important

information in just seconds! Furthermore, you can sort the data by any column to

organize your scan results into easy-to-read lists.


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The following is an overview of the various columns and their purpose:

Current Bar: The cells in this column show the trend color of the current bar.

Previous Bar: The cells in this column show the trend color of the previous bar.

Bar Count: The values in this column refer the number of consecutive bars with

the same color or trend status. For example, if the “Current Bar” cell is “Green”

and the “Bar Count” is “5”, it means that a strong bullish trend has existed for the

last “5” consecutive bars. Note that the “Bar Count” values will change depending

on whether “Four Color Activation” is set to True or False.

Trend Crossovers: This column alerts you to all valid trend crossover signals

that occur when the trend changes from bullish to bearish or vice versa.

Divergences: This column alerts you to all valid divergence signals.

A special pre-formatted Market Analyzer template is included for all NinjaTrader

users, although some traders may still choose to create their own templates. You

must adhere to the following values when setting up your own cell conditions:


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Trend-Traffic™ also includes a special pre-formatted “RadarScreen” Indicator and

workspace for all TradeStation users. All of the columns, colors, and text are

completely customizable so that you can personalize it to your own preferences.

The following is an overview of the various columns and their purpose:

Bar Count: The values in this

column refer the number of

consecutive bars with the same

color or trend status. For

example, if the cell is “Green”

and the count is “5”, it means that

a strong bullish trend has existed

for the last “5” consecutive bars.

Current Bar: The cells in this

column show the trend color of

the current bar.

Previous Bar: The cells in this

column show the trend color of

the previous bar.

Crossovers: This column alerts you to all valid trend crossover signals.

Squeeze-Plays: This column alerts you to all valid “Squeeze-Play” signals.

Divergences: This column alerts you to all valid divergence signals.


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1) Open up a new “Scanner” Window

2) Go to “Format Scan”---“Scan Criteria“: (Indicator ! Trader Scanner)

► Select “Squeeze-Play” > 0 (for Field, Operator, and Field/Value)

► Select “Bullish Crossover” > 0 (for Field, Operator, and Field/Value)

► Select “Bearish Crossover” > 0 (for Field, Operator, and Field/Value)

3) Click the (+) to the left of “Trend-Traffic Radar” under the “Field” column. Here

you can change the input settings and select your desired time interval.

*** You must ensure that you enable and enter a value for “Load Additional Data”

in order to allow the scanner to “look back” over the amount of bars that you

defined in “Trend Length”.


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1) Open up a new “Scanner” Window

2) Go to “Format Scan”---“Scan Criteria“: (Indicator !Trend-Squeeze Radar)

► For a Bullish Divergence: select “Divergence = 1”

► For a Bearish Divergence: select “Divergence = -1”

► For a Filtered Bullish Divergence: select “Divergence = 2”

► For a Filtered Bearish Divergence: select “Divergence = -2”

► For a 3 Point Bullish Divergence: select “Divergence = 3”

► For a 3 Point Bearish Divergence: select “Divergence = -3”

3) Click the (+) to the left of “Trend-Squeeze Radar” under the “Field” column.

Here you can change the input settings and select your desired time interval.

*** You must ensure that you enable and enter a value for “Load Additional Data”

in order to allow the scanner to “look back” over the amount of bars that you

defined in “Trend Length”.


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The Trend-Squeeze™ Oscillator includes our state of the art “Divergence Engine”,

which has the ability to automatically detect any valid bullish or bearish divergence

between the Indicator and Price. When any valid divergence is detected, the indicator

automatically draws a divergence trendline directly onto the chart, alerting you to the

increased likelihood of a price reversal. It also includes fully customizable audio and

visual alerts so that you can be sure of never overlooking valid divergence signals

again.

Our Divergence Engine is unique in that it is truly the most advanced, most

customizable tool of its kind available on the commercial market. Traders can now

take full advantage of the special features that only our Divergence Engine offers:

Turn Divergences & Divergence Alerts On/Off

Show “Filtered Divergences Only” Option

Automatically Draws Divergence Trendlines on Price & Subpanel

Customizable Color-Coding of Bullish & Bearish Divergences

Modify “Divergence Lookback Length”

Modify “Left Pivot Strength” and “Right Pivot Strength” Independently

Calculates Price Pivots using Closing Price or High/Low Price

Detects Long-Term Divergences by Using 3 Pivots


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Confused about how divergences work or don’t completely understand the various

features of our Divergence Engine? There is no need to worry ... the following

pages clearly explain and illustrate examples of both Divergences and our own

special ‘Filtered Divergences’ (a trading concept devised by our staff of Chartered

Market Technicians). Read on further to view full explanations of all the different

features and customizable settings within our Divergence Engine, including a

step-by-step overview to help you get started with divergence-based trading.

► What is a Divergence?

Simply put, a divergence occurs when price is in disagreement with the Trend-

Squeeze™ Oscillator. In other words, each are moving in opposite directions. A

bullish or positive divergence occurs when the Oscillator’s value increases while

price decreases. A bearish or negative divergence occurs when the Oscillator’s

value decreases while price increases.

► Why are Divergences Important?

Divergences are a common symptom of an unhealthy market (or stock, etc.).

When an issue is healthy, price and technical indicators (momentum, volume, etc.)

will move in harmony (both are moving up or down). As an issue becomes

overbought or oversold, technical indicators may begin to move in the opposite

direction of price. This results in a divergence, which can serve as an important

warning sign for a trader. It informs you to ‘be on alert’ to the increased likelihood

of a price reversal, retracement or correction. Many swing highs and lows in price

are marked by such divergences, making them effective entry or exit signals.


37

A valid bullish divergence is based on the following rules;

1) Two consecutive bottom pivots in the Oscillator.

2) First pivot < Second pivot.

3) Price at first pivot > Price at second pivot.

In simpler terms, the Oscillator’s value has increased while price has decreased.

In the following example, note how the Oscillator is at its lowest value over the last

“3” bars (Default Left Pivot Strength) and then changes direction and moves

higher for “1” bar (Default Right Pivot Strength).


38

A valid bearish divergence is based on the following rules;

1) Two consecutive top pivots in the Oscillator.

2) First pivot > Second pivot.

3) Price at first pivot < Price at second pivot.

In simpler terms, the Oscillator’s value has decreased while price has increased.

In the following example, note how the Oscillator is at its highest value over the

last “3” bars (Default Left Pivot Strength) and then changes direction and moves

lower for “1” bar (Default Right Pivot Strengths).


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A valid “Filtered Bullish Divergence” is based on the following rules;

1) Two simultaneous bottom pivots in both the Oscillator and Price.

2) First pivot’s oscillator value < Second pivot’s oscillator value

3) Price at first pivot > Price at second pivot.

In simpler terms, the Oscillator’s value has increased while Price has decreased.

But what makes it a ‘Filtered Bullish Divergence’ is that each time the Oscillator

made a valid bottom pivot, Price simultaneously made a valid bottom pivot as well.

In the following example, note how both Price and the Oscillator are at their lowest

values over the last “3” bars (Default Left Pivot Strengths) and then change

directions and move higher for “1” bar (Default Right Pivot Strengths), thereby

confirming valid bottom pivots.

The example above uses the setting “Use High/Low for Price Pivots” = True. This

means that the price low is used for determining whether a Price Bottom Pivot is

valid. If “Use Close for Price Pivots” = True, then only the closing price is used for

determining whether a Price Bottom Pivot is valid.


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A valid “Filtered Bearish Divergence” is based on the following rules;

1) Two simultaneous top pivots in both the Oscillator and Price.

2) First pivot’s oscillator value > Second pivot’s oscillator value.

3) Price at first pivot < Price at second pivot.

In simpler terms, the Oscillator’s value has decreased while Price has increased.

But what makes it a ‘Filtered Bearish Divergence’ is that each time the Oscillator

made a valid top pivot, Price simultaneously made a valid top pivot as well.

In the following example, note how both Price and the Oscillator are at their

highest values over the last “3” bars (Default Left Pivot Strengths) and then

change directions and move lower for “1” bar (Default Right Pivot Strengths),

thereby confirming valid top pivots.

The example above uses the setting “Use High/Low for Price Pivots” = True. This

means that the price high is used for determining whether a Price Top Pivot is

valid. If “Use Close for Price Pivots” = True, then only the closing price is used for

determining whether a Price Top Pivot is valid.


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- Users can turn on/off the option to show divergences, as well as the

option to issue divergence alerts.

- Activating this feature requires that both the Oscillator and Price plot

simultaneous pivots at both the start and endpoint of each divergence.

- Whenever a divergence meets the user-defined criteria, the divergence

trendline is automatically drawn directly onto the price panel and/or the

indicator subpanel (depends on trading platform).

- Users have the option to change the colors that are used when drawing

the bullish and bearish divergences.

- Users can modify the maximum number of bars that are allowed between

the starting point and endpoint of each divergence.

- Users have the ability to set different values for both the left pivot strength

and the right pivot strength.


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- Users can decide if price top pivots and price bottom pivots are calculated

by using the closing price or the high/low prices.

- User has the option to turn on/off divergences that span out over 3

consecutive pivots. When this feature is activated, divergences can be

detected between Pivot 1 and Pivot 2, Pivot 2 and Pivot 3, and Pivot 1

and Pivot 3!


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Show Divergences: This setting determines whether or not to show divergences

between price and the Oscillator. If set to “True”, then all valid divergences will be

calculated, identified, and drawn automatically.

Show “Filtered Divergences Only”: If set to “True”, divergences will only be

plotted after fulfilling the criteria for a “Filtered Divergence”. For a “Filtered

Divergence” to occur, each point in a divergence (start and end) must occur with

simultaneous pivots in both the Oscillator and Price.

Use Divergence Alerts: If set to “True, then all divergences will issue

audio/visual/email alerts just seconds after they are registered and plotted.

Divergence Lookback Length: Determines the “lookback period”, or the

maximum amount of bars between two points/pivots that form a divergence.

For Example: If set to “50”, then the two pivots that form a divergence must occur

within 50 bars of each other.

Left Pivot Strength: The number of bars before the pivot point that must be

higher/lower than the pivot bar’s oscillator value.

For Example: If set to “3”, the value of the Oscillator at the pivot point must be

higher (top pivots) or lower (bottom pivots) than each of the “3” bars preceding it.

Right Pivot Strength: The number of bars after the pivot point that must be

higher/lower than the pivot bar’s oscillator value.

For Example: If set to “3”, the value of the Oscillator at the pivot point must be

higher (top pivots) or lower (bottom pivots) than the “3” bars after it.


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Price Left Pivot Strength: The number of bars before the price pivot point that

must have a price that is > or < than the pivot bar’s closing price.

For Example: If set to “3”, the closing price at the pivot point must be higher (top

pivots) or lower (bottom pivots) than each of the “3” bars preceding it.

Price Right Pivot Strength: The number of bars after the price pivot point that

must have a price that is > or < than the pivot bar’s closing price.

For Example: If set to “3”, the closing price at the pivot point must be higher (top

pivots) or lower (bottom pivots) than the “3” bars after it.

Use HighLow Price Pivots: If set to “False”, then only the closing prices will be

used to calculate price pivots.

For Example: For a top price pivot, the closing price of the pivot bar must be

greater than the previous “3” bars (if left strength is set at “3”) and the next “3”

bars that come after it (if right strength is set at “3”)… vice versa for a bottom pivot.

-- If set to “True”, then the price highs/lows will be used to calculate price pivots.

For Example: For a top price pivot, the price high of the pivot bar must be

greater than the previous “3” bars (if left strength is set at “3”) and the next “3”

bars that come after it (if right strength is set at “3”)… vice versa for a bottom pivot.

Use 3 Point Pivots: If set to “True”, divergences that span out over 3 different

pivots will be detected and plotted. Activating this setting will produce longer-term

divergences, as well as “double divergences”. The explanation is as follows;

Normal divergences only connect Pivot 1 with Pivot 2. However, activating this

setting will connect divergences from Pivot 1 to Pivot 2, Pivot 2 to Pivot 3, and

Pivot 1 to Pivot 3; resulting in longer-term divergences and “double divergences”.

Line Size: Determines the size of the divergence trendlines that are drawn.


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Should you ever have a question about the Trend-Traffic™ Indicator

Package, we are always just an email away at [email protected] to

answer any of your inquiries and provide additional customer support.

mailto:[email protected]


46

The terms “Company”, “us” or “we” refer to Fibozachi.com, its parent company Fibozachi LLC, and all

subsidiaries, affiliates, officers or employees therein. The term “you” refers to the user or customer of

Fibozachi.com. The terms “Content” and “Information” refer to the indicators, tools, strategies,

techniques, systems, manuals, data, communications and any other associated products or material of

the Company.

License:

You are purchasing a single user license. You may not: copy, modify, publish, retransmit, participate in

the transfer or sale of, distribute, perform, display, or create derivative works from, any of the Content or

Information in any way.

Disclaimer:

All Content and Information provided is for educational purposes only. Fibozachi.com and Fibozachi LLC

(the “Company”) is not an investment advisory service, broker-dealer, commodity trading advisor, legal

advisor, tax advisor, or registered investment advisor, and does not purport to tell or suggest which

commodities, currencies or securities customers should buy or sell for themselves. The affiliates,

employees or officers of the Company may hold positions in the commodities, currencies or securities

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You understand and acknowledge that there is a high degree of risk involved in trading commodities,

currencies or securities. You also understand and acknowledge that there is an extremely high degree

of risk involved in trading leveraged vehicles such as futures or options, where you can lose more than

the initial sum of your investment. The Company, its subsidiaries, affiliates, officers and employees

assume no responsibility or liability for your trading or investment results.

It should not be assumed that the indicators, tools, strategies, techniques, systems, manuals, data,

communications or any other associated products and material of the Company, collectively the

“Content” and “Information,” presented in its products or services will be profitable or that they will not

result in losses. Past results of any individual trader or trading system published by Company are not

indicative of future returns by that trader or system, and are not indicative of future returns, which may or

may not be realized by you. In addition, the articles, blogs, chat, columns, indicators, methods,

strategies, systems, techniques, tools, and all other features of Company's website (collectively, the

“Information”) are provided for educational purposes only and should not be construed as investment

advice. Any articles, blogs, chat, columns, comments, discussions, drawings, and examples, including

any other items intended to illustrate Information presented on Company's website, are for educational

purposes only; such are not solicitations of any order to buy or sell. Accordingly, you should not rely

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starting point for doing additional independent research in order to allow you to form your own opinion

regarding any investment. You should always check with your licensed financial advisor and tax advisor

to determine the suitability of any investment.


47

IN CONSIDERING WHETHER TO TRADE, YOU SHOULD BE AWARE OF THE FOLLOWING:

HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT

LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT

REPRESENT ACTUAL TRADING AND MAY NOT BE IMPACTED BY BROKERAGE AND OTHER

SLIPPAGE FEES. ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE

RESULTS MAY HAVE UNDER- OR OVER-COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN

MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN

GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT

OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY

TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.

TRADING IS AN EXTREMELY DIFFICULT PROBABILISTIC ENDEAVOR THAT REQUIRES

TECHNICAL SKILL AND EMOTIONAL DISCIPLINE AT THE VERY MINIMUM. EVEN A GREAT

TRADER WITH EXCELLENT ANALYSIS, RESOURCES, TOOLS, TECHNIQUES, STRATEGIES,

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IS OFTEN WRONG. THERE ALWAYS REMAIN REAL AND UNQUANTIFIABLE RISKS SUCH AS

GOVERNMENT INTERVENTION OF RULE / LAW CHANGES. RISK PREVENTION MEASURES SUCH

AS PROTECTIVE STOPS DO NOT PREVENT THE RISK OF GAP OPENINGS OR LOCK-LIMIT

MOVES.

YOU AGREE THAT NEITHER FIBOZACHI LLC, NOR ITS SUBSIDIARIES, AFFILIATES, OFFICERS

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Documents

Trend-Trafficâ„¢ Trader Guide - Fibozachi