Yes You Can... Cash In On Chaos!

THE MOON IN ACTION--THE MOON AND FIBONACCI RATIOS

April 29, 1999

Some times it's good to get away. It's even better when one gets away to a beautiful place like Vancouver and attends the AstroEconomic conference. I've gone many times, and heard the presentations. But there is a difference between hearing and UNDERSTANDING.

I've heard my good friend Larry Pesavento talk about his trading approach using Fibonacci ratios many times. I've looked at those ratios and seen them, but never felt they were more than artifacts of a very complex system. After all, they are only one of the sets of ratios that form in markets.

I've heard Larry give his little spiel about how you can start with any two numbers, add them up, then keep adding the last number to the sum. Then one takes the ratio of the last pair, and one gets .618. Cute. Then one takes the inverse ratio, and one gets 1.618. One then takes the square roots, and one gets .786 and 1.27.

Larry uses those four ratios in his trading approach. (for a good book on that approach, see Fibonacci Ratios with Pattern Recognition, by Larry, available from Trader's Press, PO Box 6202,Greenville, S.C. 29606)

Larry says Bryce Gilmore showed him that little trick. It's a nice tool to motivate a talk about the Fibonacci ratios. But in listening to this again, it suddenly dawned on me that the processes of adding the numbers is the same process of adding linear energy waves together, and the square roots are part of the process of adding rotating waves together. So that "cute little trick" is fundamental to all waves as they interact- including the MoonTides.

Realizing that, I went back to an example of my own and looked at it closer. I discovered many years ago, that if one takes all the synodic cycles of the planets, and divides them by 18, 1/20th of the circle, that one finds a nearly complete Fibonacci sequence in the resulting ratios. Remember, the Fibonacci sequence is formed by adding consecutive numbers together, starting with 0,1. That produces 0,1,1,2,3,5,8,13,21,34,55,89,144,233,377, etc.

My planetary cycle Fibonacci sequence is shown in this table. --
Synodic
Cycle
Period
in days
Ratio to 18.0 Fibonacci
Number
Lunar ?
TO 27.21222 1.51179 3/2 *1 YES
MT 39.62992 2.20166 near 2 YES
--- 3-
MJ 89.79214 4.98845 5-
MV 144.56544 8.03141 8-
VJ 236.99212 13.16623 13 -
ES 378.09193 21.00511 21-
VL 614.08999 34.11611 34 YES
RO 623.93135 34.66285 - YES
- --55-
--- 89-
JO 2646.18311147.01017 144 YES
SO 4166.01246 231.44514 233 YES
DT 6798.41010 377.68945 377 YES

In this table, T=Moon,O=Moon's Node,D=Moon's Draconic cycle, and L=lunar year, and the other letters are my usual for the planets. A few Fibonacci ratios are missing, but it is a very obvious sequence. It is there because the planets have to follow the laws of energy addition as they mutally work out their orbits.

Note that 7 of the 11 cycles are lunar cycles. They include the moon in one form or another. These have a YES in the last table column. Futher, this sequence starts with a "lunar self resonant cycle", TO, formed by the Moon and it's Node. And it ends with another "lunar self resonant cycle", the DT cycle, formed by the moon, and it's Draconic cycle. The Draconic cycle is the distance cycle between the Earth and Moon. It plays a major role in the ocean tides, and apparently in electrical tides as well.

My next step was to watch the retracements of the last swing in the S&P. Chaos Trader RealTime has both a swing and an envelope filter, which I set to find swings greater than 6 points. This chart is the result. Each swing is labelled with it's ratio to the prior swing.


Yes You Can... Cash In On Chaos!

The results were pretty accurate. One swing stopped at .5, and another went to 1.44, the square root of 2. But even that swing showed congestion near the 1.27 retracement.

When combined with the MoonTides, shown in A and B, and the XTIDE at the bottom of the screen, the retracements can be used as an aid to enter or exit trades. For example, today's One-A-Day trade was to buy the XTIDE dip near 12:20 if the market was down in the morning. It was, following the red -MoonTide nicely. Right after 12:20, the market dipped sharply as per the XTIDE. Normally, I trail an entry stop to get in, but one cannot do this with the E-Mini. One just has to buy. So I bought at 1352 at the 1.27 retracement level, with a 3 point stop. One hour later, the market had rallied to the .786 retracement, for a 9.5 point gain. I didn't cash it all in, because I was writing my newsletter and not paying close attention. But I did push my stop up to capture a 3 point gain. I was hoping for a continued run up the -MoonTide line, but instead got an inversion to the +MoonTide line. That's OK. Only liars and pigs get it all.

Following that .786 peak, the market dropped below the the 1.618 ratio just a bit. So the ratios were not exact, but quite useful. Now, lets look a bit deeper at the underlying physics. I have shown many charts with the Moon's electric field flux lines, and watched in awe as prices responded to them. So if the ratios are also related to lunar cycles, do they show up TOGETHER?


Yes You Can... Cash In On Chaos!
YES! The 1.27 low at A was on the -M180 line. I've always wondered why sometimes prices barely cross a flux line. They apparently do so when the ratio is exact just beyond the line. They can also stop just short of a flux line for the same reason, as at B and F.

The ratios at C and D are of particular interest. I have noticed that if one extends the Moon flux lines from the prior or next day, that these points act as flux lines. This apparently happens when a proper retracement occurs.

Point E was a turn at a 1.44 ratio. It occurred at 270 degrees, a cardinal position on the wheel, and at the balance level between the +M090 and -M270 flux lines.

Finally, it was the -M270 line that pulled prices a bit past the 1.618 retracement at G. But after that, prices rallied as per the XTIDE. An aggressive trader could even have bought, based on the 1.618 ratio, the Moon flux line, and the XTIDE.

So it is finally clear to me WHY these Fibonacci ratios work, and when they work. To me, understanding why is critical, because it is part of my core belief system. I believe that markets follow physical laws. So unless I understand why the law works, I won't use it. That's the Capricorn engineer in me. And everything has to fit together. Now, the Fibonacci ratios, the Moon's flux lines, and the MoonTides fit together and make total sense to me. Remember, you have to believe in your tools to use them with confidence.

I thank Larry for repeating his spiel enough times for me to finally understand it, and I thank Bryce Gilmore for passing it on to Larry. You have to learn to earn, and that applies to me, too.


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