1. Retracements versus Extensions Market Technicians Association
Cornelius Luca
FX Concepts, Inc.
Fibonacci versus Gann
Retracements versus Extensions
Market Technicians Association
September 10, 2007
FX CONCEPTS, INC. • 225 West 34th Street • Suite 710 • New York NY • tel: (212) • fax: (212) •

2. Presentation based on these books

3. The Business of Currency Management
Currency Research Provider since 1981
Systematic approach to trading
Unique focus on market cycles
Technical Analysis
Awarded 1st Mandate to manage money in 1987
Traditional currency overlay
Alpha currency overlay
Leveraged absolute return programs
One of the World’s leading independent Currency Managers
Approximately $12.5 billion in assets under management
FX Concepts was founded nearly 25 years ago by JRT who has been in the currency advisory and management business since 1971.
The firm was one of the first independent currency advisors and was a pioneer in the field of quantitative analysis, model-building and technical forecasting. We provided, and still provide, daily and weekly currency and interest rate advisory services to institutional money managers and investors on a subscription basis.
In 1987 we received our first mandate from a major US pension plan to actively manage the currency risk in their int’l equity portfolio.
That same pension fund was quick to realize the inherent return potential in currency and they awarded us our 1st alpha mandate 2 years later – this was one of the first-ever currency alpha overlays and the client is still with us over 15 years later.
Since then our investment management activity has grown and today we manage over $12 billion in currency assets for a variety of institutional clients around the world
In addition to our investment management business we continue to provide research advisory services to over 200 institutions – although this is no longer a significant part of our revenue it is a major part of who we are as a firm – more on this later.
FX Concepts is based in NYC with client support available worldwide from offices in Paris, Singapore and Sydney. We are also represented in Japan and we have a portfolio management and disaster recovery site in Rochester, NY.
FXC remains an independent firm owned by its employees – over half of our 55 staff are shareholders. One of the unique things about FXC is the degree of employee fidelity and low turnover – the average tenure of our investment professionals is about 10 years and the core team have been working together for close to We offer a level of a organizational stability and commitment to our investment sector which most large asset management firms cannot match

4. Beta: How Currencies Generate a Return
FX Beta is the return provided by simple strategies that work over time in the currency markets
The main betas are:
Trend (Direction)
Carry (Yield)
Volatility (Options)

6. Percentage retracements
All trends are subject to price retracements and
reversals.
Trend analysis should help you identify trend

7. What Clients Need
Levels
Timing
“Objective” view of the markets

8. Retracement Analysis
Obvious Not obvious

9. Retracement Analysis

10. Percentage retracements
All trends are subject to price retracements.
There are two key sets of percentage retracements:
1. The Fibonacci ratios (Popular)
2. The Gann ratios (Very useful)

11. Percentage retracements
Gann ratios Fibonacci ratios
= (-3√5 + 7)/2
= (or .618*.382)
.5 (really) .5 (not really)
= √.618

12. Ratio Analysis Retracement methods: 1. Horizontal Lines 2. Fan Lines
3. Arcs
4. Free Angle
Extension methods:
1. Horizontal Lines (Price)
2. Vertical Lines (Time)

13. Fibonacci Sequence and Ratio
1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144,
233, 377, 610, 987, 1597, 2584, 4181, (etc.) 55

14. Golden ratios of multiple moves
The retracements
of an initial trend
remain in effect for
as long as the
original high and low
remain in effect.

15. Fibonacci retracements (monthly)

16. Fibonacci retracements (weekly)

17. Fibonacci retracements (daily)

18. Fibonacci retracements (hourly)

19. Multiple Fibonacci retracements

20. William Delbert Gann
Gann developed a complex set of mathematical Methods based on time and price analysis, which helped him make 264 successful trades out of 286 transactions in various stocks in only 25 market days in October, 1909.

21. Trading strategies He had different strategies for four situations:
Bull market
Bull market top (reversal from bull to bear market phase)
Bear market
Reversal phase from bear to bull market
                                

22. Importance of number 3 Majority of moves will generally occur in time
period of three - days, weeks or months.
Never trade in the direction of the trend on its
third day.                              

23. Nine mathematical proofs of any point of resistance
Angles from top and bottoms,
Angles running horizontally (previous tops and bottoms)
Time cycles (vertical angles)
Crossing of important angles originating at zero
Crossing or coming together of angles from double or triple tops or bottoms
Crossing of double or triple tops or bottoms
Past resistance/support
Volume of sales
Squaring of time and price

24. Important features of Gann analysis
1. Geometric forms
2. Geometric angles
3. Ratios
4. The squaring of price and time
5. The cardinal square

25. Gann percentage retracements
Gann attached importance to the 1/8 breakdowns along
with the 1/3 and 2/3 retracements.
Advantage? Smaller steady steps, more signals.
123

26. Gann percentage retracements

27. Gann percentage retracements

28. Fan Lines
While most retracements focus on horizontal lines drawn at specific percentages, the retracement analysis can be enhanced by using fans based on the same percentages.
Therefore, you can draw fans based on the Dow, Fibonacci and Gann percentage retracements.

29. Fan Lines B
The fan lines are based on
retracements. C A 50

30. Fan Lines Measure the range of a trend.
Divide it into the ratios that you like (Fibos?)
To plot the first fan line, connect the origin and the .382 of the range.
To plot the second fan line, connect the origin and the price at the .618 level. 51

31. Fan Lines

32. Fan Lines

33. Fan Lines

34. Gann geometric angles
The core line, (anchor line), which connects the extremes of the trend is represented as 1X1.
Steeper lines are determined by a ratio of 1X8, 1X4, 1X3 and 1X2.
Flatter lines are determined by price and time ratios of 2X1, 3X1, 4X1 and 8X1.

35. Time cycles on a geometric square
The 45o angle in the most important 52 39 26 13

36. The steeper (1X8, 1X4, 1X3 and 1X2) lines are not really useful.
Focus on the flatter lines: 2X1, 3X1, 4X1 and 8X1.

37. Gann fan lines

38. Gann fan lines

39. Gann fan lines

40. Arcs
Those looking for a time target in addition to the price target might consider arcs, also based on percentage retracements.
Plot the retracements on the anchor line and draw arcs from either the peak of an uptrend or the trough of a downtrend.

41. Fibonacci arcs Fibonacci arcs provide both price and time objectives.
Divide the length of a trend by the Fibonacci ratios at
.382, .50 and .618.
With a compass, extrapolate these levels in the future in
order to achieve price and time targets for retracements. 61

42. Fibonacci arcs 62

43. Fibonacci Lines, Fans and Arcs

44. Fibonacci retracements of channels (John Taylor)

47. Gann Geometric Forms
Gann employed other geometrical forms, such as circles.
A circle has 360 degrees, and this number, along with fractions of 360, is omni present in his work.
Gann extrapolated 30, 90, 120, 180 and 360 days from significant chart points.
These forward periods are potential reversal dates.
The secondary reversal dates are 45, 135, 225 and 315.

48. Gann Geometric Forms

49. The Gann Emblem Pointer 91 ¼ days 121 2/3 days 182 1/2 days

50. The Cardinal Square – USD/JPY Application

51. The Cardinal Square – USD/JPY Application

52. The Cardinal Square – USD/JPY Application

53. Extensions When a rebound from retracement of a previous
trend exceeds the previous
high (in an uptrend) or low
(in a downtrend), erase the
old retracements and
apply extensions.

54. Extensions
Retracement ratios are equally valued for targeting prices on extensions.
In the case of the Gann ratios, the extensions will be placed at: 1.125, 1.25, 1.375, 1.5, 1.625, 1.75 and
In the case of the Fibonacci ratios, the extensions will be placed at: 1.382, 1.5 and

55. Extensions – USD/BRL

56. Extensions

57. Extensions

58. Extensions

59. Fibonacci Multipliers
Fibonacci divisions are divisions of 1.
Fibonacci expansions are Fibonacci ratios, which when multiplied equal 1.
.236 * 4.236
.382 * 2.618
.5 * 2
.618 * 1.618
.764 * 1.309

60. Fibonacci Multipliers Application
Assume B-A = .382
Multiplier of .382 = 2.618
If B-A = 100 points, then the target becomes 261.8
Add to A
The target is very aggressive B A

61. Fibonacci Multipliers Example

62. Extend in the Direction of Trend

63. Fibonacci Multipliers
Primary Ratios
# * 1.618
# * 2.618
Secondary Ratios
# * 1.309
# * 2
# * 4.236

64. Extend Retracement from Pullback
C to D = (B – A) *.618
or 1 or 1.618
Long-term targets C D B B D C A

65. Extend Retracement from Pullback

66. Fibonacci Multipliers
Primary Ratios
# * 1.309
# * 2
# * 4.236
Secondary Ratios
# * 0.382
# * 0.5
# * 2.618
# * 4.236

67. Fibonacci Time Extensions

68. Fibonacci Time Extensions

69. Fibonacci Time Extensions

70. What Clients Need Correct entry/exit levels Timing
Objective view of the markets

71. What We Provide Our Clients
Timing
Proprietary levels
Model

72. Cyclical Analysis

73. Optimized Gann Fan Lines

74. Gann Channels

75. Trade of the Day

76. Short-term Trades
Carry, trending and counter-trending recommendations for trades
that are held for a maximum of a few days

77. Pointing out the “not-so-obvious”
Trend following and designed to capture a trend approximately 12 weeks in length
Models trade about 6 times a year
Overbought/Oversold indicators square positions during excessive moves
So let’s take a look at a specific example
Let’s look at a trend. There are three things we know about them
They exist, they overshoot, and they are subject to reversals.
Here I’ve shown FX Concepts long term system. This particular model has a return to risk ratio based on the last 10 years of about .8
The trend in this example is up, and the model has an overbought oversold indicator used to take profit- so extreme price moves would trigger it. So far I think you’ll agree some of the more sophisticated banks have these types of models… but as we saw in our initial assumptions- sometimes trends overshoot so that take profit mechanism is going to sometimes prove quite annoying. This is where timing, or our cycles comes in. We will stay in a trade, even if our target is reached if we think it has longer to run. Conversely, we will exit a trade even if it is still in profit, if it’s time has run out.