When considering and identifying price motives, the best tool is Fibonacci Ellipse. The Ellipse primarily works around price patterns by circumventing them. The shape of the ellipse fluctuates and changes with the change in price patterns. One can find different types of ellipses ranging from steep to flat, short to long etc. Market prices generally move along the lines of the Fibonacci ellipse barring exceptions. The difference between and ellipse and a Fibonacci ellipse is when the curve follows the series of Fibonacci in regards to using the ratio of major and minor axis.

The real merit of the Fibonacci is that it gives a concrete picture regardless of the diversity in the ebbs and flows of the price pattern. The curve begins in the form of wave A in three wave pattern. The width is decided by tying the extreme points of the minor axis. The prices generally stay inside the ellipse and will reach the level as shown on the extreme of the major axis keeping the time on the graph in mind. Fibonacci ellipses are not as well known of the Fibonacci studies and are generally used to identify where the market is going and what are the prospects it holds.

So now let’s get into the details of how to draw a Fibonacci eclipse and what are the things to remember. The graph can be drawn when there are points available. The first is the arbitrary starting point which represents the very first tipping point before prices show a reversal trend. The second point demonstrates a reversal to the overall trend shown at the first point and the third point follows that. Once all the points are closely identified an ellipse can be drawn to connect those dots.There is a line which bisects the median point of the curve is a strong indicator of the median price of where the market prices are headed. This is key as traders use this tool to determine if the market is showing a reversal trend, therefore its importance cannot be stated enough. It’s a super efficient tool in making a quick analysis of market trends and what decisions to take, keeping those trends in perspective.

As you may have gathered by now Fibonacci ellipses are not easy to work with. They have their own complexities and need to be reviewed very carefully. Let’s look at an example. When the three ellipses are drawn in a row, sometimes a bigger ellipse can also be drawn which encompasses and circumscribes the other three ellipses. The three graphs are not cut at any point, but are circumscribed the larger ellipse. This is a powerful indication of trend reversal and helps traders immensely in making their decisions in a timely manner.

In summary it’s a very useful tool which may not be as well known as the other Fibonacci studies but is equally important and gaining lot of credibility in the current markets helping traders identify markets trends despite a barrage of data in place.

Tags: Fibonnaci Ellipse