Scott M. Carney

1. 0.618, 0.786, 1.27, 1.618 first

2. 0.382, 0.50, 1.00, 2.0, 2.24, 2.618, 3.14 second

3. 2.24, 2.618, 3.14 extremal


November 2002 Trading Tips Newsletter


Pesavento Patterns
by Howard Arrington

Fibonacci numbers are valuable because these numbers and relationships are found everywhere in nature and in the markets. Frequently the magnitude of a wave will have a Fibonacci relationship to the magnitude of another wave structure. A wave's magnitude is determined by measuring the price range from a significant top to a significant bottom. The magnitude of a Trend wave might be 1.618 times the magnitude of the previous Retracement wave. A corrective Retracement wave might be 0.618 times the magnitude of the previous Trend.

Larry Pesavento shows in his book 'Profitable Patterns for Stock Trading' that two additional ratios are frequently found in the markets. These ratios are the square roots of the two primary Fibonacci ratios. The square root of 0.618 = 0.786, and the square root of 1.618 = 1.272. Larry uses these two additional relationships, 0.786 and 1.272, because not all waves are a ratio of 0.618 and 1.618, or the other common ratios of 0.382, 0.500, and 2.618.


Table of Relationships

Key Ratio Square Square Root Reciprocal

0.382 0.618 2.618
0.618 0.382 0.786 1.618
0.786 0.618 1.272
1.000 1.000 1.000 1.000
1.272 1.618 1.128 0.786
1.618 2.618 1.272 0.618
2.618 1.618 0.382

0.500 0.250 0.707 2.000
0.707 0.500 0.841 1.414
0.841 0.707
1.414 2.000 0.707
2.000 4.000 1.414 0.500