New Fibonacci Trader: Tools and Strategies for Trading Success / Edition 1

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With his bestselling Fibonacci Applications and Strategies forTraders, Robert Fischer established himself as the leader in theFibonacci approach to trading. Moving beyond the old Fibonaccitrader, who had the ideas, rules, and tools on paper, Fischer, withson Jens Fischer, now use computer graphics and calculationtechnology along with new Fibonacci tools to successfully trade themarkets in The New Fibonacci Trader.

In trading the markets it's important to know what to buy, but it'seven more important to know when to buy. Accurately measuring priceand time signals are one of the best ways you can do this. Now,this groundbreaking book and CD-ROM provide a powerful new arsenalof Fibonacci trading tools and software-WINPHI-to recognizepatterns, predict swings, and buck the trend-so you can achieve thehighest rate of profitable trades.

A quick recap of the core principles of Elliott Wave Theory andFibonacci Ratio are discussed to present an overall framework forThe New Fibonacci Trader. From here, Fibonacci expert RobertFischer gets to the heart of the concept by examining sixgeometrical Fibonacci trading tools:
* Fibonacci Summation Series: to capture the rhythm of annualmarket swings
* Corrections and extensions: trading with and against the maintrend
* PHI-channels: as indicators for market trend changes
* PHI-ellipses: to identify underlying structures of pricemoves
* PHI-spirals: to identify trend reversals in the market
* Fibonacci time goal analysis: that use the ratios 0.618, 1.000,and 1.618 to anticipate the exact day, in time and price, a trendwill change direction.

Along with helpful charts and graphs, The New Fibonacci Tradershows you how to effectively apply Fibonacci trading tools by usingstate-of-the-art WINPHI software, which is included in thecompanion CD-ROM.

Used individually or in concert, Fibonacci trading/analysis toolscan provide the foundation for sophisticated trading strategies.These concepts are valid for volatile and marketable individualstocks worldwide, and are not just limited to the tradingenvironment of the United States. In both bull and bear marketconditions, these concepts work equally well. Many of the toolsoutlined can be applied to monthly, weekly, daily, or even intradaycharts.

Whether you're dealing in stocks, futures, or cash currencies, TheNew Fibonacci Trader will help you calculate key turning points inthe markets, analyze market cycles, and make disciplined tradingpossible and profitable.

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Product Details

  • ISBN-13: 9780471419105
  • Publisher: Wiley
  • Publication date: 10/28/2001
  • Series: Trading Series
  • Edition description: BK&CD-ROM
  • Edition number: 1
  • Pages: 368
  • Sales rank: 930,706
  • Product dimensions: 6.30 (w) x 9.39 (h) x 1.07 (d)

Meet the Author

ROBERT FISCHER has designed commodity trading computer programs forbanks and companies. Since 1990, he has managed commodity funds asa CTA with computer programs that generate trading signals basedstrictly on pattern recognition. He is President of Fischer AssetManagement, Ltd., Bermuda. His first book, Fibonacci Applicationsand Strategies for Traders, published by Wiley, is a classic onElliott Wave Theory.
Dr. JENS FISCHER studied applied mathematics at WuppertalUniversity, Germany, and lectures frequently as Assistant Professorfor International Relations at Dortmund University, Germany.

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Read an Excerpt


In 1993, Robert Fischer published a book with Wiley and Sons under the working title Fibonacci Applications and Strategies for Traders. The book described basic findings and inventions of Fibonacci applied to sophisticated strategies for successful trading. The book became, and still is, an overwhelming success.

Almost eight years have passed, and the more popular the book becomes, the more evident it is that an integral part is missing from the first approach in order to make the all-fascinating Fibonacci principles tradable. The calculation power, graphics, and drawing power of state-of-the-art computer technology over the past half-decade have opened up horizons that are waiting to be explored. These opportunities must not be wasted. Computer technology has progressed markedly, and so has the power to successfully trade the markets using Fibonacci tools.

Making Fibonacci strategies profitable for traders is the authors' objective. The first book had the ideas, the rules, the principles, and all the Fibonacci tools on paper, but was not able to convert promising trading ideas into valid trading systems to be applied real-time to market data.

This new book focuses on the new Fibonacci trader. He or she still has the ideas and the skill, but, for the very first time, computer technology can be used to put ideas and skill together in powerful trading strategies.

We do not offer fully automated trading systems; rather, we write about the missing link that would graphically set up trading strategies and test them in a computerized environment.

In addition to academically describing our findings, we share our knowledge by delivering to readers the WINPHI software package that we use to graphically apply the Fibonacci tools to charts.

Some of the core principles of Elliott and Fibonacci have to be discussed again, even though they were explained in the original Fibonacci Applications and Strategies for Traders. The same holds true for some of the fundamental explanations of price and time targets in corrections, extensions, and Fibonacci time analysis. These subjects will be described again to adequately present the overall framework, but not in the same detail as in the first book. For newcomers as well as apprentices to Fibonacci and Elliott, we highly recommend rereading the 1993 predecessor.

Our purpose in this book is to introduce new tools not yet offered and never analyzed for the markets. The PHI-channel, the PHI-ellipse, the PHI-spiral, and the PHI-ellipse and the PHI-spiral combined with Fibonacci price and time goals, cover new territory and offer almost unlimited trading potential, if handled correctly.

The biggest difficulty when working with sophisticated Fibonacci concepts is that every trading tool has to be calculated with utmost precision. This problem can be addressed by hand when calculating price targets in extensions or corrections, but it is almost impossible to solve without the accuracy of a computer when it comes to PHI-spirals, PHI-ellipses, and similar concepts.

Our main challenge was to make the graphical use of PHI-spirals, PHI-ellipses, PHI-channels, corrections, and extensions just as simple as drawing a trend line on a chart--and, even more importantly, to have the ability to overlay and to combine different tools. As a reminder: The most powerful signals can be generated if different tools identify the same turning points in price and time.

Chapter 8 is dedicated to combinations of six geometrical Fibonacci devices that are allied in an integrated trading concept that proves reliable within the limits of the time spans traded on cash currencies and futures weekly, daily, and intraday. Our concept is also valid for volatile and marketable individual stocks worldwide. The latter factor is especially important because Fibonacci's and Elliott's principles and proposals claim global relevance and are not limited to the trading environment in the United States.

The first computerization of many Fibonacci tools was done in 1985 on a Microsoft DOS platform, but the true breakthrough came when the advantages of the Microsoft Windows operating system and its graphical surface and user interface became available to the mass market. Together with the vast power of today's personal computers and the huge storing capacity of hard files and removable media, the Fibonacci trading tools have almost unlimited potential.

And here lies our obligation vis-à-vis the investor. No matter how powerful the trading tools described in this book are, if interested investors cannot work with the tools, they are of very little use. Most of the tools described in The New Fibonacci Trader are not available elsewhere, not even with the most comprehensive and expensive trading software packages. Because we think that every investor should have the chance to work with the trading tools presented in this book, we decided to include the entire software package on a CD-ROM. The software is designed to work with ASCII O-H-L-C data on a daily basis, so that investors do not need to bother with multiple datafeeds, as long as they subscribe to a data vendor that includes a conversion utility for ASCII data with its data package.

Investors who do not feel comfortable with the need to convert data from their data vendors into an ASCII D-O-H-L-C format in order to be able to chart their data on the WINPHI program can rely on an online version of the WINPHI software package that is set up on a registered membership basis at

The Internet platform has the great advantage of supplying a much larger universe of trading vehicles to chart from various liquid international markets, and of allowing intraday trading on 60-minute and 15-minute bases. The Internet platform also closes the data gap from the time this book was written to any time in the future.

Again: The application of the Fibonacci trading tools takes knowledge and skill. Given the overwhelming response to the first attempt in Fibonacci Applications and Strategies for Traders, we know that serious believers in this kind of analysis can use the knowledge provided in this book to their benefit, as long as they have the ability to test and the discipline to follow these principles and then to execute their trading strategies.

All examples and strategies described in the book have been developed to the best of our knowledge. We do not offer fully automated trading approaches, but we introduce readers to some little known possibilities of beating the markets.

The fascination and beauty of graphic trading tools can be seen from day one. On the other hand, it is very difficult to have the discipline to wait until Fibonacci price or time goals are reached. The temptation of taking profits a little earlier, or placing protective stops a little wider, might dilute the overall performance profile.

This book is intended to be educational. Concepts are thoroughly presented with detailed examples.

We hope that readers find our ideas inspiring and enlightening, useful and exciting.

New York, New York, 2001


Historical Background of ESOPs

ESOPs can become the industrial equivalent to the Homestead Act, which was instrumental in giving this nation an identity as homeowners. Industrial wealth has been concentrated in the hands of a small percentage of the population. As this is being written, it is estimated that nearly 10 million employees of American corporations are covered under ESOPs and are experiencing the pride of owning equity in the company to which they are devoting their working careers.

The modern ESOP parallels the theory first put forth by a prominent German economist, Johann Henrich Von Thunen, during the early days of the industrial revolution. Von Thunen put an ESOP of sorts into being when he set aside a share of his farm's profits for his employees. He invested the profits in machinery that would enhance earnings. A portion of the profits was then put in each worker's name. Earnings that were invested in other than capital equipment spun off interest, which was allocated and distributed to the employees as a second income. The principal itself expanded and was distributed to the employee at retirement.

Von Thunen's concept was the antithesis of that set forth by his contemporary, Karl Marx, who felt that all capital should be owned by the government. Von Thunen wanted to spread the wealth among the people rather than let a handful of politicians control the productive capital. This would merely serve to substitute the politicians for the few nonpoliticians who at that time owned the vast portion of the capital.

In 1920, contributions to defined-benefit pension plans were given favored tax treatment by Congress. Legislation was passed in 1921 marking the birth of profit-sharing and stock bonus plans. The Tax Revision Act of 1942 served as the catalyst to induce industry to install these various tax-sheltered retirement plans.

Revenue Ruling 46, enacted in 1953, permitted any qualified retirement plan to borrow money for the purpose of purchasing stock. One year later, the nation's first leveraged ESOP was instituted. This was the well-known Peninsula Newspaper, Inc. ESOP. The company's owner wished to retire and transfer ownership to the employees. This was accomplished by means of a bank loan to the ESOP, in which all employees participated. The experiment was eminently successful, and today the paper is thriving and owned by its employees.

In 1973, the Regional Rail Reorganization Act became law, introducing legislation permitting ESOPs as a vehicle to enable corporations to finance their capital requirements.

The Employee Retirement Income Security Act of 1974 (ERISA) detailed the workings of the ESOP concept and added a certain precision to its implementation--coupled with some confusion.

The Trade Act of 1974 then added incentives for communities feeling the impact of trade competition from abroad. It structured a $500 million fund to be loaned in such situations, granting special favor to those companies having ESOPs.

The Tax Reduction Act of 1975 added impetus to the ESOP movement. In addition to increasing the investment tax credit (ITC) from 7 percent to 10 percent, it increased the ITC to 11 percent if the extra 1 percent was contributed to a tax credit ESOP or Tax Reduction Act ESOP (TRASOP).

The Tax Reform Act of 1976 extended TRASOP through 1980 and allowed corporations to claim an additional ITC of one-half percent if employees contributed that amount to the TRASOP. The conference report contained within this Act, along with Section 803(B) of the Act, stated that ESOPs are not to be treated as conventional retirement plans. They are to be treated as instruments of corporate finance.

The final Regulations, promulgated on September 2, 1977, recognized the function of the ESOP as a financing device that can benefit employees as well as the corporation and its stockholders. The Regulations reiterated congressional intent that the ESOP be treated as a valuable financial vehicle to create capital and to disseminate equity among the employees.

The Revenue Act of 1978, enacted on November 9, 1978, extended the TRASOP. The Regional Rail Reorganization Act Amendments of 1978 mandated that 15 percent of Conrail be owned by an ESOP. Funds were infused for this purpose. The U.S. Railway Association Authorization of 1979 created a mega-million-dollar loan account for the Delaware and Hudson Railroad, provided an ESOP was created for the railroad.

The Rock Island Transition and Employee Assistance Act authorized funds for the acquisition, lease, or rehabilitation of the Rock Island Railroad or the Milwaukee Railroad in conjunction with an ESOP.

The Final and Temporary IRS Regulations on Requirements for Electing 11 Percent Investment Tax Credit TRASOPs were issued on January 19, 1979. These regulations, along with the Technical Corrections Act of 1979, further clarified and liberalized the tax-credit ESOP.

The Chrysler Corporation Loan Guarantee Act became effective in 1980 guaranteeing the loan, provided that Chrysler contribute $162.5 million (about 15 percent of the loan) of newly issued stock to an ESOP over a four-year period. This provision placed nearly a quarter of the corporate ownership in the employees' hands.

At the end of 1980, the Miscellaneous Revenue Act of 1980 became law. One of the more important aspects of the law was the extension of stock bonus plans (essentially nonleveraged ESOPs) of the right to make cash distributions to participants, subject to the participant's right to demand stock. This legislation, the first of the 1980s, led to new bills by congressional proponents of ESOPs. It became apparent that the Reagan administration was off and running in the direction of ESOPs as a means of capital formation for private enterprise.

In that same year, the Small Business Development Act was passed. Companies, 51 percent of whose stock was owned by at least 51 percent of the employees, would be granted preferential loan guarantee treatment.

The Economic Recovery Tax Act of 1981 was positive for ESOPs. It provided for a payroll-based tax-credit ESOP called the Payroll ESOP (PAYSOP) to replace the capital-related investment tax-credit TRASOP effective after 1982.

The 1981 Act also increased the allowable deductible contribution from 15 percent of covered payroll to 25 percent if used to repay principal of ESOP loans after 1981. Contributions for servicing interest could be made without limit. Greater employer flexibility was assured by the addition of what amounts to a call on a participant's stock under certain circumstances.

The Deficit Reduction Act of 1984 was a bonanza for ESOPs. It provided for a tax-free rollover, which lets stockholders sell stock to an ESOP without incurring capital gains tax so long as the proceeds of the sale are reinvested in domestic stocks or bonds within one year and the ESOP owns 30 percent or more of the company. The Act made dividends payable to ESOPs tax deductible if used to repay debt for the acquisition of stock of the sponsoring company or if passed through to the plan participants. It also excluded from tax 50 percent of the interest income received by banks or insurance companies for ESOP loans (Code Section 133).

While legislation has become more stringent for other forms of qualified plans, it has been increasingly benign for ESOPs.

The Tax Reform Act of 1986 added even more new incentives for corporations to establish ESOPs. Although it terminated PAYSOPs, it created new benefits. For example, the act made dividends deductible if used to service debt for the purpose of acquiring stock for the ESOP. It provided for a limited estate tax deduction on the sale of closely held stock to an ESOP with a phaseout provision effective after December 31, 1990. Numerous other beneficial provisions that are covered in this book were also part of the 1986 Act.

The Revenue Reconciliation Act of 1989 (RRA'89) modified the requirements of a tax-deferred sale of securities to an ESOP. The act also imposed new more stringent rules on the 50 percent interest exclusion on loans made by certain institutions to an ESOP. RRA'89 also repealed the provision that had permitted limited exclusion from estate tax of stock sold or transferred to an ESOP.

The Small Business Job Protection Act of 1996 (SBJPA'96) repealed Code Section 133, the 50 percent interest rate exclusion for lenders effective on loans made after August 20, 1996. Because of the restrictions, Section 133 loans were seldom used for private corporations but were used primarily in conjunction with large public company ESOPs.

The Taxpayer Relief Act of 1997 (TRA'97) made it possible and practical for Subchapter S corporations to have ESOPs. The rules governing S corporations are quite different from those of C corporations and will be discussed in Chapter 12 of this book.

The Economic Growth and Tax Relief Reconciliation Act of 2001 broadly improved ESOPs and other defined contribution plans.

The tax reduction that took place in 2001 made major changes in the amounts that could be contributed to ESOPs alone or in combination with other tax qualified plans.

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Table of Contents

Basic Fibonacci Principles.

Applying the Fibonacci Summation Series.

Applying the Fibonacci Ratio to Corrections and Extensions.




Fibonacci Time-Goal Analysis.

Combining Fibonacci Tools.

Afterword: The New Fibonacci Traders: Who Are They?


List of Abbreviations.


Appendix: User Manual WINPHI (CD-ROM): Getting Started.


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