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Learning to Profit from Futures Trading with an Unfair Advantage!

Trading Success Principles

Fibonacci Retracements
 Trading Success Principles
Fibonacci Retracements

Fibonacci Retracements
 A very common trading phenomenon that occurs on ALL times frames and on ALL markets.

 Used in conjunction with the MFAM, Fibonacci retracements primarily are used for entering in on an
already established UPTREND or DOWNTREND.

 Once a market makes a significant move either up or down (i.e. UPTREND or DOWNTREND), prices
tend to retrace (pull back) before resuming in the direction of the original TREND.
 These pull backs or retracements (against the trend) tend to fall into certain predictable percentage
parameters:
 Approximately one third (.382), or
 Approximately one-half (.50), and/or
 Approximately two thirds (.618).

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Fibonacci Retracements in an UPTREND
 These retracements will act as SUPPORT (a potential BUY zone) in an established UPTREND.

 The bullish UPTREND market retracement calculations are as follows:

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Fibonacci Retracements in a DOWNTREND
 These retracements will act as RESISTANCE (a potential SELL zone) in an established DOWNTREND.

 The bearish DOWNTREND market retracement calculations are as follows:

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 Trading Success Principles
Fibonacci Retracements

Minor (38% and 50%) vs. Major (62%) Retracements

 The 38% and 50% retracement levels are perfectly normal in a healthy TREND and indicate that the
market is likely to continue its TREND (either up or down).
 If the market breaks through the 38% and 50% retracement levels, the TREND may be reversing.

 The market should not retrace beyond the 62% retracement level for a TREND to remain intact.
 If the market retraces beyond the 62% retracement level, the market may be reversing or simply is
not as strong (in an UPTREND) or not as weak (in a DOWNTREND) as it once may have appeared.

 There is always the chance of the market penetrating up through (in an established DOWNTREND) or
penetrating down through (in an established UPTREND) ALL the retracement levels (38%, 50%, and
62%) without any type of reaction/bounce back to the highest high in an UPTREND or back to the lowest
low in a DOWNTREND.
 No trading strategy is 100% correct. Obviously, you occasionally may get false signals; as you
already know, that’s part of this business.

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 Trading Success Principles
Fibonacci Retracements

Fibonacci Retracements in Conjunction with the MFAM

 Fibonacci retracements are part of the inherent price structure of all markets and can be used in a
variety of ways.
 Instead of simply jumping in on a big market move (i.e. UPTREND or DOWNTREND), wait patiently
for the market to retrace to a logical Fibonacci retracement level in order to get into the TREND.
This will allow for much better entries into the market.

 The two main purposes for discussing Fibonacci retracements are:

1) to determine the strength of an UPTREND or weakness of a DOWNTREND and
2) to provide for an optimal, low-risk entry into the market by also using the MFAM as your main
criteria for determining TREND.

 The MFAM will help tell you exactly what price levels (i.e. highs, lows, AHs, and ALs) to use to calculate
the Fibonacci retracements.

 Fibonacci retracements are an integral part of the MFAM; the following illustrations will help you see what
we’re talking about.

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UPTREND MFAM Fibonacci Retracements
 These retracements will act as SUPPORT (a potential BUY zone) in an established UPTREND.

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DOWNTREND MFAM Fibonacci Retracements
 These retracements will act as RESISTANCE (a potential SELL zone) in an established DOWNTREND.

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Fibonacci Retracements in an UPTREND
 Levels of logical SUPPORT (potential BUY zones) in an established UPTREND.

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Fibonacci Retracements in a DOWNTREND
 Levels of logical RESISTANCE (potential SELL zones) in an established DOWNTREND.

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 Trading Success Principles
Fibonacci Retracements

Retracement Confluence
 Retracement confluence simply means when two (or more) different retracement levels (from two
different swings in the same trend direction) fall within the same general area.

 Compute two different sets of retracement levels taken from the low (LOW) in an UPTREND to a Newer
High (NH) and from the Active Low (AL) to the Newer High (NH) and compare the different retracement
levels to one another to see which retracements are closest to one another. The retracement levels that
fall within another retracement’s zone are called retracement confluence.
 The most common retracement confluence number will be the 38% retracement of the bigger
swing with the 62% retracement of the smaller swing.

 Using Fibonacci retracements in conjunction with the MFAM is a great strategy for entering (and
re-entering) a market that has been TRENDING.

 Markets are always retracing at some point in time. This once concept alone is evidence for why you
should understand the theory behind Fibonacci retracements and Fibonacci confluence.

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Retracement Confluence in Conjunction with the MFAM
 Retracement confluence will act as SUPPORT (potential BUY zone) in an established UPTREND.

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Retracement Confluence in Conjunction with the MFAM
 Retracement confluence will act as RESISTANCE (potential SELL zone) in an established DOWNTREND.

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Retracement Confluence in an UPTREND
 A logical level of SUPPORT (potential BUY zone) in an established UPTREND.

AL2

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Retracement Confluence in a DOWNTREND
 A logical level of RESISTANCE (potential SELL zone) in an established DOWNTREND.

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No claim is made by the Trading Concepts, Inc. that the Futures trading
strategies shown here will result in profits and will not result in losses.
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Program. All comments, trading strategies, techniques, concepts and
methods shown within our Course are not and should not be construed as
an offer to buy or sell Futures Contracts – they are opinions based on
market observation and years of experience. Therefore, the thoughts
expressed are not guaranteed to produce profits in any way. All Opinions
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