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Author: Dr. D. Selzer-McKenzie
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The Truth About Fibonacci Trading
The Truth About Fibonacci Trading
The truth about Fibonacci levels is that they are useful (like all trading indicators). They do not work as a standalone system of trading and they are certainly not the holy grail, but can be a very effective component of your trading strategy. But who is Fibonacci and how can he help you with your trading? Leonardo Fibonacci was a great Italian mathematician who lived in the thirteenth century who first observed certain ratios of a number series that are regarded as describing the natural proportions of things in the universe, including price data. The ratios arise from the following number series: 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144 .....
This series of numbers is derived by starting with 1 followed by 2 and then adding 1 + 2 to get 3, the third number. Then, adding 2 + 3 to get 5, the fourth number, and so on. The ratios are derived by dividing any number in the series by the next higher number, after 3 the ratio is always 0.625. After 89, it is always 0.618. If you divide any Fibonacci number by the preceding number, after 2 the number is always 1.6 and after 144 the number is always 1.618. These ratios are referred to as the "golden mean." Additional ratios were then derived to create ratio sets as follows:
The Truth About Fibonacci Trading
Price Retracement Levels
0.236, 0.382, 0.500, 0.618, 0.764
Price Extension Levels
0, 0.382, 0.618, 1.000, 1.382, 1.618
The first set of ratios is used as price retracement levels and is used in trading as possible support and resistance levels. The reason we have this expectation is that traders all over the world are watching these levels and placing buy and sell orders at these levels which becomes a self-fulfilling expectation. The second set is used as price extension levels and is used in trading as possible profit taking levels. Again, traders all over the world are watching these levels and placing buy and sell orders to take profits at these levels which becomes a self-fulfilling expectation.
Most good trading software packages include both Fibonacci Retracement Levels and Price Extension Levels. In order to apply Fibonacci levels to price charts, it is necessary to identify Swing Highs and Swing Lows. A Swing High is a short term high bar with at least two lower highs on both the left and right of the high bar. A Swing
The Truth About Fibonacci Trading
Low is a short term low bar with at least two higher lows on both the left and right of the low bar.
Fibonacci Retracement Levels
In an uptrend, the general idea is to go long the market on a retracement to a Fibonacci support level. The price retracement levels can be applied to the price bar chart of any market by clicking on a significant Swing Low and dragging the cursor to the most recent potential Swing High and clicking there. This will display each of the Retracement Levels showing both the ratio and corresponding price level. Let's take a look at some examples of markets in an uptrend. The same points made by these examples are equally applicable to markets in a downtrend. Example 1: Here we plotted the Fibonacci Retracement Levels by clicking on the Swing Low at about $71.31 and dragging the cursor to the Swing High at about $89.83. You can see the resultant levels plotted by the software. Now the expectation is that if the market retraces from this high it will find support at one of the Fibonacci Levels, because traders will be placing buy orders at these levels as the market pulls back.
1 .The Truth About Fibonacci Trading 5 Example 1 Example 1.
1: Now let's look at what actually happened after the Swing High occurred.50 level (a lot of buyers at this level). However. The market pulled back right through the 0.764 level would have been a good short term trade.The Truth About Fibonacci Trading Example 1. once the buying power was exhausted.382 level would have been a good short term trade. the market continued to retrace all the way down to the 0. the Fibonacci Retracement Levels were plotted on the chart in the same manner as described in Example 1. buying at the 0. The market again pulled back right through the 0.382 level before finding support.764 level before resuming its upward trend. . Clearly buying at the 0. we are looking for the market to retrace from the Swing High and find support at one of the Fibonacci levels.236 level and continued the next day through the 0. Example 2: Again. Example 2. the market resumed its upward move. In this case. After a few days.236 level and continued to pull back until it found temporary support at the 0. Again.1: Now let's look at what actually happened.
The Truth About Fibonacci Trading Example 2 Example 2.1 .
If the market retraces from the Swing High. where will it find support? Example 3 .The Truth About Fibonacci Trading Example 3: Here's another example.
The Truth About Fibonacci Trading Example 3. Example 3. Buying at this level would have been a great trade as the market gapped up a few days later.1 .50 level.1: Well. in this case the market found support at the 0.
The Truth About Fibonacci Trading Example 4: Here's one more example. Example 4 .
the market will not always resume its uptrend after finding temporary support.not always.The Truth About Fibonacci Trading Example 4. but instead continue to decline below . A long trade here would have been a loser or at least an open lose position. but often.1 You can see from these examples that the market often finds at least temporary support at the Fibonacci Retracement Levels . Second. Example 4. First. The 0. there is no way of knowing which level will provide support. while the other levels provide support with approximately the same frequency. It should be apparent that there are a few problems to deal with here.1: Whoops! The market gapped down through all levels of support and never looked back.236 level seems to provide the weakest support.
Another is from the lowest Swing Low of the past 30 days. .it is probably best to place stops below the last Swing Low. Thirdly. but this requires accepting a high level of risk in proportion to the likely profit potential in the trade. One way is from the last Swing Low as we did in the examples.The Truth About Fibonacci Trading the last Swing Low. placement of stops is a challenge . Another problem is determining which Swing Low to start from in creating the Fibonacci Retracement Levels. . and consequently it becomes a guessing game. there is no one right way to do it. The point is.
000 level would have made a nice trade.382 level would have been premature. the general idea is to take profits on a long trade at a Fibonacci Price Extension Resistance Level. The Price Extension Levels can be applied to the price bar chart of any market by clicking on a significant Swing Low and dragging the cursor to the most recent Swing High. Then by clicking on the Swing High and back down to the retracement Swing Low and clicking there.382 level and again at the 1. The market rallied making new highs pausing at the 0.000 level after a retracement down it rallied again going right through the 1. The same points made by these examples are equally applicable to markets in a downtrend.20 and dragged the cursor to the Swing High at about $47. Example 5: Here we plotted the Fibonacci Price Extension Levels by clicking on the Swing Low at about $38. You can see the resultant levels plotted by the software. but taking profits at the 1. . Example 5.1: Now let's look at what actually happened after the retracement Swing Low occurred. because traders will be placing sell orders at these levels to take profits on there long trades. Taking profits at the 0.The Truth About Fibonacci Trading Fibonacci Price Extension Levels In an uptrend. This will display each of the Extension Levels showing both the ratio and corresponding price level.67 and then down to the retracement Swing Low.382 and 1. Let's take a look at some examples of markets in an uptrend.618 levels. Now the expectation is that if the market continues higher it will find resistance at one of the Fibonacci Levels.
The Truth About Fibonacci Trading Example 5 Example 5.1 .
Example 6 . the Fibonacci Price Extension Levels were plotted on the chart in the same manner as described in Example 5. we are looking for the market to continue higher before finding resistance at the Fibonacci Levels. Again.Example 6: Again.
The market rallied.1 . Taking profits at the 0. and then continued higher. Example 6.618 level. This up move could well continue up to at least the 1.1: Now let's look at what actually happened.382 level and the 0.The Truth About Fibonacci Trading Example 6.000 level.382 level would have been premature and only time will tell if taking profits at the 0.618 level was the optimal place to exit the long trade. . making new highs and pausing between the 0.
The Truth About Fibonacci Trading Example 7: Here's another example. Will the market continue higher to one of the Fibonacci Price Extension Levels? Example 7 .
The Truth About Fibonacci Trading Example 7.1 . Example 7.382 level which would have been the place to take profits on any long trades.1: Well in this case the market found resistance at the 0.
1 .The Truth About Fibonacci Trading Example 8: Here's one more example. Example 8.
1: Like the last example. First. but often. there is no way of knowing which level will provide resistance.not always. The 0. Example 8.382 level which would have been the place to take profits on any long trades.The Truth About Fibonacci Trading Example 8. the market found resistance at the 0.1 You can see from these examples that the market often finds at least temporary resistance at the Fibonacci Extension Levels . As in the examples of the Retracement Levels. Another problem is determining which Swing . it should be apparent that there are a few problems to deal with here as well.382 level was a good level to cover any long trades in two of the examples. but in the other examples taking profits at that level would have been premature.
89. 987. You see. However. and consequently it becomes a guessing game. 2. Roman numerals held sway. 1597………… Dividing a Fibonacci number by its immediate predecessor yields an approximation of the Golden Ratio (roughly 1. Fibonacci Retracements and Extensions. Prior to Fibonacci. 1. 144.6180327868852). commonly known as Fibonacci. 5. the point is that there is no one right way to do it. 1. Alone. but never enter or exit a trade based on Fibonacci Levels alone. 377. the closer the approximation to the Golden Ratio becomes The sequence is named for medieval mathematician Leonardo of Pisa. and How to Profit From Them with Precise Entry and Exits! Universal Origins The Fibonacci sequence is a mathematical sequence in which each number. another is from the lowest Swing Low of the past 30 days. The sequence runs 0. 13. The higher the Fibonacci number. The lesson learned here is that Fibonacci Levels can be a useful tool. Again.The Truth About Fibonacci Trading Low to start from in creating the Fibonacci Extension Levels. 233. after two starting values. Fibonacci’s namesake sequence stems from his solution to the . who was responsible for introducing the Hindu-Arabic numeral system we currently use to Europe. Fibonacci Levels are definitely useful as part of an effective trading method that includes other analysis and techniques. is the sum of the two preceding numbers. 55. 34. Fibonacci Levels will not make you rich. 610. All successful traders know it's how you use and integrate the indicators (including Fibonacci) that makes the difference. 21. 8. One way is from the last Swing Low as we did in the examples. 3. the key to an effective trading system is to integrate a few indicators (not too many) that are applied in a way that is not obvious to most observers.
Conversely.2% level and begin selling as the price approached the 61. a technical trader might sell until the price declined to the 38.problem of modeling the growth of rabbit populations under ideal conditions. Perhaps because it is relatively easy to understand. art and architecture and is often used as a guide for creating visually pleasing proportions. computer science and biology. if the price of a stock has recently shot up. Fibonacci numbers. The idea is that in the aftermath of a significant price movement. the Fibonacci sequence is also frequently referenced in pop culture.2% level and begin buying when it reached the 61. Today Fibonacci numbers are used extensively in the study of mathematics.8% level. appropriately enough. or more precisely the Golden Ratio. 50% and 61. after a big decline. usually 38. which are percentages of the total price drop or gain. Technical traders have observed that after a period of retracement. although it has since been used in many other contexts. it makes a prominent appearance in The DaVinci Code as the password that opens the codex Trading Applications In finance. the same trader might buy until the price recovered to the 38. an extension of the same idea. The Golden Ratio shows up music. Fibonacci Extension levels are calculated based on the original price movement. Extending the Fibonacci analysis allows technical traders to predict the next turning point. subsequent levels of support and resistance will form around ‘Fibonacci Significant’ numbers. After a large price movement. For example.2%. Fibonacci Extensions are. technical traders pay particular attention to these retracement levels. . stock prices often resume moving in accordance with their original trend. form the basis of a popular method of technical analysis.8%. For example.8% level.
the method will work. the use of this analysis by many traders leads to an overall selffulfilling prophecy in stock prices. Extensions are applied in a similar manner for price declines. After all. with the expectation being that after a retracement. rabbit population growth has very little to do with stock prices However. even ill founded theories can move markets. regardless of whether or not it has any rational basis. Fibonacci Effectiveness There is not any strictly rational reason why stock prices should behave as Fibonacci analysis predicts. In the short term at least.8% extension level. a technical trader might begin buying when the price had subsequently declined to the 61.8% level. the price decline will resume. then hold the stock until the price approached the 61. The fact is that there are many active share traders who use Fibonacci retracements and extensions to guide their trading strategy. at which point it would be time to sell in anticipation of a new retracement. .Having observed a major price increase in a stock. this does not in any way imply that we should expect it to play a role in financial markets. it would be a mistake to dismiss Fibonacci methods as useless superstition. While it is true that the Golden Ratio appears frequently in nature. If enough traders use and act on Fibonacci analysis. Regardless of whether or not Fibonacci naturally influences the market.
he was not responsible for discovering the sequence.Phenomena like this are not uncommon in markets. they are a useful tool for predicting the behavior of many traders operating in the market. Fibonacci analysis can be an effective part of an overall trading strategy. The puzzle that Fibonacci posed was. If past price movements of a stock appear to conform to Fibonacci predictions. but there is still one only 1 pair. In essence. While most attribute the Fibonacci Sequence to Leonardo.. The name Fibonacci itself was a nickname given to Leonardo. Target selection is also important. Suppose a newly-born pair of rabbits. Rabbits are able to mate at the age of one month so that at the end of its second month a female can produce another pair of rabbits. This in turn improves the odds that Fibonacci analysis will be effective in predicting the future movements of that stock. are put in a field. At the end of the second month the female produces a new pair. making 3 pairs in all in the field. they mate. and in fact. How many pairs will there be in one year? At the end of the first month. one female. It was derived from his grandfather’s name and means son of Bonaccio. the original female produces a second pair. market psychology is a major focus of study in the field of Behavioral Economics. one male. In it he derived a method for calculating the growth of the rabbit population. while Fibonacci retracements and extensions may not have any real basis from a strict financial analysis perspective. Suppose that our rabbits never die and that the female always produces one new pair (one male. Applied with a thorough understanding of how and where other traders are using it. The key is to develop an understanding of how other traders are applying Fibonacci analysis. For this reason. Fibonacci retracements and extensions can be solid enhancer of trading profits. Liber Abaci. In 1202 Leonardo published a book called. . He was renowned as one of the most talented mathematicians of his day. one female) every month from the second month on. Who was Fibonacci? Leonardo Pisano.. then it is likely that traders using Fibonacci analysis are active in the trading of that particular stock. was Italian mathematician born in Pisa during the The middle Ages. the original female has . so now there are 2 pairs of rabbits in the field. At the end of the fourth month. At the end of the third month.
61904 ~ 1. Fibonacci as a Technical Analysis Tool While there have been countless books and articles written on the use of Fibonacci in technical analysis.618 = 0.61764 ~ 0. 2+3=5. the female born two months ago produces her first pair also. if you repeat this mathematical analysis through multiple sets of data.238 he dimensional properties adhering to the 1. 89. With the proliferation of real-time charting and data. The sequence of numbers looks like this: 0. 1. 8. each new number in the sequence is the sum of the previous two numbers. Up until the late 90s the tracking and use of these numbers were a manual process. 21. 3. the analysis of one number with the number up to four places to the right. From this sequence you can easily reason that at the end of one year there would be 233 pairs of rabbits. you will see we arrive at some well known and fairly consistent ratios.61904 ~ 2. 55.produced yet another new pair. and so on. In our example. 21/34 21/55 21/89 = 0. . 13. to infinity. 233.23809 ~ 4. equals 1. Starting with zero and adding one. 5. This sequence has repeatedly appeared in popular culture from architecture to music to television. when added to 0.619 = 4.382 = 0.618 ratio occur throughout nature and the ratio is most referred to as The Golden Ratio. making 5 pairs.23595 ~ 0.618. The uncurling of a fern and the patterns found on various mollusk shells are commonly cited examples of this ratio. 1+2=3. This number.D. the basics are simple. 144.236 34/21 55/21 89/21 = 1. These ratios have been used for over a hundred years in the financial markets by the likes of W. 34. While some are not exact. The first three are shown below. 1. 0+1 = 1. While the series is a powerful tool.38181 ~ 0. This mathematical progression is now recognized as the Fibonacci Sequence. 1+1=2. software that automatically calculated and displayed these levels brought Fibonacci into the financial mainstream.619 = 2. 2. Gann and Ralph Nelson Elliot.
This is the first line of defense of the current trend. You will find Fibonacci Retracements as a solid tool in identifying key support and resistance areas. In very strong trending markets price typically quickly bounces in the area of this ratio. • 23. On the time scale Fibonacci ratios are one method of identifying potential market turning points. markets tend to reverse right at levels that coincide with the Fibonacci ratios. often indicate levels at which strong resistance and support will be found. Breaking this level starts to erode the underlying trend.2% --.The shallowest of the retracements. let’s focus on four major retracement levels. In the next few pages I will talk about how I use the two most common applications of Fibonacci: • • Price Retracements – A strategy for quality entry points Price Extensions – An approach to determining how far price will run Then after we have covered the basics we will talk about bringing it all together and using both Fibonacci Retracements and Fibonacci Extensions at same time and how clustering of these ratios increases the probability of profit. . these ratios. Many times.On the price scale. simple is better. While there are many variations of the ratio set. the larger price move from swing high to swing low. If prices have fallen from a recent swing high down to a swing low. • . When Fibonacci levels of price and time coincide you have high probability entry points. Fibonacci Retracements: The Fibonacci Retracement is probably the most heavily used Fibonacci tool in the toolset. high to low. I have Fibonacci Retracements successfully used on tick charts through monthly and yearly charts. Identification and selection of the correct swing points are keys to success.6% -. the expectation is that price should retrace distance. by a ratio of the Fibonacci sequence. the more accurate the retracement projections. It is important to note. 38. and several others related to the Fibonacci sequence.
8% 200% Notice in each case we have simply added 100% to the standard ratio set. So let’s take a look at some examples of Fibonacci Retracements in use. from 23.matching the move • • n this section we will also show examples of how potential opportunities when price retraces beyond 100% by following another set of Fibonacci ratios: • • • 138.6% all the way to 200% and sometimes 300% For my style of trading I find 38.retracing to this typically signals a breakdown in the trend. The EUR/USD had risen from 1.• 50% -.3360 to 1. This is the critical tipping point. Example 1: Take the example below. I use this set of retracements on a daily basis.8% -.the neutral point of any retracement.I use the other primarily as confirmation levels.2% 161. 100% -.2%. The next day the EURUSD failed to make a new high and the potential swing point was in place.4278. So I using swing points I placed a Fibonacci retracement on my chart . 61.8% quite reliable. 50% and 61.
You can see the dip below the 23.6% level and the sudden reversal.The trend was obviously very strong and the first retracement to the 23. the most conservative would be to wait until the level is penetrated and price establishes itself above that level and enter on the open of the next bar as shown. you can see in this example this could have been a serious winner. Figure 3 . With the right money management. While there are multiple entry methods.6% level was met with a violent change in direction.
Once you understand the method you can find countless examples. Fibonacci Ratios work on virtually any size price swing. You can see in this example there are multiple entry points for both trend and countertrend trades. Every market. Figure 5 Let’s zoom in and look at the area highlighted in blue. FOREX. Equities and Futures each exhibit these patterns to some degree. Example 2: Let’s look at another example using the USDCAD. .
Figure 6 The blue ellipses show the high potential entry points. we have shown some examples of well behaved price action. Example 3: The example below shows the GBPUSD making a bottom and bouncing back. in each of these cases you could have entered the market with a relatively tight stop loss with high reward potential. Notice. What happens if price retraces 100%? How far can it go beyond this point? Fibonacci ratios provide some clues to answering this question and finding low risk entry points. Ok. And multiple entry points from the same set Fibonacci Retracement levels .The chart below shows the Fibonacci Retracement applied to the smaller price swing.
2% 50% 61.2%. Hopefully these examples have provided guidance from which to draw your own retracements and expand your trading toolset.8% 200% You can never tell when price action it going blow well beyond the 100% level. However.8%. while there are other retracement values.8% 100% 138. . notice after the initial breakout above 100%. This example shows yet another way to use Fibonacci Retracements.6% 38. To recap. Retracements are the cornerstone of Fibonacci theory as it applies to the financial markets.Of note are the high potential entry points at 38. my defaults Fibonacci Retracements always include: 23. This example shows why it is valuable to identify potential levels above and beyond the initial 100% retracement. 50% and 61.2% 161. Ultimately price jumped to the 138% point before backtracking. there were other opportunities to get in the trade. Each of these could have been entry points with solid profit potential.
In our first example we entered a long position on the 23. plus the swing point where price reversed from a retracement. we identified 3 potential entry points. How do we know what kind of move price is expected to make? Projecting price movement beyond the swing points is the answer everyone seeks. but how would we figure out potential exit points? Fibonacci Extensions! I find Fibonacci Extensions the most useful as a money management tool. I use exactly the same set of Fibonacci levels when using Fibonacci Extensions. Fibonacci Extensions take into account three price points. How far can we expect the position to run? In Example 3. . Like Fibonacci Retracements. Let’s go back and look at our first example. Now it is time to figure out possible exit points. We see in figure 3 the trade could have been a big winner.6% retracement from the swing high.Fibonacci Price Extensions: Picking a high potential entry point is half the battle. A swing high and swing low.
In the first trade we entered the market thinking that a swing low was in place off the 38. While during the consolidation there were obvious entry points. You can see in Figure 10.6% Fibonacci Extension level. I would continue to raise my stop as price increased. that after price penetrated the 100% Fibonacci Extension level. but tools like Fibonacci Extensions help identify key levels from which stops can be placed. I would start to bring my stop loss up in trail. Figure 9. We also identified 3 potential entry points.6% level. remaining in the initial trade would have proven to be frustrating. As price moved above the 23.The last thing we want to do is turn a winner into a loser. we entered into a period of consolidation. This is a trade that once you did not see a continuation through the 23. you could have take that as a cue to exit the . The level of risk is entirely up to your trading plan. You can see in the next chart.8% level. while price did bounce to the 23. but it was not a major winner. Accordingly.2% Fibonacci Retracement level. however. In Figure 7 we found the GBPUSD creating a bottom and breaking out to the upside. It was enough to make a profit. Let’s look at each of the entry points and use Fibonacci Extensions to project profit targets.
Or at the very least move you stop up to maintain some level of profit. . Moving on to the second entry point.position. we sold short at the 50% Fibonacci Retracement level.
Now we have gone through both Fibonacci Retracements and Extensions. There are many ways to manage a trade like this without being overly tight with your stops. I would not fault anyone for taking profit sooner.8% level would have been an ideal exit. In fact some would have taken profit at the 23. Even the correct entry could have been painful. I believe that taking profit at any of the levels would have been a prudent strategy. That said after the prior ride.This was obviously a solid entry point. On the way down you can clearly see opportunity to tighten up your stop loss values. . especially the 23.6% level. there were multiple exit points based on the Fibonacci Extensions.6% Fibonacci Extension level. As you would expect using them together can be an incredibly powerful tool. This trade was by far the most troubling. However. he 61. if you did stick it out. Now let’s look at the final entry point from our Figure 7 example. We will discuss more on that in the next section.
Take special note to the two areas highlighted. And then also combine Fibonacci Extensions.8% cluster became resistance. Often.Fibonacci Clustering: In our previous examples we have seen how both Fibonacci Retracements and Fibonacci Extensions can be powerful tools on their own.2%. n the figure above I have added two Fibonacci Retracements. These areas identify clusters of Fibonacci levels. Let’s look at an example where using multiple Fibonacci Retracements prove very useful. In subsequent retracements. Additionally. the 38. In two of three cases you could have used this information for low risk short side entry points. 5 & 6.2% and 61. I use multiple Fibonacci Retracements to determine entry and exit points. . In Figure 13 we see the dramatic fall of the USDCAD that we looked at from a different perspective in Figures 4.6% and 38. The bounce off the bottom blew directly though the first cluster of 23. this level became support and you could have safely used it as a very low risk entry point.
In Figure 15 you see this in action. For the patient trader. Therefore knowing these levels this early in the swing allows these levels to be predictive Now let’s add one more Fibonacci Retracement. In the figure above I have added a third Fibonacci Retracement. the third set Fibonacci Retracement levels provides more confidence that both Point A and Point B are high quality and low risk entry points from the long side. Learning to create and read Fibonacci Retracement clusters is a powerful and valuable tool for your Fibonacci Toolset.The key to remember in this example: You had all this information immediately after the swing low was established. . you will find it common for you charts to have multiple Fibonacci Retracements. You can also cluster multiple Fibonacci Extensions. After practicing this method for a while.
In Figure 7 we looked at the Bottoming of the GBPUSD using one basic Fibonacci Retracement. you can almost trade from pair to pair. . Let’s revisit GBPUSD on a bigger scale and add to our thesis. it would be very easy to draw countless retracements and extensions on virtually any chart. As you can see by the previous two examples. As you can see there are four. It really depends on the chart and the price action. you would want to initiate the position somewhere between the two levels. with this type of setup. two level groups. Ideally. Additionally. Each of these groups represents low risk entry points. These additions are shown on our chart below. In our next chart I have added a larger Fibonacci Retracement that encapsulates the entire top to bottom move and I have added a Fibonacci extension from the high and low swing points within the retracement price action.In this chart you see two different sets of Fibonacci Extensions applied.
retracing to this typically signals a breakdown in the trend. Breaking this level starts to erode the underlying trend. 61.This is the first line of defense of the current trend. 38. • 23.the neutral point of any retracement. While there are many variations of the ratio set. Each of these clusters served as either support or resistance points. Fibonacci Retracements provide valuable insight and triggers on where high probability change will happen. Summary: Fibonacci ratios are one of the most commonly used techniques in technical analysis of the financial markets.6% -. If you are already a successful trader or a trader just starting out. 50% -. And each created a tradable opportunity.The shallowest of the retracements. This is the critical tipping point.2% --. The Fibonacci Retracement is likely the most common of all Fibonacci related tools. I think simple is better. In very strong trending markets price typically quickly bounces in the area of this ratio.8% -. • • • .Take special notice of the Fibonacci clusters highlighted.
you can quickly identify high potential risk/reward opportunities. they are one of the best tools available.2%. D. Dr. 38. Used in combination.2% 161. Selzer-McKenzie The Author .8% I find quite reliable.Matching the initial move 138. 50% and 61. Used as part of a money management strategy and as profit target projection tool.8% 200% Within this set. If you then combine Fibonacci with other indicators like oscillators and moving averages. While not perfect.• • • • 100% -. I use the others as more confirmation and as part of cluste The Fibonacci Extension is less common but just as powerful when correctly applied. Fibonacci Extensions provide guidance on where price will potentially stall or change direction. these two ratio sets provide very tradable indicators of opportunity.