FIBONACCI

FIBONACCI

Traders use the Fibonacci Retracement levels as potential support and resistance areas. Since so many traders watch these same levels and place buy and sell orders on them to enter trades or place stops, the support and resistance levels tend to become a self-fulfilling prophecy.

Traders use the Fibonacci Extension levels as profit taking levels. Again, since so many traders are watching these levels to place buy and sell orders to take profits, this tool tends to work more often than not due to self-fulfilling expectations.

The Fibonacci tool works best when the market is trending.  The idea is to go long (or buy) on a retracement at a Fibonacci support level when the market is trending up, and to go short (or sell) on a retracement at a Fibonacci resistance level when the market is trending down. In order to find these retracement levels, you have to find the recent significant Swing Highs and Swings Lows. Then, for downtrends, click on the Swing High and drag the cursor to the most recent Swing Low.  For uptrends, do the opposite. Click on the Swing Low and drag the cursor to the most recent Swing High.
  • Previous Three Days - Reference the previous three days when trying to determine points to draw Fibs at the Highs/Lows.
  • Session Highs Lows - You can use a Session High/Low when drawing Fibs. Not just only daily highs/lows.
UPTREND

DOWNTREND

Targeting - Using Fib Retracement

  • Upside Objective: Pull Fib from recent swing high to the swing low. First take profit would be around the 100 level and then the 200 level.
  • Downside Objective: Pull Fib from recent swing low to the swing high. First take profit would be around the 100 level and then the 200 level.
  • Always look to the left of price to identify other key price levels which may coincide with the targeted price objective.

Targeting - Using Fib Expansion

  • Upside Objective: Pull from the buy point on the swing low towards the previous swing high. This will show the expansion levels.
  • Downside Objective: Pull from the sell point on the swing high towards the previous swing low. This will show the expansion levels.

Prolonged Targeting - Use Fib Retracement and instead of pulling from high to low and the high sits on the 100 level, raise the Fib tool so that the high sits on the 50 level. You'll see the extension levels move higher for a longer range price objective in a trending higher market.