Using Fibs.2

Understand & Use Fibonacci Ratio’s effectively Understand & Use Fibonacci Ratio’s effectively

Part.2 Part.2 Retracements & ProjectionsRetracements & Projections

by Sunil Mangwaniby Sunil Mangwani

www.fibforex123.comwww.fibforex123.com

http://www.fxstreet.com/live/sessions/session.aspx?id=397784aa-2a45-4f36-8112-3860388e2454

http://www.fxstreet.com/live/sessions/session.aspx?id=397784aa-2a45-4f36-8112-3860388e2454

Fib retracements and projections – Fib retracements and projections –

Fib retracements –Fib retracements – • The basic use of Fibonacci retracements is to find potential levels of support or

resistance “behind” the market. If the market is moving up and making new highs, Fib retraces will draw levels BELOW the current price.

Ideal situation to use in –

• To estimate the horizontal levels of support/resistance for a pullback in an existing trend.


Plotting Fib retracements Plotting Fib retracements

• The Fibonacci retracements are calculated by taking two extreme points (usually a swing high and swing low) on the price movement and dividing the vertical distance by the key Fibonacci ratios of 23.6%, 38.2%, 50%, 61.8% and 100%.

• Once these levels are identified, horizontal lines are drawn and used to identify possible support and resistance levels.

• The direction of the prior trend is likely to continue once the price has retraced to any of the ratios.


Fib retracements – the 0.786 levelFib retracements – the 0.786 level

• Of all the ratios, the 0.786 level holds a lot of importance.

• This number is the square root of the “golden number” 0.618, and hence acts as a very strong level of resistance / support.

• When we are looking at a change of trend, it is best to wait for price to break the fib retracement of 0.786.

• This is the level, from where price has a very high probability of retracement.

• The 0.786 is thus known as the “reversal” fib level.


Example of Fib retracements –Example of Fib retracements –


Use of the Fib retracements for Entry & StopUse of the Fib retracements for Entry & Stop

• For price in an existing trend - when we are looking for a pullback to rejoin the existing trend.

• In case of an uptrend, we plot the Fib retracement ratios on the previous existing up trend.

• If the pullback is held within the Fib retracements, and if price does not break the 0.786 level, then the indication is that price should resume the up move again.

• So the break of the 23.6 level should be considered to be the entry, with the stop below the 61.8 level.

• The assumption is that if price has broken the 23.6 level, then it has gathered sufficient momentum to resume the move in the direction of the existing trend.

• Hence, the probability of price moving back down to the 61.8 level is quite remote…….which becomes the correct technical level to place the stop.


Fib projections –Fib projections –

• The Fibonacci projections are used to determine the expected price targets, once it has crossed the Fibonacci retracement levels.

• If we are anticipating price to begin an uptrend, we can use the last prominent down wave to determine the expected upside targets.

• Thus we are projecting the price action forward, using the last prominent moves.

Ideal situation to use in – • For estimating the price targets after the pullback is completed. We project the

price action forward, estimating that it will reach the fib levels.


Plotting Fib projections –Plotting Fib projections –

• The Fibonacci projection is calculated by taking two extreme points (usually a swing high and swing low) on the price movement and adding the key Fibonacci ratios of 1.272%, 1.618%, 2.000% & 261.8%.

• Once price has crossed the levels of the swing high or swing low, the above mentioned projection levels identify possible support and resistance levels.

• Of all the ratios, the 1.272% & 1.618% levels hold a lot of importance, since they usually act as very strong levels of resistance / support.


Example of Fib projections –Example of Fib projections –

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Elliot waves – Elliot waves – Go hand in glove with Fib retracements & projections. The waves adhere to these ratios quite accurately.


The Fib ratios applied to Elliot wavesThe Fib ratios applied to Elliot waves

• The Elliot waves always form within the parameters of the Fibonacci retracements and Fibonacci projections.

• Wave 2 is a sharp correction, which should retrace wave 1 by about 61.8% or 78.6% by price distance.

• Wave 3 would often be 200.0% to 261.8% projection of wave 1 – wave 2 by price distance.

• Wave 4 will very often retrace about 38.2% to 61.8% of wave 3 by price distance.

• Wave 5 would often be 127.2% to 161.8% projection of wave 3 by price distance. This last impulse wave 5 forms with reducing momentum thus creating a divergence setup.


The Fib ratios applied to Elliot wavesThe Fib ratios applied to Elliot waves


EndEnd

• I hope this presentation can help you gain that extra ‘Edge’ over the market.

• Visit my website for more educational and practical information on the correct use of technical analysis.

• We don’t just teach, but also implement the knowledge in the live market.

www.fibforex123.com www.fibforex123.com

Please feel free to contact me about further information at:

[email protected]@fibforex123.com

[email protected]@eth.net


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