Fibonacci TradingAuthor: Dr. D. Selzer-McKenzie Copyrriightt SellMcKenziie Publliisshiing Copy gh Se McKenz e Pub h ng 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 3 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 4 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. Example 2.764 level would have been a good short term trade. The market again pulled back right through the 0. The market pulled back right through the 0. Clearly buying at the 0.764 level before resuming its upward trend. buying at the 0. However. once the buying power was exhausted. we are looking for the market to retrace from the Swing High and find support at one of the Fibonacci levels. the market resumed its upward move. the Fibonacci Retracement Levels were plotted on the chart in the same manner as described in Example 1.The Truth About Fibonacci Trading Example 1.236 level and continued to pull back until it found temporary support at the 0. the market continued to retrace all the way down to the 0. After a few days.236 level and continued the next day through the 0.382 level before finding support. Again. .1: Now let's look at what actually happened after the Swing High occurred.50 level (a lot of buyers at this level).382 level would have been a good short term trade. In this case. Example 2: Again.1: Now let's look at what actually happened. 1 .The Truth About Fibonacci Trading Example 2 Example 2. The Truth About Fibonacci Trading Example 3: Here's another example. If the market retraces from the Swing High. where will it find support? Example 3 . 1: Well. Buying at this level would have been a great trade as the market gapped up a few days later. in this case the market found support at the 0.1 .The Truth About Fibonacci Trading Example 3. Example 3.50 level. Example 4 .The Truth About Fibonacci Trading Example 4: Here's one more example. 1 You can see from these examples that the market often finds at least temporary support at the Fibonacci Retracement Levels . there is no way of knowing which level will provide support.1: Whoops! The market gapped down through all levels of support and never looked back. while the other levels provide support with approximately the same frequency. First.not always.236 level seems to provide the weakest support.The Truth About Fibonacci Trading Example 4. but often. the market will not always resume its uptrend after finding temporary support. Second. A long trade here would have been a loser or at least an open lose position. Example 4. It should be apparent that there are a few problems to deal with here. but instead continue to decline below . The 0. Another is from the lowest Swing Low of the past 30 days. Thirdly. Another problem is determining which Swing Low to start from in creating the Fibonacci Retracement Levels. The point is.The Truth About Fibonacci Trading the last Swing Low. One way is from the last Swing Low as we did in the examples. placement of stops is a challenge . . and consequently it becomes a guessing game. there is no one right way to do it. but this requires accepting a high level of risk in proportion to the likely profit potential in the trade. .it is probably best to place stops below the last Swing Low. This will display each of the Extension Levels showing both the ratio and corresponding price level.1: Now let's look at what actually happened after the retracement Swing Low occurred. Let's take a look at some examples of markets in an uptrend. 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. but taking profits at the 1.67 and then down to the retracement Swing Low. .618 levels. Taking profits at the 0. The same points made by these examples are equally applicable to markets in a downtrend.000 level would have made a nice trade. Now the expectation is that if the market continues higher it will find resistance at one of the Fibonacci Levels. You can see the resultant levels plotted by the software. the general idea is to take profits on a long trade at a Fibonacci Price Extension Resistance Level. Example 5. The market rallied making new highs pausing at the 0.20 and dragged the cursor to the Swing High at about $47.The Truth About Fibonacci Trading Fibonacci Price Extension Levels In an uptrend. because traders will be placing sell orders at these levels to take profits on there long trades.000 level after a retracement down it rallied again going right through the 1.382 level and again at the 1.382 level would have been premature.382 and 1. Then by clicking on the Swing High and back down to the retracement Swing Low and clicking there. Example 5: Here we plotted the Fibonacci Price Extension Levels by clicking on the Swing Low at about $38. The Truth About Fibonacci Trading Example 5 Example 5.1 . 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. Example 6 .Example 6: Again. Again. 1: Now let's look at what actually happened.The Truth About Fibonacci Trading Example 6.000 level. Taking profits at the 0.382 level and the 0. The market rallied. .618 level.618 level was the optimal place to exit the long trade. Example 6.1 . This up move could well continue up to at least the 1. and then continued higher. making new highs and pausing between the 0.382 level would have been premature and only time will tell if taking profits at the 0. Will the market continue higher to one of the Fibonacci Price Extension Levels? Example 7 .The Truth About Fibonacci Trading Example 7: Here's another example. Example 7.382 level which would have been the place to take profits on any long trades.The Truth About Fibonacci Trading Example 7.1: Well in this case the market found resistance at the 0.1 . The Truth About Fibonacci Trading Example 8: Here's one more example.1 . Example 8. not always. Another problem is determining which Swing .1 You can see from these examples that the market often finds at least temporary resistance at the Fibonacci Extension Levels . Example 8. it should be apparent that there are a few problems to deal with here as well.The Truth About Fibonacci Trading Example 8. As in the examples of the Retracement Levels. the market found resistance at the 0. but often.382 level was a good level to cover any long trades in two of the examples. there is no way of knowing which level will provide resistance.382 level which would have been the place to take profits on any long trades. The 0. First.1: Like the last example. but in the other examples taking profits at that level would have been premature. 55. The higher the Fibonacci number. The lesson learned here is that Fibonacci Levels can be a useful tool. 3. You see. who was responsible for introducing the Hindu-Arabic numeral system we currently use to Europe. and consequently it becomes a guessing game.The Truth About Fibonacci Trading Low to start from in creating the Fibonacci Extension Levels. 1597………… Dividing a Fibonacci number by its immediate predecessor yields an approximation of the Golden Ratio (roughly 1. 89. is the sum of the two preceding numbers. 987. Fibonacci Levels are definitely useful as part of an effective trading method that includes other analysis and techniques. 1. the closer the approximation to the Golden Ratio becomes The sequence is named for medieval mathematician Leonardo of Pisa. the point is that there is no one right way to do it. Again. 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. However. Fibonacci’s namesake sequence stems from his solution to the . Alone. Roman numerals held sway. 34. 21. Fibonacci Retracements and Extensions. The sequence runs 0. Prior to Fibonacci. 13. 8. 2.6180327868852). 1. another is from the lowest Swing Low of the past 30 days. but never enter or exit a trade based on Fibonacci Levels alone. 233. 377. commonly known as Fibonacci. 5. Fibonacci Levels will not make you rich. 610. after two starting values. One way is from the last Swing Low as we did in the examples. 144. and How to Profit From Them with Precise Entry and Exits! Universal Origins The Fibonacci sequence is a mathematical sequence in which each number. All successful traders know it's how you use and integrate the indicators (including Fibonacci) that makes the difference. or more precisely the Golden Ratio.2% level and begin selling as the price approached the 61. Conversely.8% level. a technical trader might sell until the price declined to the 38. Fibonacci Extensions are. Extending the Fibonacci analysis allows technical traders to predict the next turning point. form the basis of a popular method of technical analysis. art and architecture and is often used as a guide for creating visually pleasing proportions. After a large price movement. The Golden Ratio shows up music. Fibonacci numbers.2%. it makes a prominent appearance in The DaVinci Code as the password that opens the codex Trading Applications In finance. The idea is that in the aftermath of a significant price movement. . usually 38.2% level and begin buying when it reached the 61. an extension of the same idea. if the price of a stock has recently shot up. the same trader might buy until the price recovered to the 38. although it has since been used in many other contexts. Technical traders have observed that after a period of retracement.8% level. appropriately enough. computer science and biology. which are percentages of the total price drop or gain. after a big decline.problem of modeling the growth of rabbit populations under ideal conditions. Perhaps because it is relatively easy to understand. 50% and 61. For example. Fibonacci Extension levels are calculated based on the original price movement. stock prices often resume moving in accordance with their original trend. technical traders pay particular attention to these retracement levels. For example. the Fibonacci sequence is also frequently referenced in pop culture. subsequent levels of support and resistance will form around ‘Fibonacci Significant’ numbers. Today Fibonacci numbers are used extensively in the study of mathematics.8%. a technical trader might begin buying when the price had subsequently declined to 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.8% extension level. it would be a mistake to dismiss Fibonacci methods as useless superstition. If enough traders use and act on Fibonacci analysis. After all. with the expectation being that after a retracement. the use of this analysis by many traders leads to an overall selffulfilling prophecy in stock prices. Fibonacci Effectiveness There is not any strictly rational reason why stock prices should behave as Fibonacci analysis predicts. the price decline will resume. even ill founded theories can move markets. Extensions are applied in a similar manner for price declines. then hold the stock until the price approached the 61. Regardless of whether or not Fibonacci naturally influences the market. rabbit population growth has very little to do with stock prices However.Having observed a major price increase in a stock. regardless of whether or not it has any rational basis.8% level. this does not in any way imply that we should expect it to play a role in financial markets. In the short term at least. the method will work. While it is true that the Golden Ratio appears frequently in nature. . they are a useful tool for predicting the behavior of many traders operating in the market. while Fibonacci retracements and extensions may not have any real basis from a strict financial analysis perspective. . For this reason. The key is to develop an understanding of how other traders are applying Fibonacci analysis. so now there are 2 pairs of rabbits in the field. How many pairs will there be in one year? At the end of the first month. While most attribute the Fibonacci Sequence to Leonardo. one female. Liber Abaci. This in turn improves the odds that Fibonacci analysis will be effective in predicting the future movements of that stock. At the end of the fourth month.. 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.Phenomena like this are not uncommon in markets. he was not responsible for discovering the sequence. If past price movements of a stock appear to conform to Fibonacci predictions. Who was Fibonacci? Leonardo Pisano. but there is still one only 1 pair. It was derived from his grandfather’s name and means son of Bonaccio. they mate. then it is likely that traders using Fibonacci analysis are active in the trading of that particular stock. The name Fibonacci itself was a nickname given to Leonardo. Target selection is also important. one female) every month from the second month on. Suppose a newly-born pair of rabbits. making 3 pairs in all in the field. was Italian mathematician born in Pisa during the The middle Ages. He was renowned as one of the most talented mathematicians of his day. The puzzle that Fibonacci posed was. and in fact.. Fibonacci retracements and extensions can be solid enhancer of trading profits. Suppose that our rabbits never die and that the female always produces one new pair (one male. are put in a field. the original female produces a second pair. In 1202 Leonardo published a book called. Fibonacci analysis can be an effective part of an overall trading strategy. In essence. At the end of the second month the female produces a new pair. Applied with a thorough understanding of how and where other traders are using it. the original female has . market psychology is a major focus of study in the field of Behavioral Economics. At the end of the third month. one male. In it he derived a method for calculating the growth of the rabbit population. the basics are simple.618 = 0. Gann and Ralph Nelson Elliot. Fibonacci as a Technical Analysis Tool While there have been countless books and articles written on the use of Fibonacci in technical analysis. when added to 0. 1+2=3.618. Up until the late 90s the tracking and use of these numbers were a manual process. The first three are shown below.produced yet another new pair. 1.38181 ~ 0. This mathematical progression is now recognized as the Fibonacci Sequence. software that automatically calculated and displayed these levels brought Fibonacci into the financial mainstream. 5. 89. 13. if you repeat this mathematical analysis through multiple sets of data.236 34/21 55/21 89/21 = 1. making 5 pairs.618 ratio occur throughout nature and the ratio is most referred to as The Golden Ratio. This number. equals 1.619 = 4. to infinity.23809 ~ 4. 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.619 = 2. These ratios have been used for over a hundred years in the financial markets by the likes of W. 2. While some are not exact. 144.23595 ~ 0.61904 ~ 2. This sequence has repeatedly appeared in popular culture from architecture to music to television. you will see we arrive at some well known and fairly consistent ratios. the female born two months ago produces her first pair also. each new number in the sequence is the sum of the previous two numbers. 3.61904 ~ 1. In our example. The uncurling of a fern and the patterns found on various mollusk shells are commonly cited examples of this ratio. 0+1 = 1. With the proliferation of real-time charting and data. 1+1=2. 233.61764 ~ 0. Starting with zero and adding one.382 = 0. While the series is a powerful tool. 21.238 he dimensional properties adhering to the 1. 55. 1.D. and so on. 21/34 21/55 21/89 = 0. The sequence of numbers looks like this: 0. 34. 2+3=5. 8. . the more accurate the retracement projections.On the price scale. by a ratio of the Fibonacci sequence.6% -. and several others related to the Fibonacci sequence. When Fibonacci levels of price and time coincide you have high probability entry points. simple is better. On the time scale Fibonacci ratios are one method of identifying potential market turning points. often indicate levels at which strong resistance and support will be found. • 23. . You will find Fibonacci Retracements as a solid tool in identifying key support and resistance areas. Fibonacci Retracements: The Fibonacci Retracement is probably the most heavily used Fibonacci tool in the toolset. high to low. the larger price move from swing high to swing low. 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. the expectation is that price should retrace distance. Breaking this level starts to erode the underlying trend.2% --. Many times. In very strong trending markets price typically quickly bounces in the area of this ratio. If prices have fallen from a recent swing high down to a swing low. Identification and selection of the correct swing points are keys to success. let’s focus on four major retracement levels.The shallowest of the retracements. It is important to note. • . markets tend to reverse right at levels that coincide with the Fibonacci ratios. 38. I have Fibonacci Retracements successfully used on tick charts through monthly and yearly charts. these ratios.This is the first line of defense of the current trend. While there are many variations of the ratio set. 50% and 61. Example 1: Take the example below.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.retracing to this typically signals a breakdown in the trend. 61. So I using swing points I placed a Fibonacci retracement on my chart .4278. This is the critical tipping point. So let’s take a look at some examples of Fibonacci Retracements in use. I use this set of retracements on a daily basis. The next day the EURUSD failed to make a new high and the potential swing point was in place. The EUR/USD had risen from 1.8% -.• 50% -.3360 to 1.8% quite reliable.2% 161.8% 200% Notice in each case we have simply added 100% to the standard ratio set. 100% -.the neutral point of any retracement. from 23.2%.I use the other primarily as confirmation levels.6% all the way to 200% and sometimes 300% For my style of trading I find 38. 6% level was met with a violent change in direction.6% level and the sudden reversal. While there are multiple entry methods. you can see in this example this could have been a serious winner. 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. With the right money management.The trend was obviously very strong and the first retracement to the 23. Figure 3 . You can see the dip below the 23. . Equities and Futures each exhibit these patterns to some degree.Once you understand the method you can find countless examples. You can see in this example there are multiple entry points for both trend and countertrend trades. FOREX. Figure 5 Let’s zoom in and look at the area highlighted in blue. Every market. Example 2: Let’s look at another example using the USDCAD. Fibonacci Ratios work on virtually any size price swing. Notice. we have shown some examples of well behaved price action. And multiple entry points from the same set Fibonacci Retracement levels . Ok.The chart below shows the Fibonacci Retracement applied to the smaller price swing. Figure 6 The blue ellipses show the high potential entry points. in each of these cases you could have entered the market with a relatively tight stop loss with high reward potential. Example 3: The example below shows the GBPUSD making a bottom and bouncing back. 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. Retracements are the cornerstone of Fibonacci theory as it applies to the financial markets. my defaults Fibonacci Retracements always include: 23. To recap.8% 100% 138. 50% and 61.2% 50% 61. This example shows why it is valuable to identify potential levels above and beyond the initial 100% retracement. . Hopefully these examples have provided guidance from which to draw your own retracements and expand your trading toolset.2%.8%.6% 38. However. Ultimately price jumped to the 138% point before backtracking.2% 161. This example shows yet another way to use Fibonacci Retracements.8% 200% You can never tell when price action it going blow well beyond the 100% level. while there are other retracement values. notice after the initial breakout above 100%. there were other opportunities to get in the trade. Each of these could have been entry points with solid profit potential.Of note are the high potential entry points at 38. 6% retracement from the swing high. 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.Fibonacci Price Extensions: Picking a high potential entry point is half the battle. Now it is time to figure out possible exit points. A swing high and swing low. We see in figure 3 the trade could have been a big winner. Like Fibonacci Retracements. Fibonacci Extensions take into account three price points. In our first example we entered a long position on the 23. How far can we expect the position to run? In Example 3. I use exactly the same set of Fibonacci levels when using Fibonacci Extensions. . we identified 3 potential entry points. Let’s go back and look at our first example. but how would we figure out potential exit points? Fibonacci Extensions! I find Fibonacci Extensions the most useful as a money management tool. plus the swing point where price reversed from a retracement. The last thing we want to do is turn a winner into a loser. while price did bounce to the 23.6% level. This is a trade that once you did not see a continuation through the 23.8% level. As price moved above the 23. I would start to bring my stop loss up in trail. but tools like Fibonacci Extensions help identify key levels from which stops can be placed. It was enough to make a profit. however. You can see in Figure 10. but it was not a major winner. I would continue to raise my stop as price increased. you could have take that as a cue to exit the . that after price penetrated the 100% Fibonacci Extension level. remaining in the initial trade would have proven to be frustrating. While during the consolidation there were obvious entry points.6% Fibonacci Extension level. We also identified 3 potential entry points. You can see in the next chart. The level of risk is entirely up to your trading plan. Accordingly. we entered into a period of consolidation. In Figure 7 we found the GBPUSD creating a bottom and breaking out to the upside. Let’s look at each of the entry points and use Fibonacci Extensions to project profit targets. In the first trade we entered the market thinking that a swing low was in place off the 38. Figure 9.2% Fibonacci Retracement level. Or at the very least move you stop up to maintain some level of profit. we sold short at the 50% Fibonacci Retracement level. . Moving on to the second entry point.position. This was obviously a solid entry point. In fact some would have taken profit at the 23. there were multiple exit points based on the Fibonacci Extensions. I believe that taking profit at any of the levels would have been a prudent strategy. Now let’s look at the final entry point from our Figure 7 example. Even the correct entry could have been painful. especially the 23. There are many ways to manage a trade like this without being overly tight with your stops. On the way down you can clearly see opportunity to tighten up your stop loss values. As you would expect using them together can be an incredibly powerful tool. We will discuss more on that in the next section.6% Fibonacci Extension level. That said after the prior ride. he 61.6% level. . Now we have gone through both Fibonacci Retracements and Extensions. if you did stick it out. I would not fault anyone for taking profit sooner. However.8% level would have been an ideal exit. This trade was by far the most troubling. this level became support and you could have safely used it as a very low risk entry point. These areas identify clusters of Fibonacci levels. I use multiple Fibonacci Retracements to determine entry and exit points. Often.6% and 38. In two of three cases you could have used this information for low risk short side entry points. In subsequent retracements. the 38. And then also combine Fibonacci Extensions. 5 & 6. n the figure above I have added two Fibonacci Retracements.8% cluster became resistance. In Figure 13 we see the dramatic fall of the USDCAD that we looked at from a different perspective in Figures 4. Additionally. Let’s look at an example where using multiple Fibonacci Retracements prove very useful.Fibonacci Clustering: In our previous examples we have seen how both Fibonacci Retracements and Fibonacci Extensions can be powerful tools on their own.2% and 61. Take special note to the two areas highlighted. The bounce off the bottom blew directly though the first cluster of 23.2%. . Therefore knowing these levels this early in the swing allows these levels to be predictive Now let’s add one more 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. You can also cluster multiple Fibonacci Extensions. In Figure 15 you see this in action. . For the patient trader. After practicing this method for a while. In the figure above I have added a third Fibonacci Retracement. 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. . Each of these groups represents low risk entry points. you can almost trade from pair to pair. As you can see by the previous two examples. you would want to initiate the position somewhere between the two levels. It really depends on the chart and the price action. In Figure 7 we looked at the Bottoming of the GBPUSD using one basic Fibonacci Retracement.In this chart you see two different sets of Fibonacci Extensions applied. it would be very easy to draw countless retracements and extensions on virtually any chart. with this type of setup. Additionally. two level groups. These additions are shown on our chart below. As you can see there are four. Let’s revisit GBPUSD on a bigger scale and add to our thesis. Ideally. 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. 61. While there are many variations of the ratio set. • 23. I think simple is better.8% -. In very strong trending markets price typically quickly bounces in the area of this ratio. • • • .retracing to this typically signals a breakdown in the trend. And each created a tradable opportunity.The shallowest of the retracements. Each of these clusters served as either support or resistance points. The Fibonacci Retracement is likely the most common of all Fibonacci related tools. 50% -.This is the first line of defense of the current trend. Fibonacci Retracements provide valuable insight and triggers on where high probability change will happen.the neutral point of any retracement. Summary: Fibonacci ratios are one of the most commonly used techniques in technical analysis of the financial markets.2% --. Breaking this level starts to erode the underlying trend.Take special notice of the Fibonacci clusters highlighted. This is the critical tipping point.6% -. 38. If you are already a successful trader or a trader just starting out. 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.2%. 38. If you then combine Fibonacci with other indicators like oscillators and moving averages.8% 200% Within this set. Dr.Matching the initial move 138. 50% and 61. Selzer-McKenzie The Author . While not perfect.8% I find quite reliable. you can quickly identify high potential risk/reward opportunities. D. Fibonacci Extensions provide guidance on where price will potentially stall or change direction. Used in combination.2% 161. Used as part of a money management strategy and as profit target projection tool.• • • • 100% -. they are one of the best tools available. these two ratio sets provide very tradable indicators of opportunity.