Then you want to see higher lows in the tight range. For example, if you see an extension as the price target, you can become so locked on that figure you are unable to close the trade waiting for bigger profits.

The Sequence and Ratios 

The key Fibonacci ratio of %, also referred to as

It works the same way with this aloe flower: Aloe Flower If we separate the aloe flower into even particles, following the natural curve of the flower, we will get the same This ratio is not only found in animals and flowers. This ratio is literally everywhere around us. It is in the whirlpool in the sink, in the tornados when looked at through satellite in space or in a water spiral.

The Fibonacci ratio is constantly right in front of us and we are subliminally used to it. Thus, the human eye considers objects based on the Fibonacci ratio as beautiful and attractive.

Also, big corporations like Apple and Toyota have built their logos based on the Fibonacci ratio. After all, these are two of the most attractive and engaging logos in the world. Fibonacci Ratios in Trading Trading with Fibonacci isn't complicated.

A logical method for entering a trade is when the stock is going through a pull back. Well where would you think to place your entry? That my friend makes you a Fibonacci trader. That's what Fibonacci trading is about, understanding stocks do not move in a linear fashion. Fibonacci helps new traders understand that stocks move in waves and the smaller the retracement, the stronger the trend. Now, it's time to take you to the level of an intermediate Fibonacci trader. To do this, you need to know the other two critical levels - Price action must be analyzed at these levels to understand if the countertrend move will stop and the trend will resume.

Fibonacci retracement levels are used by many retail and floor traders, therefore whether you trade using them or not, you should at least be aware of their existence. Some advanced traders will take it a step further and add Fibonacci arcs and Fibonacci fans to their trading arsenal in search of an edge.

In full disclosure, I do not use these advance techniques. The chart becomes too cluttered for me and I get lost in all the lines. Strong Uptrend The above chart is of Alphabet Inc.

These successive new highs with minor pullbacks is the sign you are in a strong uptrend. Choppy Market Do you see how each pullback is greater than This level of retracement repeatedly produces a choppy pattern.

Therefore, you would not want to have lofty profit targets on a trade while the stock is in a tight trading range. If you see retracements of That's it, you now understand how to use Fibonacci to define the strength in the market. Remember, the market is either trending or flat. If you are day trading, you will want to identify this setup on a 5-minute chart 20 to 30 minutes after the market opens. After identifying a strong uptrend observe how the stock behaves around the Once you see the trading activity slowing down or turning, enter the trade.

You can use the most recent high or a Fibonacci extension level as a target point to exit the trade. Buying Pullbacks In the above chart, notice how Alteryx stays above the Where Can Things Go Wrong? The chart above looks so clean and safe. Therefore, you need to prepare for when things go wrong. In a pullback trade, the likely issue will be the stock will not stop where you expect it to.

You can protect yourself from this scenario by doing the following: However, it's brutal if you are on the other side of the trade. Trade stocks with high volume and some volatility because we need to make a living, but don't feel like you must trade with the other gunslingers.

Max Time Loss I am always preaching this to anyone that will listen. If that is 5 minutes or one hour, this now becomes your time stop. Max Stop Loss There is no way around it, you will have blowup trades. Each term in this sequence is simply the sum of the two preceding terms 1, 1, 2, 3, 5, 8, 13, etc. But this sequence is not all that important; rather, it is the quotient of the adjacent terms that possesses an amazing proportion, roughly 1.

This proportion is known by many names: So, why is this number so important? Well, almost everything has dimensional properties that adhere to the ratio of 1. Take honeybees, for example. If you divide the female bees by the male bees in any given hive, you will get 1. Sunflowers, which have opposing spirals of seeds, have a 1. This same ratio can be seen in relationships between different components throughout nature.

Still don't believe it? Need something that's easily measured? Try measuring from your shoulder to your fingertips, and then divide this number by the length from your elbow to your fingertips. Or try measuring from your head to your feet, and divide that by the length from your belly button to your feet. Are the results the same? Somewhere in the area of 1. The golden ratio is seemingly unavoidable. But that doesn't mean that it works in finance … does it? Actually, the markets have the very same mathematical base as these natural phenomena.

These retracements can be combined with other indicators and price patterns to create an overall strategy. The Sequence and Ratios This article is not designed to delve too deep into the mathematical properties behind the Fibonacci sequence and Golden Ratio. There are plenty of other sources for this detail. A few basics, however, will provide the necessary background for the most popular numbers. Leonardo Pisano Bogollo , an Italian mathematician from Pisa, is credited with introducing the Fibonacci sequence to the West.

It is as follows: A number divided by the previous number approximates 1. The approximation nears 1. A number divided by the next highest number approximates. This is the basis for the A number divided by another two places higher approximates. Also, note that 1 -. The inverse of 1. These ratios can be found throughout nature, architecture, art, and biology.

The Greeks based much of their art and architecture upon this proportion. They called it the golden mean. Alert Zones Retracement levels alert traders or investors of a potential trend reversal, resistance area or support area. Retracements are based on the prior move. A bounce is expected to retrace a portion of the prior decline, while a correction is expected to retrace a portion of the prior advance. Once a pullback starts, chartists can identify specific Fibonacci retracement levels for monitoring.


How Reliable Is the Fibonacci Retracement in Predicting Stock Behavior? 

The Fibonacci Retracements Tool at StockCharts shows four common retracements: %, %, 50%, and %. From the Fibonacci section above, it is clear that %, %, and % stem from ratios found within the Fibonacci sequence. The 50% retracement is not based on a Fibonacci number.

Fibonacci retracement ratios are used as a trading strategy for the Forex market, Futures, Stock trading and even Options. While the 50% retracement level is talked about a lot, more importantly are the % and % but know that in the fibonacci sequence, these numbers do not show up. The key Fibonacci ratio of %, also referred to as "the golden ratio" or "the golden mean," is found by dividing one number in the series by the number that follows it. For example, 21 divided by 34 equals and 55 divided by 89 equals  

More Info

The Mathematics

The key Fibonacci ratio of % – also referred to as “the golden ratio” or “the golden mean” – is found by dividing one number in the series by the number that follows it. For example: 8/13 = , and 55/89 = Then, with a compass-like movement, three curved lines are drawn at %, 50% and % from the desired point. These lines anticipate the support and resistance levels, as well as areas of ranging.

I realize that not every trader is a fan of using Fibonacci levels. But after reading this blog article, I think that you might join us in saying this: The best target for Forex and financial trading is the % Fib. These levels are literally worth gold and I . Yes it returns % level, same as % one. Depends on how you are applying the retracement on a chart, from high to low or from low to high.

More Info
© 2018