Fibonacci Trading
Fibonacci trading is to trading like a bee is to honey. The two go hand in hand. You may not know it right now, but if you currently trade you use Fibonacci trading tools already. You see trading with Fibonacci tools is simply a means of measuring potential reversals and extensions of price action. Fibonacci trading involves the most accurate means of doing so.
When price makes its way in any direction up or down a Fibonacci retracement measures its mark back to where it started. So let’s say price started at 40.00 and then went to 50. That’s a 10.00 move right? Well generally speaking after a move like that there tends to be a degree of profit taking from traders. People are going to start selling off and cashing in on the move.
When they do this price will begin to fall. If price falls to 45.00 we call this a pullback. In terms of Fibonacci trading this would be a 50% retracement. If it went just a little more it would likely go to right at 61.8%. Why? Because 61.8% is a very common Fibonacci retracement zone.
Now let’s say once again price started at 40.00 then went to 50.00. Over time let’s say price came back down to 50.00. This would be a 100% retracement. It started at 40.00 and now say 3 weeks later price is at 40.00 once again. This works just the same on an intraday chart price could be at 40.00, move to 40.75 retrace 100% back to 40.00
Now that is how a retracement works. Just remember this if you went on a hike and when you were done you realized you lost a set of keys what would you do? You would likely retrace your footsteps until you find the keys right? That’s how to easily remember what a retracement is.
IF price goes beyond 100% it’s called a Fibonacci extension. As you can see Fibonacci trading is not as difficult as you may have thought. Anytime price goes beyond 100% you get into extensions. Typical extensions are 161.8 and 261.8%.
The trick with Fibonacci trading and using the tools effectively is knowing where to measure your highs and lows. There is no hard fast rule, I like to lay out my tools and see where my lines fall. Remember that your goal is to forecast price action look at the past and see how effective the high and low you are using is working. I like to use a major recent high and a major recent low.
I will often use a few sets of Fibonacci lines and begin to look for areas where we get multiple retracement or extension levels.
You can be up to speed on how to apply these rules in a snap if you visit my site using one of the links below. I have prepared a manual and a Fibonacci trading system for free if you visit my site and sign up.
Fibonacci trading works and it works well. See for yourself.
By: Mark Deaton
