Fibonacci

[Dharmik Team 10]

In this article we will discuss about a widespread, well-known key element of technical analysis. Why do you think technical analysis especially some elements work so well for financial markets? Why do you think Fibonacci levels are usually strictly followed? Because thousands and billions of traders and computer programs for trading use these elements. This way everybody acts the same at the same time…

This is why we decided to present in the category of technical analysis, the most used and well-known methods of predicting financial evolution. These methods are easy to understand and are very efficient.

We will discuss about Fibonacci levels. We will find out what Fibonacci levels are and how they are calculated. We will use them in our charts and we will see how they act. We will discover how useful Fibonacci levels are and, at the end, we will draw the conclusions. We will use Fibonacci levels daily in our analyzing and trading system.

 

1. What are Fibonacci levels?

 

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.

 

 

2. How are Fibonacci levels calculated?

 

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 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 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.

 

 

3. Chart examples for Dow and e-mini S&P 500.

 

1. In the first example we have an ascending trend and a Fibonacci retracement of 38%. After the price went down 38% of the entire going up value, it returned to an uptrend. The 38% retrace is the best moment to initiate long positions.

 

 

2. Here the image is reverse. We have a downtrend, a 38% pull back and then the price continued to go down.

 

 

3. The price had a 50% retrace during an ascending trend.

 

 

4. The ascending trend had a 61% pull back.

 

 

5. The last example shows a good moment to enter long after a 50% retrace

 

 

 

4. Conclusions

 

a. Correctly used and followed, Fibonacci levels along other technical analysis and astrological analysis methods can offer complex and correct information for profitable transactions.

b. Trading methods based on Fibonacci levels can be found and can work very well. These methods can be harmoniously correlated with other methods of financial analysis resulting in a complete and complex trading system approaching financial reality.

c. We often use Fibonacci levels amongst other various methods of analysis that we will describe later.

 

 

Dharmik Team

[TimRacette 11]

Good post Dharmik, I personally use the 50%, 61.8% and -23% Fib lines in my own trading. They work very well.

[elovemer 10]

eminiaddict anyone ?

 

 

Good post Dharmik, I personally use the 50%, 61.8% and -23% Fib lines in my own trading. They work very well.

[TimRacette 11]

Yeah I picked up the -23% target from EminiAddict. I also pulled a lot from John Carter and Peter Reznicek over the years. Great stuff.

[elovemer 10]

yeah. who hasn't ?

 

that guy is a friggin genius.

 

Yeah I picked up the -23% target from EminiAddict. I also pulled a lot from John Carter and Peter Reznicek over the years. Great stuff.

[mitsubishi 24]

Good post Dharmik, I personally use the 50%, 61.8% and -23% Fib lines in my own trading. They work very well.

 

Could either yourself or dharmik give a mathmatical explanation as to why you believe 50% is a fib ratio?

[TimRacette 11]

Good point Mitsubishi, technically 50 is not the series being 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144...

 

I refer to it as a fib line only because it pull up my fib tool to display it. Really it's just a halfway back.

[mitsubishi 24]

Good point Mitsubishi, technically 50 is not the series being 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144...

 

I refer to it as a fib line only because it pull up my fib tool to display it. Really it's just a halfway back.

 

Thanks.I wonder why a level that is not a fib is built into a fib tool?.I did a quick search on google and this misinformation is everywhere i looked.

TA is not exactly a science in the first place,there's an art to it,and halfway back may work well on the instrument one is trading if you have satisfied yourself that is the case in backtesting.But with misinformation like this floating around,is it any wonder new traders are struggling?

[TimRacette 11]

I find that the 50% level or whichever method used for entry is just that, an entry signal. The difference is how each trader manages the trade once their in it.

[elovemer 10]

the 50% level is like a 51% level ... except it is less

[elovemer 10]

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49% is like 50% ... but it is less

[elovemer 10]

48% is a little less

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[elovemer 10]

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45% is less than 46%

[elovemer 10]

just checked out your video entitled " how i draw fib retracements "

 

complete rip off of eminiaddict technique.... even the language you use in the video is his words

...........shameful man... really shameful

 

....at the very least, you should give credit to where you are taking this technique from

 

.....not only do you not give credit in the video for someone else's technique, you completely rip the language the guy uses every day to explain the technique to his subscribers

 

all i can say is ... shameful

 

I find that the 50% level or whichever method used for entry is just that, an entry signal. The difference is how each trader manages the trade once their in it.

[TimRacette 11]

Elovemer, first of all the phrase halfway back and retracement don't belong to anyone in particular. Just type it in in Google or on YouTube and you'll find 100 videos and articles all talking about the same thing. Second I do give credit to Mr. Halsey, not only in other videos, but in posts I've written on TradersLab. Don't be so quick to judge.

[gianno 10]

The only valid Fib level is the 61.8%. 50% is not a Fib level. It is just a general retracement level.

 

Fib 61.8% is a support level. Not good for entries. Trade Fib and you lose big time.

[elovemer 10]

right.

and halfway back and retracement don't have anything to do with you ripping off someone else's existing technique.

 

you might give credit in BFE, but you don't state in your videos which are promoting your own vending, that you are actually selling someone else's technique.

 

you know very well that "halfway back and retracement" are not the reason why one technique stands apart from another fib technique.

 

and the fact that you are denying ripping him off, makes it that much worse.

 

you didn't write a Nirvana song, and you didn't come up with the -23% technique. Not stating as much in every single instance where you are selling the technique as your own, is a crime among vendors, of which you are one.

 

Elovemer, first of all the phrase halfway back and retracement don't belong to anyone in particular.

Just type it in in Google or on YouTube and you'll find 100 videos and articles all talking about the same thing.

Second I do give credit to Mr. Halsey, not only in other videos, but in posts I've written on TradersLab. Don't be so quick to judge.

[kuokam 10]

Well, some "say imitation is better than jalousy", don't you think?

 

just checked out your video entitled " how i draw fib retracements "

 

complete rip off of eminiaddict technique.... even the language you use in the video is his words

...........shameful man... really shameful

 

....at the very least, you should give credit to where you are taking this technique from

 

.....not only do you not give credit in the video for someone else's technique, you completely rip the language the guy uses every day to explain the technique to his subscribers

 

all i can say is ... shameful

[elovemer 10]

there is nothing worse than a vendor posing as a trader....

 

except for a vendor .... ripping off another vendor.

[TimRacette 11]

Ya again, I just use the fib tool to draw the half way back point, but 50% is not a Fibonacci #

[elovemer 10]

shill / vendor / rip-off artist

 

Ya again, I just use the fib tool to draw the half way back point, but 50% is not a Fibonacci #

[TimRacette 11]

Ha I'm not a vendor, look at how many thanks I've received here. My comments are genuine. I will leave it at that. Best of luck in your trading.

[Kiwi 16]

Ha I'm not a vendor, look at how many thanks I've received here. My comments are genuine. I will leave it at that. Best of luck in your trading.

 

 

Actually Tim, you are a vendor. :dito

 

At your site you sell at least one document. That makes you a vendor. Look it up in a dictionary if you don't believe me.

[elovemer 10]

Satan also receives many thanks and has genuine comments.

I can't stand vendors and I really can't stand rip-artist-vendors.

You just have no class man. If you did you would tell people that your methods are (borrowed) each and every place you are presenting them as your own (now).

 

Better yet, why not come up with something new that you created.

Then sell the crud out of it. Nobody would fault you there.

 

I won't bother you again... you know what you are doing.

Vending is a smart man's game, there is no risk involved. However don't rip off other vendors because that puts you below the level of a vendor.

Ha I'm not a vendor, look at how many thanks I've received here. My comments are genuine. I will leave it at that. Best of luck in your trading.