In recent months, I have added the use of Fibonacci to my trading. I have found that these levels are especially usefull when the match another level, perhaps support / Resistance or pivot. I am trading spot cable, using 1 and 5min charts for entries. Looking to trade mainly with the higher time frame trend (30min, 1 hour). Having read some books / web sites, which often differ, quite a bit, in approach, I have narrowed down my use to the following. Would be interested to hear comments: Fibonacci Retrace: ============== Levels in order of importance: 1st 50% 2nd 38.2% and 62.8% 3rd 23.6% 78.6% (I do not plot these) Strong trend, expect a retrace between 23.6% and 38.2% Weaker trend, expect a retrace between 50% and 61.8% Price moving through 61.8 signals a possible reversal I look for a confluence of levels, which should be stronger, than singles. For example taking the retracement levels from the same lows to 2/3 different highs and seeing if any of the levels are in the same zone. By a zone I mean within 5/6 pips. I always like to see if a retracement level is close to a pivot (Pivot, S1 S2, R1, R2) or a support or resistance level. Also to confirm with divergence for an entry. Fibonacci Extention: =============== I have not started implementing extentions yet, though my basic understanding is: Weak Trend: Seed move x 1.382 expectation Strong Trend: Seed move x 1.628 expectation
I have seen extensions in strong trending equity markets of 2.6 although they are not as common except on extended 5th waves. I have seen several ways of "pros" setting up for confluence and they use every significant low to a single high or the opposite in downtrend
I find the 78.6% fibo much more useful in Cable and Dollar-Swissie as they are two pairs that tend to overshoot...
Speaking of Fib, I understand how the numbers .236, .382, .5 and .618 relate to the golden ratio. Can someone explain to me why .764 is used as another level? (The 1-.236 = .764 relation sounds kinda weak to me). Some others use .786 as the square root of .618. According to me .786 has nothing to do with Fib or the Golden ration. Am I missing something?
you said it yourself...it is the square root of 61.8 (the golden ratio)..anything related to it tends to be much more powerful..