HELP...How to use FIBInacci Retracement

Discussion in 'Technical Analysis' started by increasenow, Apr 13, 2007.

  1. HELP! do you use FIB retracement lines...where do you start drawing and to what price etc.?...please provide a link if possible!thanks for your great help...INow
  2. jsmooth


    <U>Significant Highs & Lows...<B>Levels/Prices that OTHER TRADERS WILL ALSO USE/LOOK AT!</B></U> A 50% fib retacement is just a point were both the shorts from above the market and longs from below the market (both players who are making a profit) are squaring off (longer term players who are moving the market in that time frame); one side will end up winning depending on the new order flow that comes in at the 50% level. Thats why you get accelerated price movement at such price levels - (1) the losing side is quick to liquidate and lock in any remaining profits, (2) the new traders are trying to initiate positions on the retracement, and (3) traders from above (or below) the market are adding to their winning position.

    Look at the SP500 chart...the significant low on Sept 2006 and the Feb 2007 a fib study and you'll see that the 50% level is right around the March 2007 lows (after the market dive)...someone was buying into that collapse, it was a longer term player who was already long underneath the market)....what happened? The longer term players (traders who use weekly/monthly charts) bought that break down to the 50% fib level....who lost money? all the "late longs" - anyone who bought the market after Jan 1st 2007 and panic or had to liquidate into that decline (short term traders who couldnt withstand that swing/drawdown).

    Thats also why Fib studies dont always need to put them on time frames/price levels that other traders are also looking at (longer term players that are moving the market).