How The Pro’s Trade Using Fibonacci Retracements/Extension Technical Analysis


Hi Fellow Traders. Philip Thygesen here from
Stock-Market-Strategy. Before I start I just want to say that trading involves risk and
hard work. So please do your own due diligence before trading for real money. Today I am
going to talk about Fibonacci Retracements and Extensions. I will explain the theory
behind Fibonacci and then show you some charts about how Fibonacci works. Finally I will
give some tips about how to best use Fibonacci in conjunction with chart analysis. If you
go to our website www.stock-market-strategy.com you will find a tab called education, technical
analysis and Fibonacci Retracements/Extensions. Here you will find a written explanation including
an annotated chart. This is made to make it easy for you to keep track of the information.
You might even print this page out so you can have it in front of you while back testing
or writing your trading plan. Background Information About Fibonacci The Fibonacci sequence was
introduced to the West more than 800 years ago but we run into the Fibonacci sequence
on a daily basis such as playing card dimensions, Greek art, computer screen ratios, etc. Fibonacci
numbers are 0,1,2,3,5,8,13,21 and so on. It’s these numbers divided with each other that
give us the Fibonacci retracements and extensions areas. For example, the 62% retracement is
calculated by taking 13 divided with the next number in the Fibonacci sequence 21. So that’s
how we derive the 62% retracement. If you want to learn more about the calculation then
visit the website. Now with any support/resistance it’s important to understand that these Fibonacci
levels are more like zones. Price will often oscillate around these areas so they are not
hard reversal points but potential reversal points. It is therefore important to use Fibonacci
retracement with other indicators and/or chart analysis. Many traders keep an eye on these
numbers and that makes it a self-fulfilling prophecy. Support/resistance is about finding
areas price will bounce/reverse off. And you can do this by making qualified guess that
there will be many traders to buy/sell the securities at certain areas. If, for example,
you know the Fibonacci Retracement/Extension levels in advance you can predict where there
will be a larger than normal amount of buyers/sellers. How To Trade Using Fibonacci Retracement Here
is one way to use the Fibonacci Retracement for trading. This is a less known way to use
it but nevertheless it’s quite useful. Here we are seeing an uptrend in the stock. We
have a Fibonacci Retracement placed at the high of the move from the low of the move.
We see that we are forming a triangle but we are forming it above the 38%. This means
that the momentum is still strong to the upside because the pullback is less than 38% it’s
almost not pulling back. It shows the buyers are still very aggressive to buy every dip
there is. Here you see the same chart but I have added Fibonacci Extension. So let’s
continue our trade. We go from the low of the up move to the high and then down to the
low of the triangle. The low of the retracement. From there we predict the resistance areas
in this up move. So if you were long you would look at those areas to see if there were any
resistance so we need to book our profit. For example we predicted that there would
be more than a normal amount of sellers waiting because of the Fibonacci Extension. This is
where the self-fulfilling prophecy comes in. We see this bar forming and almost look like
a Doji. It opens, pushes up, pushes down, pushes up and closes almost unchanged. These
bars can be interpreted as a reversal bar. So when you see that happening at your extension
you get more evidence saying it might be a good time to book the profit or partial profit.
Trading Using Fibonacci Retracement/Extension With Chart Analysis Here is a third way to
use Fibonacci Retracement/Extension. I have combined them again but I am also using some
chart analysis. Here first we have our up move, up to the high and we see that it retraces
38% or around 38%. We also see that the Fibonacci Extension from that down move. If people were
short they might take the profit at the Fibonacci 62%. So we get confluence around this area.
And so add to that evidence we also come back to what were resistance is now support. People
who went short over here are happy to short cover their position when they get back to
breakeven. That’s why support is now working. And here we add all 3 things together to give
us a high odds entry. We are using Fibonacci Retracement of the overall move. We are using
Fibonacci Extension of the retracement move and we use normal chart analysis such as support
resistance. This gives a high odds trade. This ends today’s video. I hope you have enjoyed
it. Please remember to subscribe to the channel so you don’t miss out of future videos. Please
to subscribe to the free newsletter on our website www.stock-market-strategy.com.

53 thoughts on “How The Pro’s Trade Using Fibonacci Retracements/Extension Technical Analysis”

  1. You should try combining fibonacci retracements with fibo fans, fibo fans can explain a reason on why the price just seems to reverse even if it does not touch the fib retracement area yet.

  2. Wow the trader speaking sounds competent, and the information being talked about is actually useful in the real world/market, bravo.

  3. @meesphht Sorry to hear that. We are using black chart simply because it is easier on the eyes when we look at charts for so many hours.

  4. on the second part of the video,the head&shoulders pattern is obvious and thats a trade for a short positon,but this strategy is for a long position with fibs,so the two strateys are acutally conflicting,i spose it depends on which direction the larger time frames are going to make a final desision

  5. why all these people are so concerned about the software being used? It is all about your trading strategy and your skills which make you a good trader. Try to learn the video, Don't worry about the software. another great video by stockmarketstrategy.

  6. I agree. The software is only a tool in your trading. Even the best software out there will not make you profitable if you are lacking the education and/or discipline.

  7. Most people don't give information on the time frame of their chart analysis. I was wondering what general time from do you look at? Day? Months? Years?

  8. For trading, It's all about the experience, the more you work with it the better you get at it. But don't spend too much time in the game, cause it'll start to kill you. "words of wisdom from my father"

  9. Why do you set the retrace net top in the middle of the chart rather than at the top of the actual high bar? On the extension I see you did low bar to high bar to low retraced bar but on the fib retrace you didn't use the top of the high bar.

  10. If you are talking about approximately 1.10 mins in then it is simply to explain how the retracement works. If it was live trading then I would of course always use the recent price action.

  11. Normally you just take the low of the move and the high of the move. However sometimes you might adjust the low or high if the these are created on the basis of a spike in price. If price haven't really traded at the price more than a split second then you might want to take the close of that bar.

  12. excellent! i never understood the extension targets. Your extension from triangle makes sense. I am v. impressed. Specially recently i'm growing to view Fibonacci retrace/ext to be very powerful tool N may even in coming days call it THE main tool a trader should master. Would you agree? or do u have feel other ALT. tools think are better. Ofcourse the default understanding is NO tool tops the money mgmt/position sizing. your insight please.

  13. That first pull back that didnt reach the 38%, if you had the 23% line on then I guarantee it would of lined up with it when it pulled back, a 23% retracement is a ultimate uptrend, how come you dont use the 23%? and also the 76% is extremely useful after you predict the top of a trend you can go off 50% and tell a future low by dragging it down to the original 50% of the previous trend

  14. Yes Fibonacci is the main tool a trader should master, I've studied it a long time, it works so well if not perfectly if used properly because the universe is built around it, if that makes sense

  15. nice one. thanks
    Now I'm practicing with fibonacci on 1D and CSR on 4H, later will add fibonacci extension on 1D

  16. I only watched this once as a neophyte in the stock arena, but how is this anything more than numerology? I must be missing something. I guess if every single trader based their moves on this kind of indication it would be more useful, but psychologically that is absurd. I don't know, I must be missing something as this just seems ridiculous, heh.

  17. Can't argue with that.The more tech.stops are lined up at the same time,the harder it gets for the market to pull a surprise move on you,unless at the multi signal stop happens at a job number or CPI data release.Thankfully,they only happen,once a month.

  18. Real Pros don't use any of this stuff, not even charts…all the technical analysis junk is for retail traders that don't make money in trading.

  19. Interesting comments below. That being said, if anyone is looking for the actual link that is being talked about in the video, here it is:
    http://www.stock-market-strategy.com/?video=fibonacci

  20. What is the minimum timeline that you can trade, use Fibonacci?
    – Hour Bars or Day Bars or 15 minute intervals?

    Can Fibonacci be used on Equities? Or is it really just good for Currency?

  21. for the record you didn't specify how to draw the second fibonacci extension, which makes most of this pointless

    plus you should hide future performance so we can see how it would play out when you don't know imminent performance of the stock at hand. when it is clear that it will keep going up because you show it, that doesn't help someone who is looking at future periods with no filled in values(because it hasn't happened yet)

  22. Great video. In the 3rd example, (using the larger uptrend fib and the smaller retracement fib) what gave you the indication to draw the smaller blue one to where it was? The 0% is at the top of the correction but the 100% isn't in line with anything. Yes the 62% is in line with the bottom of the retracement but you can do draw the fib to line up like that with any graph.

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