Fibonacci Analysis

Fibonacci Analysis

The truth and power of proper Fibonacci Analysis

Fibonacci Analysis is the single best way to predict price action.  Through careful assessment of a longer time frame then the one you are trading you can quickly identify where price will goto next and where it will likely encounter resistance and reverse.

The proper way to implement Fibonacci analysis is by means of Fibonacci retracements and extensions.  These terms describe the two means of forecasting price action horizontally speaking.  Truthfully this is the only way I use Fibonacci anyway.

Horizontally, meaning horizontal lines across your chart.  A retracament is when price starts at a low or high then makes a new low or high and then begins to correct. The corrective wave is the retracement you are measuring and this type of Fibonacci analysis is measuring the move back to the start.

In other words if price makes it all the way back we would say that price has retraced 100%.

If however price makes it just halfwway back we would say price has retraced how much?

Thats right 50%.

Lets look at a 50% retracement… In the image below price starts at 100% comes down to 0% and begins to rise – retraceing its way back to 0%. Understand we didn’t lay down the Fibonacci levels until AFTER we reached 0% and began to retrace then and only then do we do our Fibonacci Analysis.  Notice at the 50% level price encounters serious resistance and fails to penetrate.

The proper way to implement Fibonacci analysis is by means of Fibonacci retracements and extensions.  These terms describe the two means of forecasting price action horizontally speaking.  Truthfully this is the only way I use Fibonacci anyway.

Horizontally, meaning horizontal lines across your chart.  A retracament is when price starts at a low or high then makes a new low or high and then begins to correct. The corrective wave is the retracement you are measuring and this type of Fibonacci analysis is measuring the move back to the start.

In other words if price makes it all the way back we would say that price has retraced 100%.

If however price makes it just halfwway back we would say price has retraced how much?

Thats right 50%.

Lets look at a 50% retracement… In the image below price starts at 100% comes down to 0% and begins to rise – retracing its way back to 0%. Understand we didn’t lay down the Fibonacci levels until AFTER we reached 0% and began to retrace then and only then do we do our Fibonacci Analysis.  Notice at the 50% level price encounters serious resistance and fails to penetrate.

Fibonacci Analysis

Fibonacci Analysis – What You’re Looking For

Your Fibonacci analysis should consist of learning how to properly identify Fibonacci retracements as well as Fibonacci extensions and thats it.  These levels are your key to forecasting high probability price reversals and continuations.

When you begin to analyze your chart using Fibonacci analysis understand that what you are looking for is simple confluence.  The heart of Fibonacci is really nothing more than support and resistance levels that have demonstrated hesitation or reversals at these levels you are looking at now.

The more you see in the past that concides with your current analysis the more you will realize that your analysis is accurate.  If the only time price is hitting a Fibonacci line is right now, then your analysis is likely innacurate.

So when you are doing your Fibonacci analysis make sure that the area you have identified as a retracement level is also a level that has been tested in the past and proven to be an important level.

Your job is to identify high odds places on the chart so you need this kind of agreement otherwise you may as well flip coins. :-)

Fibonacci Analysis is not a coin toss

When it comes to applying Fibonacci to your trades with a little practice you will be able to darn near pinpoint reversals and continuations.  Just take the time to understand retracements and extensions as they relate to price action and you will find the tool highly intuitive.

 

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