Fibonacci for a Multi-Market Trader’s Approach

FIBONACCI TALKING POINTS:

– Fibonacci retracements can be applied to various markets in an effort to identify potential support or resistance levels.

– In this article, we look at how traders who follow multiple asset classes can apply Fibonacci analysis to their charts, building on the previous article in which we explored. the topic of confluence with Fibonacci retracements.

The field of market analytics is full of indicators and strategies with a multitude of ways to find out what to trade and how to do it. As a trader will often find very early on, this is more a study of probability than prediction; because analysis is mostly relegated to analyzing the past to get the clearest picture of the present. Sure, sometimes those trends that happened in the past will continue in a way similar to which they already came, allowing the trader to gather a bias that could be used for his strategies. But, in general, the main benefit of analysis, especially technical analysis, is as a risk management tool.

This is something explored in the DailyFX Traits of Successful Traders investigation. In the study, it becomes clear that “guessing” the market on a constant and continuous basis is not always a recipe for success, as suboptimal risk management could eliminate the benefit of a slightly favorable winning percentage. If you” I would like access to that research, the box below will allow that.

Here’s where support and resistance can come in. Support and resistance can help as a risk management mechanism because it provides a framework through which the trader can execute his strategy. Let’s say, for example, a trader is bullish EUR/USD but struggle with timing the trade or managing their risk. Rather than just chasing the move higher, as driven by FOMO (Fear of Missing Out), the trader can simply wait for some element of support to emerge, at which point bullish positions can be explored. The merchant can then execute an if-then statement: If the market remains bullish and if the pair will continue to build with a bullish structure, then this support should hold and I will be able to stay in business. Otherwise, the trade can be exited with the aim of mitigating loss, and the trader can simply look long at a more favorable price later.

HOW TO IDENTIFY SUPPORT AND RESISTANCE USING FIBONACCI

There are many ways to find support and resistance, and the mechanism for finding levels can vary from extremely simple to incredibly ornate. One of the seemingly more advanced methods is actually very simple to use, and this is rooted in the Fibonacci sequence of numbers. That sequence, or at least part of it, is as follows: 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377, 610, 987, 1597…

The next number in the sequence can be found by adding the previous two numbers, and this continues ad infinitum. What is interesting about the sequence are the mathematical relationships within. Each number is 1.618 times the value of the previous number. This is called ‘Phi’, or commonly known as The Golden Ratio, and this can be found all over the world before us: In architecture or art, or even in nature with the ratio of spirals in a pine cone or the reproductive cycle. of rabbits.

For traders, the importance of Fibonacci deals with the mathematical relationship within the sequence. Each number in the sequence (after the initial part) is 61.8% of the value of the next number. So, 34 divided by 55 is .618, and 55/89 is the same .618. This relationship will hold true into infinity, and this is a key variable in Fibonacci studies of traders.

This will often be planned as a 61.8% rebuke of a major move.

Taking this a step further, each number in the sequence divided by two numbers thereafter is 38.2%. So, 34 divided by 89 is .382, and 89 divided by 233 is the same.

This will also be plotted within a Fibonacci retracement study, and this will show at 38.2% of the analyzed move.

The 23.6% reprobate comes from taking any number in the sequence, and dividing it by the number three places to the right. So 34 divided by 144 is .236 and 55 divided by 233 is the same. Again, this relationship will hold into infinity, and this gives us another level of rebuke that we can add to our letters.

Collectively, this produces potential support/resistance levels based on the previous major move, and those ranges show at 23.6%, 38.2% and 61.8%, as shown below.

GBP/USD WEEKLY REPORT: FIBONACCI APPLIED TO “BREXIT MOVE” (RED)

Chart prepared by James Stanley with Tradingview Charts

TAKE IT a step further

If you’ve seen Fibonacci applied to a trading chart, you’ve probably seen a few more levels, and these are a little more subjective because they’re not “true” Fibonacci levels. The midway marker, or the 50% “retrace” is often a fixture on the chart. It has no Fibonacci value, and only marks the midpoint of the analyzed move.

Another common level that carries some value is 78.6. Adding this level to the Fibonacci retracement provides a sense of balance as there are two levels above and two levels below the 50% mark. The value of .786 does have some Fibonacci, because this is the square root of .618; and the 78.6% retracement will often be viewed for “deep” retracements or potential reversal plays.

HOW TO TRADE FIBONACCI SUPPORT AND RESISTANCE

Fibonacci retracement levels can be used as any other possible support or resistance mechanism: As a mere potential until it comes into play, at which point it offers the opportunity for a trader to execute an if-then statement. If support holds, then this trade could do well. If the support doesn’t hold, get out quickly and look for greener pastures elsewhere.

Making things more interesting is the subjective nature with which Fibonacci retracements can be applied. Traders can choose long-term major moves to look for levels of interest for a bigger picture strategy or even intraday levels for trading swings. Or, Fibonacci can be applied to shorter-term charts in an effort to find levels to base shorter-term themes and setups on.

The starting point for applying Fibonacci retracement is to find an important movement of a note, and then apply the indicator from the start point of the movement to the end. Below is Fibonacci retracement applied to GBP/USD, and focusing on the most important movement that was produced around Brexit. This takes the June 2016 high of 1.5006 down to the October low of the same year at 1.1950. Notice the horizontal lines drawn at specific intervals of 23.6, 38.2, 50, 61.8 and 78.6: These are each Fibonacci retracement levels with which traders can look for support and/or resistance as prices continue to turn.

GBP/USD WEEKLY PRICE CHART

Chart prepared by James Stanley with Tradingview charts

As can be seen from the chart above, the levels of rebuke produced by this major move continue to carry weight more than two years after the movement actually took off. Today’s near-term support comes at the same 38.2% retracement level of 1.3117 that has been in play for the past few weeks; and this comes after a somewhat aggressive bullish reversal built in from support at the 23.6% mark in mid-August of this year.

Returning to the month of April, there was a much different nuance in the A pound, and this is when the 78.6% retracement of that same Fibonacci study helped mark the annual high in the pair around 1.4350. This actually happened two separate times earlier in the year, as this resistance helped mark a double top formation before the big reversal started to show.

But even before that top was in place, when GBP/American dollar spent much of 2017 recovering from the Brexit-driven sell-off of 2016, that uptrend turned within that Fibonacci structure: Resistance at 23.6 followed by support at previous resistance. A similar case occurred at the 38.2% retracement, as well as the 50% midpoint of the main movement.

GBP/USD DAILY PRICE ARAB: FOCUS ON 2017 UPWARD MOVE IN GBP/USD

Chart prepared by James Stanley with Tradingview charts

APPLICATION IN SHARES

Fibonacci retracements can also be used across equity indices on both a short and long term basis. The earlier annual correction that took place in US stocks helped mark a 38.2% rebuke in the Dow Jones Industrial Averagetaking the low from the night of the 2016 Presidential election to the January, 2018 high.

DOW JONES DAILY PRICE ANNOUNCEMENT: PLUMAR CORRECTION MARKED BY 38.2% RETREAT FROM POST-ELECTION PAIR

Chart prepared by James Stanley with Tradingview charts

And on a shorter term, the recent sell-off in US stocks marked a 61.8% retracement of the previous bullish trend of Q3, and there were subsequent instances of short-term intra-day support and resistance at the 50. % and 38.2% signs.

DOW JONES FOUR-HOUR PRECAUTION: RETREAT FROM Q3 TREND HELPS AGRICULTURE CONCLUSION

Chart prepared by James Stanley with Tradingview charts