Fibonacci Who?

We will be using Fibonacci ratios a lot in our trading so you better learn it and love it like your mothers home cooking. Fibonacci is a huge subject and there are many different Fibonacci studies with weird-sounding names but were going to stick to two: retracement and extension.

Let us first start by introducing you to the Fib man himself Leonardo Fibonacci.

!o" Leonardo Fibonacci isnt some famous chef. #ctually" he was a famous $talian mathematician" also known as a su%er du%er uber ultra geek.

&e had an '#ha() moment when he discovered a sim%le series of numbers that created ratios describing the natural %ro%ortions of things in the universe.

*he ratios arise from the following number series: +" ," ," -" ." /" 0" ,." -," .1" //" 02" ,11

*his series of numbers is derived by starting with + followed by , and then adding + 3 , to get ," the third number. *hen" adding the second and third number 4, 3 ,5 to get -" the fourth number" and so on.

After the first few numbers in the sequence, if you measure the ratio of any number to the succeeding higher number, you get .618. For examp e, !" di#ided by $$ equa s .618.

$f you measure the ratio between alternate numbers you get ..0-. For exam%le" .1 divided by 02 6 +..0- and thats as far as into the ex%lanation as well go.

*hese ratios are called the 'golden mean). 7kay thats enough mumbo jumbo. With all those numbers" you could %ut an ele%hant to slee%. Well just cut to the chase8 these are the ratios you &#9: to know:

Fibonacci %etracement &e#e s

*he ratios arise from the following number series: +" ," ," -" ." /" 0" ,." -," .1" //" 02" ,11

+.-.;4from .1<,115" +..0-4from .1<025" +./++4from44.13//5<-5<025" +.;,04from4.1<//5" +.=;14from 4//<44//3025<-555" ,..0-4from 44.13025<025" ,.;,04from 4,11<025

Fibonacci 'xtension &e#e s

(, (.!8), (.618, 1.(((, 1.!8), 1.618

>ou wont really need to know how to calculate all of this. >our charting software will do all the work for you. ?esides" weve got a nice Fibonacci calculator that can magically calculate those levels for you. &owever" its always good to be familiar with the basic theory behind the indicator so youll have the knowledge to im%ress your date.

*raders use the Fibonacci retracement levels as %otential support and resistance areas. @ince so many traders watch these same levels and %lace buy and sell orders on them to enter trades or %lace sto%s" the su%%ort and resistance levels tend to become a self-fulfilling %ro%hecy.

*raders use the Fibonacci extension levels as profit ta*ing e#e s. #gain" since so many traders are watching these levels to %lace buy and sell orders to take %rofits" this tool tends to work more often than not due to self-fulfilling ex%ectations.

Aost charting software includes both Fibonacci retracement levels and extension level tools. $n order to app y Fibonacci e#e s to your charts, you+ need to identify ,wing -igh and ,wing &ow points.

# @wing &igh is a candlestick with at least two lower highs on both the left and right of itself.

# @wing Low is a candlestick with at least two higher lows on both the left and right of itself.

>ou got all thatB Cont worry" well ex%lain retracements" extensions" and most im%ortantly" how to grab some %i%s using the Fib tool in the following sections.

Fibonacci %etracement

.he first thing you shou d *now about the Fibonacci too is that it wor*s best when the mar*et is trending. *he idea is to go long 4or buy5 on a retracement at a Fibonacci su%%ort level when the market is trending u%" and to go short 4or sell5 on a retracement at a Fibonacci resistance level when the market is trending down. $n order to find these retracement levels" you have to find the recent significant @wing &ighs and @wings Lows. *hen" for downtrends" click on the @wing &igh and drag the cursor to the most recent @wing Low. For u%trends" do the o%%osite. Dlick on the @wing Low and drag the cursor to the most recent @wing &igh. Eot thatB !ow" lets take a look at some exam%les on how to a%%ly Fibonacci retracements levels in the markets.

Uptrend
*his is a daily chart of #FC<F@C.

Here we plotted the Fibonacci retracement Levels by clicking on the Swing Low at .6955 on April 2 and dragging the c!rsor to the Swing High at ."26# on $!ne %. &ada' &he so(tware magically shows yo! the retracement levels.

As yo! can see (rom the chart) the retracement levels were .*955 +2%.6,-) .**6# +%".2,-) . *6 9 +5 . ,-) .*#5# +6..",-) and .*26% +*6.#,-. /ow) the e0pectation is that i( A1231S2 retraces (rom the recent high) it will (ind s!pport at one o( those Fibonacci levels beca!se traders will be placing b!y orders at these levels as price p!lls back. /ow) let4s look at what happened a(ter the Swing High occ!rred.

5rice p!lled back right thro!gh the 2%.6, level and contin!ed to shoot down over the ne0t co!ple o( weeks. 6t even tested the %".2, level b!t was !nable to close below it. Later on) aro!nd $!ly .#) the market res!med its !pward move and event!ally broke thro!gh the swing high. 7learly) buying at the 38.2% Fibonacci level would have been a profitable long term trade! Downtrend /ow) let4s see how we wo!ld !se the Fibonacci retracement tool d!ring a downtrend. 8elow is a #9ho!r chart o( :1;31S2.

As yo! can see) we (o!nd o!r Swing High at ..#.95 on $an!ary 26 and o!r Swing Low at ..%"5# a (ew days later on Febr!ary 2. &he retracement levels are ..%9%% +2%.6,-) ..%9"% +%".2,-) ..# 2% +5 . ,-) ..# 6# +6..",- and ..#..# +*6.#,-. &he e0pectation (or a downtrend is that i( price retraces (rom this low) it will enco!nter resistance at one o( the Fibonacci levels beca!se traders will be ready with sell orders there. Let4s take a look at what happened ne0t.

>owGa" isnt that a thing of beautyB( *he market did try to rally" stalled below the .0.-H level for a bit before testing the /+.+H level. $f you had some orders either at the .0.-H or /+.+H levels" you wouldve made some mad %i%s on that trade. $n these two exam%les" we see that %rice found some tem%orary su%%ort or resistance at Fibonacci retracement levels. ?ecause of all the %eo%le who use the Fibonacci tool" those levels become selffulfilling su%%ort and resistance levels. 7ne thing you should take note of is that %rice wont always bounce from these levels. *hey should be looked at as areas of interest" or as Dyclo%i% likes to call them" '/0&& 123',4) Well teach you more about that later on. For now" theres something you should always remember about using the Fibonacci tool and its that they are not always sim%le to use( $f they were that sim%le" traders would always %lace their orders at Fib levels and the markets would trend forever. $n the next lesson" well show you what can ha%%en when Fibonacci levels fail.

When Fibonacci Fai s

?ack in Erade ," we said that su%%ort and resistance levels eventually break. Well" seeing as how Fibonacci levels are used to find su%%ort and resistance levels" this also a%%lies to Fibonacci( !ow" lets go through an exam%le when the Fibonacci retracement tool fails.

?elow is a 1-hour chart of E?I<F@C. &ere" you see that the %air has been in downtrend" so you decided to take out your Fibonacci tool to hel% you s%ot a good entry %oint. >ou use the @wing &igh at ,./.0." with a swing low at ,.1=22. >ou see that the %air has been stalling at the /+.+H level for the %ast cou%le of candles. >ou say to yourself" '7h man" that /+.+H Fib level( $ts holding baby( *ime to short this sucka() >ou short at market and start day dreaming that youll be driving down Jodeo Crive in your new Aaserati with @carlett Kohansson 4or if youre a lady trader" Jobert Iattinson5 in the %assenger seat

!ow" if you really did %ut an order at that level" not only would your dreams go u% in smoke" but your account would take a serious hit if you didnt manage your risk %ro%erly( *ake a look at what ha%%ened.

$t turns out that that @wing Low was the bottom of the downtrend and market began to rally above the @wing &igh %oint. Whats the lesson hereB Whi e Fibonacci e#e s gi#e you a higher probabi ity of success, i*e other technica too s, they don+t a ways wor*. 5ou don+t *now if price wi re#erse to the !8.)6 e#e before resuming the trend. ,ometimes it may hit $(.(6 or the 61.86 e#e s before turning around. -ec*, sometimes price wi 7ust ignore 8r. Fibonacci and b ow past a the e#e s 7ust i*e how &ebron 9ames bu ies his way through the ane with sheer force. %emember, the mar*et wi not a ways resume its uptrend after finding temporary support or resistance, but instead continue to go past the recent ,wing -igh or &ow. Another common prob em in using the Fibonacci too is determining which ,wing &ow and ,wing -igh to use. Ieo%le look at charts differently" look at different time frames" and have their own fundamental biases. $t is likely that @te%hen from Ii%buktu and the girl from Ii%anema have different ideas of where the @wing &igh and @wing Low %oints should be. *he bottom line is that there is no absolute right way to do it" es%ecially when the trend on the chart isnt so clear. @ometimes it becomes a guessing game. *hats why you need to hone your skills and combine the Fibonacci tool with other tools in your forex toolbox to hel% give you a higher %robability of success. $n the next lesson" well show you how to use the Fibonacci tool in combination with other forms of su%%ort and resistance levels and candlesticks.

Combining Fibs with upport and !esistance Like we said in the previo!s section) !sing Fibonacci levels can be very s!b<ective. However) there are ways that yo! can help tilt the odds in yo!r (avor. =hile the Fibonacci tool is e0tremely !se(!l) it sho!ldn4t be !sed all by its lonesome sel(. 6t4s kinda like comparing it to /8A s!perstar >obe 8ryant. >obe is one o( the greatest basketball players o( all time) b!t even he co!ldn4t win those titles by himsel(. He needs some back!p. Similarly) the Fibonacci tool sho!ld be !sed in combination with other tools. 6n this section) let4s take what yo!4ve learned so (ar and try to combine them to help !s spot some sweet trade set!ps. Are y4all ready? Let4s get this pip show on the road' @ne o( the best ways to !se the Fibonacci tool is to spot potential s!pport and resistance levels and see i( they line !p with Fibonacci retracement levels. 6( Fib levels are already s!pport and resistance levels) and yo! combine them with other price areas that a lot o( other traders are watching) then the chances o( price bo!ncing (rom those areas are m!ch higher. Let4s look at an e0ample o( how yo! can combine s!pport and resistance levels with Fib levels. 8elow is a daily chart o( 1S237HF.

As yo! can see) it4s been on an !ptrend recently. Look at all those green candles' Ao! decide that yo! want to get in on this long 1S237HF bandwagon. 8!t the B!estion is) C=hen do yo! enter?D Ao! b!st o!t the Fibonacci tool) !sing the low at .. .%2 on $an!ary .. (or the Swing Low and the high at .. "99 on Febr!ary .9 (or the Swing High. /ow yo!r chart looks pretty sweet with all those Fib levels.

/ow that we have a (ramework to increase o!r probability o( (inding solid entry) we can answer the B!estion C=here sho!ld yo! enter?D Ao! look back a little bit and yo! see that the .. 5. price was good resistance level in the past and it <!st happens to line !p with the 5 . , Fib retracement level. /ow that it4s broken) it co!ld t!rn into s!pport and be a good place to b!y.

6( yo! did set an order somewhere aro!nd the 5 . , Fib level) yo!4d be a pretty happy camper' &here wo!ld have been some pretty tense moments) especially on the second test o( the s!pport level on April .. 5rice tried to pierce thro!gh the s!pport level) b!t (ailed to close below it. :vent!ally) the pair broke past the Swing High and res!med its !ptrend. Ao! can do the same set!p on a downtrend as well. &he point is yo! sho!ld look (or price levels that seem to have been areas o( interest in the past. 6( yo! think abo!t it) there4s a higher chance that price will bo!nce (rom these levels. =hy? First) as we disc!ssed in Erade .) previo!s s!pport or resistance levels wo!ld be good areas to b!y or sell beca!se other traders will also be eyeing these levels like a hawk. Second) since we know that a lot o( traders also !se the Fibonacci tool) they may be looking to <!mp in on these Fib levels themselves. =ith traders looking at the same s!pport and resistance levels) there4s a good chance that there are a ton o( orders at those price levels. =hile there4s no g!arantee that price will bo!nce (rom those levels) at least yo! can be more con(ident abo!t yo!r trade. A(ter all) there is strength in n!mbers' ;emember that trading is all abo!t probabilities. 6( yo! stick to those higher probability trades) then there4s a better chance o( coming o!t ahead in the long r!n. Combining Fibs with "rend #ines

Another good tool to combine with the Fibonacci tool is trend line analysis. A(ter all) Fibonacci levels work best when the market is trending) so this makes a lot o( sense' ;emember that whenever a pair is in a downtrend or !ptrend) traders !se Fibonacci retracement levels as a way to get in on the trend. So why not look (or levels where Fib levels line !p right smack with the trend? Here4s a .9ho!r chart o( A123$5A. As yo! can see) price has been respecting a short term rising trend line over the past co!ple o( days.

Ao! think to yo!rsel() CHmm) that4s a sweet !ptrend right there. 6 wanna b!y A123$5A) even i( it4s <!st (or a short term trade. 6 think 64ll b!y once the pair hits the trend line again.D 8e(ore yo! do that tho!gh) why don4t yo! reach (or yo!r (ore0 tool bo0 and get that Fibonacci tool o!t? Let4s see i( we can get a more e0act entry price.

Here we plotted the Fibonacci retracement levels by !sing the Swing low at "2.6. and the Swing High at "%."#. /otice how the 5 . , and 6..", Fib levels are intersected by the rising trend line. 7o!ld these levels serve as potential s!pport levels? &here4s only one way to (ind o!t'

E!ess what? &he 6..", Fib level held) as price bo!nced there be(ore heading back !p. 6( yo! had set some orders at that level) yo! wo!ld have had a per(ect entry' A co!ple o( ho!rs a(ter to!ching the trend line) price Foomed !p like Astroboy on ;ed 8!ll) b!rsting thro!gh the Swing High. Aren4t yo! glad yo!4ve got this in yo!r (ore0 toolbo0 now? As yo! can see) it does pay to make !se o( the Fibonacci tool) even i( yo!4re planning to enter on a retest o( the trend line. &he combination o( both a diagonal and a horiFontal s!pport or resistance level co!ld mean that other traders are eying those levels as well. &ake note tho!gh) as with other drawing tools) drawing trend lines can also get pretty s!b<ective. Ao! don4t know e0actly how other traders are drawing them) b!t yo! can co!nt on one thing G that there4s a trend' 6( yo! see that a trend is developing) yo! sho!ld be looking (or ways to go long to give yo! a better chance o( a pro(itable trade. Ao! can !se the Fibonacci tool to help yo! (ind potential entry points. Combining Fibs with Candlestic$s 6( yo!4ve been paying attention in class) yo!4d know by now that yo! can combine the Fibonacci tool with s!pport and resistance levels and trend lines to create a simple b!t s!per awesome trading strategy. 8!t we ain4t done yet' 6n this lesson) we4re going to teach yo! how to combine the Fibonacci tool with yo!r knowledge o( $apanese candlestick patterns that yo! learned in Erade 2. 6n combining the Fibonacci tool with candlestick patterns) we are act!ally looking (or e0ha!stive candlesticks. 6( yo! can tell when b!ying or selling press!re is e0ha!sted) it can give yo! a cl!e o( when price may contin!e trending. =e here at 8aby5ips.com like to call them CFibonacci 7andlesticks)D or CFib SticksD (or short. 5retty catchy) eh? Let4s take a look at an e0ample to make this clearer. 8elow is a .9ho!r chart o( :1;31S2.

&he pair seems to have been in a downtrend the past week) b!t the move seems to have pa!sed (or a bit. =ill there be a chance to get in on this downtrend? Ao! know what this means. 6t4s time to take the Fibonacci tool and get to work' As yo! can see (rom the chart) we4ve set o!r Swing High at ..%%6# on Harch %) with the Swing Low at ..252% on Harch 6. Since it4s a Friday) yo! decided to <!st chill o!t) take an early day o(() and decide when yo! wanna enter once yo! see the charts a(ter the weekend.

=hoa' 8y the time yo! popped open yo!r charts) yo! see that :1;31S2 has shot !p B!ite a bit (rom its Friday closing price. =hile the 5 . , Fib level held (or a bit) b!yers event!ally took the pair higher. Ao! decide to wait and see whether the 6..", Fib level holds. A(ter all) the last candle was pretty b!llish' =ho knows) price <!st might keep shooting !p'

=ell) will yo! look at that? A long legged do<i has (ormed right smack on the 6..", Fib level. 6( yo! paid attention in Erade 2) yo!4d know that this is an Ce0ha!stive candle.D Has b!ying press!re died down? 6s resistance at the Fib level holding? 6t4s possible. @ther traders were probably eyeing that Fib level as well. 6s it time to short? Ao! can never know (or s!re +which is why risk management is so important-) b!t the probability o( a reversal looks pretty darn good'

6( yo! had shorted right a(ter that do<i had (ormed) yo! co!ld have made some serio!s pro(its. ;ight a(ter the do<i) price stalled (or a bit be(ore heading straight down. &ake a look at all those red candles' 6t seems that b!yers were indeed pretty tired) which allowed sellers to <!mp back in and take control. :vent!ally) price went all the way back down to the Swing Low. &hat was a move o( abo!t 5 pips' &hat co!ld4ve been yo!r trade o( the year' Looking (or CFib SticksD can be really !se(!l) as they can signal whether a Fib level will hold. 6( it seems that price is stalling on a Fib level) chances are that other traders may have p!t some orders at those levels. &his wo!ld act as more con(irmation that there is indeed some resistance or s!pport at that price. Another nice thing abo!t Fib Sticks is that yo! don4t need to place limit orders at the Fib levels. Ao! may have some concerns whether the s!pport or resistance will hold since we are looking at a CFoneD and not necessarily speci(ic levels. &his is where yo! can !se yo!r knowledge o( candlestick (ormations. Ao! co!ld wait (or a Fib Stick to (orm right below or above a Fib level to give yo! more con(irmation on whether yo! sho!ld p!t in an order. 6( a Fib stick does (orm) yo! can <!st enter a trade at market price since yo! now have more con(irmation that level co!ld be holding.

Fibonacci %&tensions

&he ne0t !se o( Fibonacci will be !sing them to (ind targets. Eotta always keep in mind CIombieland ;!les o( S!rvival J22K G =hen in do!bt) know yo!r way o!t' Let4s start with an e0ample in an !ptrend. 6n an !ptrend) the general idea is to take pro(its on a long trade at a Fibonacci 5rice :0tension Level. Ao! determine the Fibonacci e0tension levels by !sing three mo!se clicks. First) click on a signi(icant Swing Low) then drag yo!r c!rsor and click on the most recent Swing High. Finally) drag yo!r c!rsor back down and click on any o( the retracement levels. &his will display each o( the 5rice :0tension Levels showing both the ratio and corresponding price levels. 5retty neat) h!h? Let4s go back to that e0ample with the 1S237HF chart we showed yo! in the previo!s lesson.

&he 5 . , Fib level held strongly as s!pport and) a(ter three tests) the pair (inally res!med its !ptrend. 6n the chart above) yo! can even see price rise above the previo!s Swing High. Let4s pop on the Fibonacci e0tension tool to see where wo!ld have been a good place to take o(( some pro(its.

Here4s a recap o( what happened a(ter the retracement Swing Low occ!rredL

5rice rallied all the way to the 6..", level) which lined !p closely with the previo!s Swing High. 6t (ell back to the %".2, level) where it (o!nd s!pport 5rice then rallied and (o!nd resistance at the . , level.

A co!ple o( days later) price rallied yet again be(ore (inding resistance at the .6..", level. , and .6..", levels all wo!ld have been

As yo! can see (rom the e0ample) the 6..",) . good places to take o(( some pro(its.

/ow) let4s take a look at an e0ample o( !sing Fibonacci e0tension levels in a downtrend. 6n a downtrend) the general idea is to take pro(its on a short trade at a Fibonacci e0tension level since the market o(ten (inds s!pport at these levels.

Let4s take another look at that downtrend on the .9ho!r :1;31S2 chart we showed yo! in the Fib Sticks lesson.

Here) we saw a do<i (orm <!st !nder the 6..", Fib level. 5rice then reversed as sellers <!mped back in) and bro!ght price all the way back down to the Swing Low. Let4s p!t !p that Fib :0tension tool to see where wo!ld have been some good places to take pro(its had we shorted at the 6..", retracement level.

Here4s what happened a(ter price reversed (rom the Fibonacci retracement levelL

5rice (o!nd s!pport at the %".2, level &he 5 . , level held as initial s!pport) then became an area o( interest &he 6..", level also became an area o( interest) be(ore price shot down to test the previo!s Swing Low 6( yo! look ahead) yo!4ll (ind o!t that the . , e0tension level also acted as s!pport

=e co!ld have taken o(( pro(its at the %".2,) 5 . ,) or 6..", levels. All these levels acted as s!pport) possibly beca!se other traders were keeping an eye o!t (or these levels (or pro(it taking as well. &he e0amples ill!strate that price (inds at least some temporary s!pport or resistance at the Fibonacci e0tension levels G not always) b!t o(ten eno!gh to correctly ad<!st yo!r position to take pro(its and manage yo!r risk. @( co!rse) there are some problems to deal with here. First) there is no way to know which e0act Fibonacci e0tension level will provide resistance. Any o( these levels may or may not act as s!pport or resistance.

Another problem is determining which Swing Low to start (rom in creating the Fibonacci e0tension levels. @ne way is (rom the last Swing Low as we did in the e0amplesM another is (rom the lowest Swing Low o( the past % bars. Again) the point is that there is no one right way to do it) b!t with a lot o( practice) yo!4ll make better decisions o( picking Swing points. Ao! will have to !se yo!r discretion in !sing the Fibonacci e0tension tool. Ao! will have to <!dge how m!ch longer the trend will contin!e. Later on) we will teach yo! methods to help yo! determine the strength o( a trend. For now) let4s move on to stop loss placement' 'lacing tops with Fibs

5robably <!st as important as knowing where to enter or take o(( pro(its is knowing where to place yo!r stop loss. Ao! can4t <!st enter a trade based on Fib levels witho!t having a cl!e where to e0it. Ao!r acco!nt will <!st go !p in (lames and yo! will (orever blame Fibonacci) c!rsing his name in 6talian. 6n this lesson) yo!4ll learn a co!ple o( techniB!es to set yo!r stops when yo! decide to !se them tr!sty Fib levels. &hese are simple ways to set yo!r stop and the rationale behind each method. &he (irst method is to set yo!r stop <!st past the ne0t Fibonacci level. 6( yo! were planning to enter at the %".2, Fib level) then yo! wo!ld place yo!r stop beyond the 5 . , level. 6( yo! (elt like the 5 . , level wo!ld hold) then yo!4d p!t yo!r stop past the 6..", level and so on and so (orth. Simple) right? Let4s take another look at that #9ho!r :1;31S2 chart we showed yo! back in the Fibonacci retracement lesson.

6( yo! had shorted at the 5 . ,) yo! co!ld have placed yo!r stop loss order <!st past the 6..", Fib level. &he reasoning behind this method o( setting stops is that yo! believed that the 5 . , level wo!ld hold as a resistance point. &here(ore) i( price were to rise beyond this point) yo!r trade idea wo!ld be invalidated. &he problem with this method o( setting stops is that it is entirely dependent on yo! having a per(ect entry. Setting a stop <!st past the ne0t Fibonacci retracement level ass!mes that yo! are really con(ident that the s!pport or resistance area will hold. And) as we pointed o!t earlier) !sing drawing tools isn4t an e0act science. &he market might shoot !p) hit yo!r stop) and event!ally go in yo!r direction. &his is !s!ally when we4d go to a corner) and start hitting o!r head on the wall. =e4re <!st warning yo! that this might happen) sometimes a (ew times in a row) so make s!re yo! limit yo!r losses B!ickly and let yo!r winners r!n with the trend. 6t might be best i( yo! !sed this type o( stop placement method (or short term) intraday trades. /ow) i( yo! want to be a little sa(er) another way to set yo!r stops wo!ld be to place them past the recent Swing High or Swing Low. &his type o( stop loss placement wo!ld give yo!r trade more room to breathe and give yo! a better chance (or the market to move in (avor o( yo!r trade.

6( the market price were to s!rpass the Swing High or Swing Low) it may indicate that a reversal o( the trend is already in place. &his means that yo!r trade idea or set!p is already invalidated and that yo!4re too late to <!mp in. Setting larger stop losses wo!ld probably be best !sed (or longer term) swing9type trades) and yo! can also incorporate this into a Cscaling inD method) which yo! will learn later on in this co!rse. @( co!rse) with a larger stop) yo! also have to remember to ad<!st yo!r position siFe accordingly. 6( yo! tend to trade the same position siFe) yo! may inc!r large losses) especially i( yo! enter at one o( the earlier Fib levels. &his can also lead to some !n(avorable reward9to9risk ratios) as yo! may have a wide stop that isn4t proportional to yo!r potential reward. o which way is better( &he tr!th is) <!st like in combining the Fibonacci retracement tool with s!pport and resistance) trend lines) and candlesticks to (ind a better entry) it wo!ld be best to !se yo!r knowledge o( these tools to analyFe the c!rrent environment to help yo! pick a good stop loss point. As m!ch as possible) yo! sho!ldn4t rely solely on Fib levels as s!pport and resistance points as the basis (or stop loss placement. ;emember) stop loss placement isn4t a s!re thing) b!t i( yo! can tilt the odds in yo!r (avor by combining m!ltiple tools) it co!ld help give yo! a better e0it point) more room (or yo!r trade to breathe) and possibly a better reward9to9risk ratio trade.

ummary) Fibonacci

&he key Fibonacci retracement levels to keep an eye on are the 2%.6,) %".2,) 5 . ,) 6..",) and *6.#,. &he ones that seem to hold the most weight are the %".2,) 5 . ,) and 6..", levels. &hese are normally incl!ded in the de(a!lt settings o( any Fibonacci retracement so(tware. 6( yo!r trading so(tware doesn4t have a Fib tool) no worries G we4ve got a Fibonacci calc!lator that will do all the work (or yo!' &raders !se the Fibonacci retracement levels as potential support and resistance. Since plenty o( traders watch these same levels and place b!y and sell orders on them to enter trades or place stops) the s!pport and resistance levels may become a sel(9(!l(illing prophecy. &hey key Fibonacci e0tension levels are the %".2,) 5 . ,) 6..",) . ,) .%".2, and .6..",.

&raders !se the Fibonacci e0tension levels as potential s!pport and resistance areas to set pro(it targets. Again) since so many traders are watching these levels and placing b!y and sell orders to take pro(its) this tool tends to work d!e sel(9(!l(illing e0pectations. 6n order to apply Fibonacci levels to yo!r charts) yo!4ll need to identi(y Swing High and Swing Low points.

A Swing High is a candlestick with at least two lower highs on both the le(t and right o( itsel(. A Swing Low is a candlestick with at least two higher lows on both the le(t and right o( itsel(. 8eca!se many traders !se the Fibonacci tool) those levels tend to become sel(9(!l(illing s!pport and resistance levels or areas o( interest. =hen !sing the Fibonacci tool) probability o( s!ccess co!ld increase when !sing the Fib tool with other s!pport and resistance levels) trend lines) and candlestick patterns (or spotting entry and stop loss points.