138.2% Fibonacci Extension Explained
In an uptrend, a financial instrument ought to
show evidence of higher lows and highs. On the other hand, in a downtrend
the contrary is also valid. Really, for a bullish trader, the concentration is on
the highs while a bearish market player concentrates on the new lower lows.
Subsequently, if a financial security breaks above the prior high, it signifies
a spill over in the bullish momentum. A surge in a bearish progression occurs
when it breaks below a prior low.
Nonetheless, there is always a massive resistance (or support in a downtrend)
at the 138.2% Fibonacci extension level. For example, bullish trends frequently
fall short on or near the 138.2% Fib extension extension level. Certainly, a bullish trend
will only carry on if that Fibonacci level becomes a support after a breakout.
In the same way, a bearish trend should break below the 138.2% Fibonacci
extension support level to substantiate the bearish trend.
Image = "chart that is illustrating
Fibonacci extensions in a down trend"
General 138.2 Fibonacci extensions rules
A/ In An Uptrend
If a financial instrument rises as of point A to B and pulls back to produce the
fundamental higher low after a high, one will underscore the 138.2% Fibonacci
extension of the price-action from A to B.
Likewise, if the asset declines between two points Y and Z and rallies to establish
a lower high after a lower low, one ought to pencil in the 138.2% Fibonacci extension
of YZ price action.
View a 138.2 Fibonacci extensions chart
Image = "a UTX stock chart's highlighting the 138.2% Fibonacci extension"
Notice that the UTX stock (NASDAQ-100) was in a (blue) declining channel
from August to September 2015. In October 2015, the price escaped the
bearish momentum and began to rise (from the red spot on the chart to green).
It exhibited the first higher high (see the green spot on the chart)
and low (see the orange spot on the chart). Indeed, the first challenge for
the bullish price-action after rising above the first high is the 138.2% Fibonacci
extension level (see the pink line on the chart above). Notice how the price was
consolidating near the pink line. At this stage, the bullish trend will only resume
if the UTX stock breaks above the 138.2% Fibonacci level and validates it as a
support. That remains to be seen.
When a bearish asset falls below the
prior low, the next significant support level
to break through is the 138.2% Fibonacci extension of the most recent bearish
price-action. By the same token, a bullish financial security that breaks above a prior
high ought to break out above the 138.2% Fibonacci extension to confirm the intensity
of the bullish trend. These are two of the Fibonacci extensions' market stable data.
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Another Way To Apply 138.2% Fibonacci Extensions
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Video: Another Way To Trade The 138.2% Fibonacci
Description: Another Way To Trade The 138.2%
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