38.2% Fibonacci Retracement

Image is highlighting the 38.2% Fibonacci retracement

The 38.2% Fibonacci retracement is one of the most popular Fibonacci retracement key levels. If one identifies a valid 38.2% Fibonacci retracement level, one is bound to participate in a very rewarding price-action.

Sometimes, Fibonacci traders do struggle to find valid 38.2% Fibonacci retracements.

Characteristics Of A Valid 38.2% Fibonacci Retracement

1/ Best 38.2 Fibonacci retracements can take place during the second Elliott wave. However, one must be very cautious when dealing with the 38.2% retracement in the second wave. Do not forget that.

One of the reasons is because of the prior dominant financial market force. The prior dominant force is bearish if one is in the second bullish wave. Generally, a bearish trend will end, and a correction will follow, then a new bullish trend will begin. So the prior dominant market force was bearish because of the bearish trend. In contrast, a bullish trend that has ended plus the correction can lead to a new bearish trend. This is not often the case but can happen. In those circumstances, the prior dominant market force is bullish. One must stay alert when trading the 38.2% Fibonacci retracement in the second bearish wave of a bearish trend.

2/ The most reliable 38.2% Fibonacci retracements are frequent during

the fourth Elliott wave. It is fair to say that most technical traders expect a shallow retracement if the prior impulse price-action was dynamic (3rd wave is usually dynamic). Indeed, due to the strength of the third Elliott wave, the fourth Elliott wave is often shallow. One will accept that a prolonged or dynamic bullish 3rd wave indicates a financial instrument that avid bullish traders are controlling and vice versa. Therefore, the dominant market force is bullish.

3/ The 38.2% retracement should be under a low trading volume. That pull-back or rally to the 38.2% Fibonacci retracement must be under a low trading volume. It is is critical otherwise, one must stay very prudent.

In other words, there is no demand to buy or sell the asset during the rally or pull-back under a low trading volume.

Check-list Before Considering A 38.2% Fibonacci Retracement

A/ Was the prior price-action strong or dynamic (really a clean-cut bullish or bearish)?

B / Did the 38.2% Fibonacci retracement stop at a key level?

C/ Was it under a low trading volume?

D/ Know also that a three-move price-action to that 38.8% Fibonacci retracement is also a good sign.

E/ Where is the price headed? (understand that no financial instrument goes up or down for no

reasons, it is always headed to a specific price target level. Know that target and see if that is

a high probability 38.2% Fibonacci retracement level.

F/ Check the market patterns because they determine the appropriate trading strategy one must

deploy. Do not repeat any of the seven biggest trading mistakes.

G/ Is it a new trend starting after the prior trend? Take into consideration the prior financial

markets dominant force.

After all, remember to adhere to the trading drill and triangle. And always use a demo trading account to work on your ability to trade the 38.2% Fibonacci retracement like a pro.

Conclusion

Trading the 38.2% Fibonacci retracement is similar to trading support or resistance level.

Draw the key level or that 38.2% Fibonacci retracement, and give priority to bullish signals above it

and bearish ones below. Never assume anything, but follow the trading drill by implementing different times frame trading method to control the risk. Yes, you will be smiling if you catch a valid 38.2% Fibonacci retracement trading signal. Won't you?

Make sure you get it right because the 38.2% Fibonacci retracement does not guarantee free cash to those who do not know how to trade it.

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