allow stock market traders to distinguish
unknown support and resistance levels.
See the FX chart ( below)
US Dollar/Japanese Yen currency pair, weekly chart
After the initial 61.8 Fibonacci retracement, the pair rallied up
to the 161.8% Fibonacci extension level.
Fibonacci traders also employ them to establish price target or define latent
reversal market trading zones.
For example, if one purchases a financial security at the 50% Fibonacci level,
one will place a price target at 150% Fibonacci extensions. Yet if one orders at
61.8%, then the target will be set at 127%. At Times, the price may not knock
the target due to financials or market sentiment. The usual bullish or bearish
fibonacci retracement is the 38.2%. In this circumstance, one will set the price
target at 161.8% Fibonacci extensions.
Note that financial market traders usually regard these Fibonacci extensions
territories as overbought or oversold.
See the stock chart (below)
Merck & Co (MRK) stock, monthly chart
The price failed to gain support beyond the 314% Fibonacci extension region.
It became overbought as the market would expect it at this level. Notice that
an Elliott wave cycle ended in 1994 before a new trend sent the asset price
to the 314% level. Indeed, the asset was not overbought just because of the
Fibonacci extensions, but due to financials plus a skeptical market sentiment
at this point.
Dynamic bullish stocks
may strike a target area, but continue to climb until it has amply outdone
its book or just value. The converse is also true in a downtrend.
In addition, convergent signals may emerge in the indicated areas.
The conventional approach to trading the present signals is to use a top-down
For example, if a bullish security expanded to a convergent point (price target),
financial market traders would observe reliable bearish chart patterns on both
the signal and entry time frames. One will authenticate these patterns by
checking the financials on Google finance.
Title: How To Trade Fibonacci Extensions Like A Pro
Description: A thorough explanation of how to trade the financial markets using
Fibonacci extensions like a professional trader or investor.
Apart from 127%, 150%, 161.8%, stock traders also use the following:
138%, 214%, 238%, 261%, 314% and 361% Fibonacci extensions.
In this circumstance, one can not dissociate the Elliott wave theory and
Fibonacci extensions. It is almost useless to gain mastery in Fibonacci
extensions if one does not understand the Elliott wave extensions theory.
Even If, many may object to this declaration, it becomes more acceptable
as one begins comprehending the wave principle.
Value of the wave theory
In order to trade fibonacci extensions more precisely, one must grasp when
and where extensions occur. With the wave theory, FX or options traders
know that extensions are standard during the 1st, third and fifth Elliott waves.
They also discern that the 138% Fibonacci extension is a component of
the expanded flat correction formation. An Elliott wave trader also realizes
that the genuine fibonacci extensions such as 261%, 314% and 361%
normally take place during the third Elliott wave.
See stock chart (below)
Nike Inc stock, monthly chart
Notice that the fifth Elliott wave [bracketed with two vertical blue lines]
extended into the 314% Fibonacci extension. A smart wave trader would expect it
if neither the first nor third Elliott wave is extended. Indeed, the extension
will not take place if both the financials and market (S&P 500) were bearish.
Fib extensions and patterns
There are several Fibonacci patterns also identified as harmonic patterns
such as crab, bat, butterfly and Gartley patterns. These structures emphasize
Fibonacci retracements and extensions. To know if a Fibonacci pattern is in
place, one ought to know the corresponding Fibonacci extensions.
For example, during the formation of Gartley pattern, the price structure CD
ends at 127% or 161% Fibonacci extensions in relation to AB.
In the case of the crab pattern, it is extended to either 2.24% or 3.61%.
Similarly, the bat pattern's CD price structure is prolonged up to 1.61%
and 2.61% Fibonacci extensions band.
To master Fibonacci extensions trading like a pro, check the video below
Title: Fibonacci training
Description: A step by step trading method for mastering Fibonacci extensions
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