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My Favourite Fib Retracement

I remember clearly when I began using Fibonacci retracement for the first time.
I said to myself: this is it, I can now compete with the pro traders.  My expectations were too high, and frankly I did not know what I was getting myself into.

After many years being stamped upon by the elephants (Fibonacci traders), I began to like two Fibonacci retracement levels.  In the end this article, one will learn why those are my favourite Fibonacci retracements.

Let's begin right away.

My First Favourite Fibonacci
Retracement

My number one Fibonacci retracement level is the 38.2% Fibonacci level.
I wrote a whole article about it that one can  check out here.  Stay with me please.

Moreover, I became a bit obsessed with the 38.2% Fibonacci level as I turned more fluent in Elliott wave principle trading. 

I have noticed that most 4th Elliott waves rarely cross that Fib retracement level on almost every time frame.  That caught my attention.  

I then realised that after an initial bullish move with a strong momentum like a the third Elliott wave, there is likely to be a shallow retracement of 38.2%.  That phenomenon is consistent on every time frame almost all the time.  When that sank in, I was hooked to the 38.2% Fibonacci extensions. 

I have also noted that triangle chart patterns (ABCDE triangles) do often form around that level.  The price also exhibit a kind of consolidation in that zone especially on the higher times frame (often on monthly).  

It became evident to me that the 38.2% Fibonacci retracement is very popular among the continuation pattern traders.  

In fact, even prior 38.2% Fib retracement levels tend to be very powerful key levels.  Go onto the monthly chart, and draw all the past 38.2% levels.  After that switch to the daily chart to check what has been happening lately around them.

On many occasions, once the price breaks above the latest high on the same time frame, the Fibonacci traders love to push it to the first target at 127% Fibonacci extensions level of the latest price move.  

After a while if there are no bearish activities or interruptions at the 127% Fibonacci extensions level, they kick it off one more time, and bring it to the ultimate target level at 161.8% Fibonacci extensions level.  

One will be surprised to notice that Fibonacci traders really trade in gang.  They support each other exactly like the elephant.  And like the elephant, they do not forget past influential 38.2% Fibonacci retracement levels.  Am I talking to myself?  

Well, just YouTube search for elephants videos, and you will see many similarities between Fib traders and elephants.  Obviously if one has not been monitoring them, one may trivialise what I am talking about. 

My Second Favourite Fibonacci
Retracement

My second favourite Fibonacci retracement is 61.8%.  That one behaves like 114% Fibonacci extensions group that I have already talked about in the article titled My Favourite Fibonacci Extensions.  

It seems to me that reversal that regularly take place in the sweet spot zone of the 61.8% level are purposefully initiated. That observation is pronounced on the monthly chart especially if one is dealing with the blue chip stocks or components of major indices like Dow 30 or FTSE 100 and NASDAQ 100.  

My understanding is that if a company is making money like a dirty pig, dominating its sector, and keep shareholders happy with bankable juicy dividends, it is really difficult for the price to cross that 61.8% Fibonacci retracement level in many instances.  

One can rest almost assured that buyers will be at the rendez vous 70% of the time.  

Sometimes, it the price dares to pierce through it on the monthly chart, then it will gradually pull back, and finally leave a long tail candlestick bar (uptrend) or shadow (downtrend rally shadow or wick) on the immediate higher time frame (quarterly chart for the monthly chart).  

Please do not worry, in due course I will be posting relevant videos on my Dayprotraders YouTube channel.  Stay tuned please.

Note that companies with a strong balance sheet, that are making money like a money machine, dominating their sector, paying delicious dividends without a miss usually find a support after a healthy pull back in the zone of 61.8% Fibonacci retracement.

Though there are few occasions when they violate that level, those are exceptional circumstances when there is an economic downturn or the SP 500 is receiving a lot beatings from the bearish traders.

In that instance one more time, the elephant Fibonacci traders are very demanding. Usually (not always) the price will rise from the pit of the 61.8% retracement, and touch the 78.6% level.  

Then it will pull back a bit.  Next level is 88.6% then another pull back.  If the bearish traders are weak, Fibonacci traders will push it to the price target level at 127% Fibonacci extensions level.

Moreover, it is common that the price acknowledges most of the Fibonacci key levels ahead.

Final Thought

I think by this time, one will realise why I prefer those two Fibonacci retracement levels.

The first one is really racy due to the prior strong momentum; the price is more likely to continue to rise if it was rising before the 38.2% Fibonacci retracement.  


Similarly, a bearish continuation is also likely after an initial strong bearish momentum.

On the other hand, healthy companies' stocks do take a break or pause in the zone of the 61.8% Fibonacci retracement.

One should be ready to join a racy third Elliott wave as soon as the price finds a support above the high of the first wave after a 38.2% Fibonacci retracement that formed the second wave.  I mean a 38.2% Fib 2nd wave is attractive and appealing to the third Elliott wave hunters.

One will also notice that many healthy second waves often bottom in the region of the 61.8% Fibonacci retracement of the first wave.  And most cash cows blue chip stocks with a strong balance sheet often end their corrections after a bullish trend near the 61.8% Fibonacci retracement.  Those are my observations.

Oops! time is up.  I think we have reached the end of this discussion.  However, if you any questions or comments, please post them under any video at Dayprotraders YouTube channel.  In due course I will answer them or post another article or video.

Conclusion

It is because I really like the trading activities around both 38.2% and 61.8% Fibonacci retracement levels that I make them my favourites.  

Really, each Fibonacci retracement level has its own story to tell.  Once one understands how to interpret that story, one will also like more of it.  What I am sharing today is my interpretation of the story of both 38.2% and 61.8% Fibonacci retracement levels.  

Usually, one tends to hate things that one has not yet understood.
My answer to that is to try to find out more about that related Fibonacci retracement levels.  May be, after that one will grasp the story, like it and interpret.  Surely, when that happens, one has found one's favourite Fibonacci retracement key level.

Okay! That is all friends.  Thank you for reading this article and visiting dayprotraders.com.  I hope you like this article.  If that is the case, then please bookmark and share it.  Also please say few good words about us in your favourite Fibonacci trading forums.  I will really appreciate that.  Stay tuned because soon I will be posting another article.

I wish you the very best.
Happy Trading To All.

This article is written by
George Beaulieu
Founder Of Dayprotraders.com