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My Favourite Fibonacci Extensions

Probably you have been wondering which one is my favourite Fibonacci extensions.  Some of you have already guessed it correctly.  Either way, I will explain why I prefer those.  

May be, by the end of this article one will like my Fibonacci retracement levels too.  Alright let's not waste anymore time.

Group Of Fibonacci Extensions

In my opinion, there are three main groups of Fibonacci extensions.  The group of 38.2% regroups 138.2%, 238.2%, 338.2% and 438.2% extensions.

Then there is the group of 61.8% that assembles 161.8%, 261.8%, 361.8% and 461.8% extensions.

And lastly, the group of 114% Fibonacci extensions regroups 114%, 214% and 314% and 414% extensions key levels. 

Each group has its own purpose or role.  Therefore, a Fibonacci trader ought to avoid misusing them.  In summary, that is the way I classify or group the Fibonacci extensions.

Group Of 138.2% Fibonacci Extensions

Alright you already know it.  Right?
That group aims to pinpoint the overbought zones in uptrend, and oversold zones in a downtrend. 

However, if the price goes through it, and validates it as a support or resistance level then one will expect a continuation. 

For the attention of the new traders, please note that I do not mean that definitely there will be a continuation ( only high probability).

Group Of 161.8% Fibonacci Extensions

Its main role is to pinpoint continuation zones.  The quickest way to find ready made breakout trading setups is to use any of the 161.8% levels as a scanning parameter.  

Note that in the absence of a continuation trading signal a reverse may take place instead.  Those reversals (instead of continuation) are negative signals therefore are intensified.  I mean that the price may run or drop fast.

Group Of 114% Fibonacci Extensions

Group of 114% Fib extensions are precision guided reversals that are initiated by influential market players.  To put it bluntly, someone is likely to have created one of those. 

Is it illegal?  No.  Are they allowed to do it? Yes.  Isn't it a bit unfair?  Yes. Is anything one can do about that unfair advantage?  Yes.

Trade it together with those who have consciously or unconsciously created it. Right? 

The truth is that not all market players are equal.  Some do have a tremendous firing power because of their function or financial reserve.  So all I am saying is that most (not all) of the 114% extensions' reversals are purposefully orchestrated.  Their main role is to pinpoint man made reversals. 

If one is looking for those reversals, one is more likely to find them among the blue chip stocks.  I will not say more.  Check them among the components of Dow 30, FTSE 100, NASDAQ 100, CAC 40 and DAX 30.

Warning

A reversal is a trading setup, so unless there is a valid signal to sell or buy on the signal time frame, one will not rush onto the entry time frame.  This is important because sometimes people just want to sell or buy without a signal because of a high probability trading setup.  

Am I barking too loudly?

My Two Favourite Fib Extensions

Most of my friends traders already know them. The are the 161.8 and 138.2% Fib extensions groups.  Whether one is an ordinary technical trader (one eyed), advanced market player (eagle eyed) or sophisticated market player (eagle eyes all over the whole skin), one will find those two groups really helpful. 

Indeed, they help wave traders go into the minds of Fibonacci traders, and find the best divergences, oversold and overbought zones. 

Moreover, one can combine those two Fibonacci extensions groups with candlestick patterns and trading volume strategies. 

Watch out for the 161.8% and 138.2% Fibonacci extensions levels of the third Elliott wave when the fifth wave is underway.  In fact, there are numerous ways one can use those Fibonacci extensions.

Now, one begin to realise why they are my two favourite Fibonacci extensions. 

For those reasons, I will recommend to beginner technical traders to learn to master those two Fibonacci extensions at the very early stage. 

Whether one is investing or trading, one will not escape those two groups of Fibonacci extensions.  If one looks on hundreds of stock charts, one will see how the advanced market players are constantly taking positions on or near those Fibonacci extensions levels.

Talking About Fibonacci Clusters

The Fibonacci clusters formed of the key levels from the groups 138.2% and 161.8% are revelatory.

One example would be to go onto the daily chart, and draw all the 138.2%, 238.2%, 338.2%, 161.8%, 261.8% and 361.8% Fibonacci extensions levels.  Then one will switch to the 2H chart to look for high probability trading setups on or near those levels.  After finding a trading setup, one will implement a top-down trading method for day trading purposes (2H, 15M, 3M).

A TSTW 24 day trader will go from that 2H chart trading setup, and headed to the first best time frame for both signals and entries.

A swing trader will draw those Fibonacci clusters on the monthly chart before heading to the daily chart for the trading setups (daily, hourly, 10M).

An investor can draw them either on the quarterly or yearly chart, then switch to the corresponding signal time frame for the setups before using the top-down trading approach. 

Is that too complicated for you?
That could be the case for some.  Just read it again and again then sleep over it.

Keep asking questions and by the time you know something may click.  When that happens, some will say "???, Hum, Ah, oh yes, now I get it"

I mean slowly but surely one will get there by all means because one is bigger than any challenge.  Right?  Oh yes one is.  Do not deny it now.  Well, that was to encourage one a bit.

Where was I again?  What else can I add?

Sorry guys, I believe we have reached the end of this article.  If I forget anything, I will be updating it in due course.  If you have any relevant questions or comments, please post them under any video at Dayprotraders YouTube Channel.  I always read every comment, and in due course I will answer you, post a new article or an educational trading video.  

So please stay tuned and wait patiently.

Conclusion

It took me some times before I come to realise the role of each Fibonacci extensions group.  Once I nail them, they became more powerful trading and investing tools in my arsenal.

As a young technical Fibonacci trader, I was whipped all over the place by more advanced traders. In that process, I lost a lot money.  That is why I recommend to beginner Fibonacci traders to really work hard to master my favourite Fibonacci extensions levels.

In my opinion, Fibonacci traders are the financial markets' elephants.  They are not kicked around so easily.  They occupy their territory; therefore one can not afford to ignore their tactics.

Truly, one does not want to be crashed by an elephant.  Does one?  Well ask my friends from Asia, and they will tell you more about the elephants.

That is it eagles and elephants of the financial markets.  

I hope this article has been helpful.  If you say yes then please bookmark and share it.  Please, say also few good words about us in your number Fibonacci trading forum.  I will really appreciate that.

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

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