Fibonacci Analysis

We will find trade setups by applying Fibonacci ratios on the price axis. The 3 basic setups are:

1. Symmetry Setup

2. Two Step Pattern Setups (Projection)

3. Price Cluster Setups

Fibonacci Price Relationships

Fibonacci Price Analysis can work in any market & any time frame to identify key swings – high & lows -on the chart.

Retracements

Fibonacci price retracements are run from a prior low-to-high swing or a high-to-low swing to find possible support or resistance levels using 0.50, 0.618 & 0.786 Fibonacci ratios.

Extensions

Fibonacci price extensions are also run to set up possible support or resistance similar to price retracements, except with extensions, we are running relationships of a prior swing that extends beyond 100 percent by using the ratios 1.272 & 1.618 Fibonacci ratios to identify possible support or resistance levels.

Most of the time, moves tend to reverse trend with Fibonacci price extensions.

Price Projections

Price projections are run from 3 data points and compare swings in the same direction. They run from a prior low-to-high swing and then are projected from another low for a possible resistance or they are run from a prior high-to-low swing and areprojected from another high for possible support. Here we use 1.00 (Symmetry) & 1.618 (Golden ratio) ratios to run the projections.

Symmetry is defined as similarity or equality of swings in the same direction. Symmetry and Golden Ratio as clusters or by itself are very good price points to buy at support or sell at resistance.

Fibonacci Price Clusters

Fibonacci Price Clusters are when at least three Fibonacci Price Relationships come together within a relatively tight range. Fibonacci Price Clusters with the combination of retracements, extensions & price projections have a very high probability of hitting support & resistance – this allows for a good profitable trade setup.

Applying Fibonacci Ratios on the Time Axis of the Market

Fibonacci price analysis & setups can be a basis for a good trading plan.  To verify the price analysis, you can apply the same Fibonacci ratios used on the price axis of the market on the time axis, as well.

You can use the Dynamic Time Projection tool to run the Fibonacci time analysis after the swing’s highs & lows are chosen. Then Dynamic Trader software automatically uses the Fibonacci ratios (0.5, 0.618, 0.786, 1.0, 1.272, 1.618 & 2.618) to create a histogram below the chart.

Fibonacci time projection tools help us identify possible trend reversals mostly at Fibonacci Price Cluster resistance or support. The time relationships that can be projected from two points are the following: Low to Low, High to High, Low to High, and High to Low.

The ratios you can use for timing projections from two points are .382, .50, .618, 1.0, 1.272, 1.618, and 2.618.

We will also use a Fibonacci timing tool that uses three points on the chart where we will compare swings in the same direction in time. The time relationships projected using 3 points that I use most often are the following:

  • Low to High projected from another low.
  • High to Low projected from another High.
  • High to High projected from an intervening Low.
  • Low to Low projected from an Intervening High.

 

For these time projections, I mostly use the ratios 0.618, 1.0, 1.272 and 1.618. The 100 percent time projections of prior corrective swings tool is used to help the trader enter the market in the direction of the trend. Like price symmetry, time symmetry is a very simple, yet powerful trading tool.

When applying Fibonacci Ratios on the time axis of the market, even a single time cycle can produce a change in trend, but when you find the time cycles clustering together, there is a very high probability that the trend will reverse.

Fibonacci Time Clusters are a very powerful trading tool, even though Fibonacci Price works by itself, it can be used as a winning strategy. When you see time & price come together in any time frame, the odds for change in trend or reversal is much higher. Using a trade entry trigger will raise your odds for success even further.