In this video, how to trade Fibonacci, retracement and extensions and the first thing that you need
to know is that it is based upon a mathematical sequence discovered in the 12th century by Leonardo
Fibonacci.
And basically, it is a scenario that looks something like this.
You have consignee numbers where you add the first two, you get the answer to the third one, the ad,
the second third one, you get the fourth.
So it's this plus this equals this, this plus this equals this, this plus.
This equals this.
And without going into deep mathematical conversations, there are.
They are all based upon.
Sixty one point eight percent or point six one eight is the golden ratio, and there are.
Not Alice Rivers, mountains, peaks, everything that you can think of seems to have this never involved
in it as far as measuring it.
Now you can study as much as you want about Fibonacci, but know that as far as finances are concerned,
it is something that is widely followed.
The idea is that there should be some type of action around a Fibonacci retracement level and or an
extension level.
And traders look for setups at these areas.
Now, there are a lot of debates out there as to whether or not there's any efficacy to this.
And the reality is that there are enough people to believe in it, that there is something to it, whether
or not there's any mathematical nature to it in markets, that's completely up for debate.
The idea is with a retracement.
And that you take a swing low in a swing high, and when it pulls back, you expect it to be at one
of these ratios, for example, this might be sixty one point eight percent on this and then you buy.
So let's take a look at it in real life.
Let's see really how we could have looked at this.
So we are looking for swing lows and swing highs, it works in both directions.
Again, though, it is somewhat subjective because you have to have everybody agree on one of the swing
low in the swing high.
As you can see, this is the Fibonacci retracement tool.
So this was a swing low.
This was a swing low.
So let's take this one and drag.
You drag it up to the swing high and then you look and you can see the price basically went down to
the sixty one point eight percent Fibonacci retracement level.
The catch with Fibonacci, though, is it really can't be used by itself.
There are some people that simply by a 50 percent pull back, which ironically actually isn't a Fibonacci
number.
It's just that for years traders have always bond to 50 percent pullback.
So they included in the tool.
It should also be noted that there are a multitude of other numbers that you can have.
I only have the important ones, the fifty the sixty one point eight, the thirty eight point two percent.
There are other ones like the seventy eight point six, et cetera, et cetera.
But really, those aren't used anywhere near as much of these three level thirty eight point two, sixty
one point eight, and the 50 percent that tend to attract the most attention.
So you can see that we have a swing low, swing high.
We pull back to just about the sixty one point eight.
And in fact, we closed above the fifty.
So you could say that offered support, I suppose.
Here's the thing, though.
The reason this works isn't necessarily just because of that.
There was obvious resistance there previously.
So you can make an argument.
Did fib work or was it?
The previous resistance is now acting as support.
The reality is this is a good setup because it's a hammer, which is a very bullish candlestick.
And you'll learn about those later right at the fifty percent Fibonacci retracement level and the previous
resistance level.
So.
You can make an argument either way.
That being said, that is one way that you can look at it.
You know, what's the difference between Fibonacci and horizontal support resistance?
The reality is you better hope there's none because you need one or the other.
And you can see that the sixty one point eight held on this bounce back just to show you that that it
does cause some attention in both directions.
You can see that we had fallen bounced right up to the thirty eight point two before going lower and
the euro yen.
Again, though, you can't just pick a level and say, OK, I'm going to start buying or selling there,
there's a cluster here, there's a shooting star here, Bears Candlestick, and you short it again.
That's something that you'll learn in the candlestick section.
But this all kind of ties together nicely and even, you know, a big hot mess like Uber, which has
been all over the place.
You can start to see some semblance of pattern here, you can see right around the 50 percent Fibonacci
retracement level of this big move lower, we did, in fact see some resistance.
Fibonacci is also used for the extension tool, and it's in the same menu just to use trend based extension.
So if you remember this Manassero one, the original one went from there to there.
So you click on both of those levels and then you pull back to the beginning and what you get is the
50 percent for every trace.
But notice that beyond the highs, there is the one one hundred percent and then there's a one point
six one extension.
And that is an area that a lot of people will aim for.
Again, though, I would draw your attention up here.
Makes sense that there would be a little bit of profit taking in that region.
The higher you go up the chain, though, the less likely it is to hit.
So like the two point six one eight level is a very long time type of long term type of move.
And to be honest with you, if your day trading, you're very rarely going to hit one sixty one.
But it is something to look at if you're already involved in this move.
So say you're here and you've seen a pullback of that nice move.
You want to know where the market may be able to go?
You can go back to the last swing low and use it.
So it's a way to enter kind of late.
Actually, feebs is not something that you fibonacci's not something that you can ignore because it
is something that catches the attention of so many traders.
But like I said, you have to kind of take it.
For what it is, it's just a guideline to where things could happen, you know, you could very easily
say, well, swing kind of swing low and look right here at the 50 percent Fibonacci retracement level
and REPL.
What would be even more impressive is.
If we were at an area that had been resistance and possibly even support in the past, there's a gap
there.
Resistance, resistance, resistance, resistance and resistance and the 50 percent Fibonacci retracement
level with a very bearish candlestick and an overextended move, you could probably put on other indicators
that we'll be looking at the next few videos to give you yet another reason to short report that level.
So, again, don't get too hung up on Fibonacci, but do realize that it gives you an opportunity to
look for places where people are going to be trading and that's really all it is.
In the next video, we'll take a look at how to trade exponential moving averages.