Day Trading Not Your Style? We Can Help! Get a 30-day Trial of our Newsletter Here

Common Fibonacci Ratios and Their Qualities

Many traders today use Fibonacci in their trading. Most of the time this will consist of retracement levels from major swing and more advanced traders will use extensions of past swings into the future. Some common Fibonacci ratios that traders will use are 38.2%, 50%, 61.8%, 100%, 138.2%, 161.8%, 200% and 261.8%. Fibonacci ratios will have a more "exhaustive" quality the larger they get. For example, a 78.6% retracement will have more chance of stopping a move than a 38.2% retracement will. This is true for extensions as well; a 261.8% extension will have more chance of stopping a market than a 138.2% extension.

In addition to the higher exhaustive quality of the higher Fibonacci ratios, in most cases the higher the timeframe the Fibonacci ratio was generated from the greater the chance it will have an influence on the market. Knowing this information you are able to give more credence to higher Fibonacci ratios and from ratios from higher timeframes when doing manual analysis.

This take an even more powerful turn when you are able to find and apply Fibonacci ratios from multiple timeframes and multiple swings that land into a relatively small zone on your charts. The amount of work necessary to do a complete analysis of every possible Fibonacci line from every swing on every timeframe makes it nearly impossible for anyone to achieve consistent results. Those who have learned how to master this art and who are only able to use the "right" ratios from the "right" swings are able to consistently able to call tops and bottoms using Fibonacci.

How to Set Up Your Fibonacci Tool

The following is how to manually set up the tool in Tradestation or any other platform your using such as MultiCharts or Esignal. First you will need to select the tool from the drawing menu.

Then you must format your Fibonacci tool in your platform to have the ratios that you wish to use in your analysis of the market. Go here to see a typical setup using the most common ratios. You may change colors and lines to your personal preferences. The Fibonacci tool is then applied to the charts by dragging and dropping the tool from your starting and ending pivots that you wish to analyze.

Fibonacci Projections and Retracements Defined

There are 4 main Fibonacci projections that we use in our software:

1. Extensions - take the range from pivot #1 to pivot #2 multiply that distance by a Fibonacci number, add the two numbers together and it will give projections into the future where a possible turning point could be.

If you cannot view the Extensions chart, go here.

If you cannot view the Expansions chart, go here.

If you cannot view the Alternate chart, go here.

If you cannot view the Retracements chart, go here.

Go here to view the example chart

Go here to view the example chart

Manually Calculating Fibonacci Confluences Step by Step

The first step will be to go back to where the last major swing down has started and calculate our retracement levels.

As you can see in the following chart with the MAGENTA 1-2-3 we are calculating the Retracements from the #1 to the #2 pivots.

Go here to view the example chart.

Now we are going to use the GREEN 1-2-3 pivots and do our Extensions, Expansions and Alternates.

Go here to view the example chart.

Go here to view the example chart.

Go here to view the example chart.

Once we have completed our analysis on the GREEN 1-2-3 we will start our work and repeat this process on the BLUE 1-2-3. First we will start with Extensions from the 1-2 pivots.

Go here to view the example chart.

Once we have our extensions we will do our Expansions from the 2-3 pivots.

Go here to view the example chart.

Then we will take the distance from 1-2 pivots and do our Alternates.

Go here to view the example chart.

What we will end up with is a tight range where many different Fibonacci ratios from several different sets of 1-2-3 fall together. This is what we call a Fibonacci confluence. This is where we will look for the overall longer-term trend to continue.

Go here to view the example chart.

I have written a program that will take every swing from every key timeframe and show you just how many possible Fibonacci calculations can be done on a single chart.

Go here to view the example chart.

Let's take a slightly closer look at those lines. As you can see ...there is a Fibonacci line on just about every tick in the market.

Go here to view the example chart.

This is where the art of Fibonacci is really done. Which ratios to use? What swings are the most important? How do I achieve a level of consistency in my analysis that I can count on every day? These are the questions that you must ask yourself when learning the Art of Fibonacci.

I have condensed 13 plus year of work into a single fully automated program that can sort through the data and show you where the best Fibonacci areas are to use as support and resistance.

Go here to view the example chart.

What makes the T-3 Fibs ProTrader so special? The answer is summed up in 3 words, power, accuracy and consistency. The software will do EVERY possible 1-2-3 swing from well over 150 days worth of data or more, and then it will "synthetically" build 9 higher timeframes and do every possible 1-2-3 from those "higher" timeframes and generate every possible Fibonacci line for you automatically. (Go here for a complimentary demo the T-3 Fibs ProTrader)

The power of the T-3 Fibs ProTrader is that it is able to take all of the raw Fibonacci lines, rank them according to strength, and strength dictated by timeframe, then filter out the noise and leave you with a clear picture of where the market has the most powerful combination of Fibonacci confluences. Not only will the software give you the areas at which to get in, the key Fibonacci areas will also help you to dictate how much potential there is on any given trade prior to entry. Fibonacci Art at it's finest!

The T-3 Fibs ProTrader will also give you a level of consistency in your Fibonacci analysis that is almost impossible to duplicate by hand. Most importantly it will allow you to focus on being a trader and not an analyst.

John Novak is President of Nexgen Software Services Inc. John is the developer of the T-3 Fibs ProTrader indicator package. He has been involved in the marketing and distribution of Technical analysis software for the last 13 years. He has devoted the last 10 years to the automation of a popular discretionary methodology that he taught in seminars for over 2 years to many successful traders that was centered on Fibonacci analysis of both time and price. With the help of his software programmers they have automated this entire Fibonacci process into a fully automatic program. He spends his days working on constant improvements in his analysis in predictive indicators for traders and spends the day trading his own methods.

LEARN TO DAYTRADE FIBONACCI WITH THE BEST!

Nexgen Software is an innovative company leading the development and marketing of predictive technical analysis indicators. Our principle software program, the T-3 Fibs ProTrader , is designed for the professional trader to automate Fibonacci price and time projection analysis in an attempt predict high probability potential turning points into the future. Go here for a complimentary demo, and to see live videos of how to use Fibonacci in your trading.