Fibonacci Price Projection

Fibonacci Price Projections Traders often get excited when they believe they can use an indicator or tool to ‘project’ prices into the future, but in reality, price projections just give us a possible target that the market may or may not achieve.

Traders use Fibonacci Price Projections (also called “Extensions”) in a similar manner as Fibonacci Retracements, but they are looking to project where price will travel upwards to hit resistance (in an uptrend) rather than find where price will find support via retracements.

While traders often use Fibonacci ratios 38.2%, 50.0%, and 61.8% for retracements, it is quite common to use 61.8%, 100.0%, 132.8%, and 161.8% for Price Projections and Extensions.

What exactly does this mean?

To draw a Fibonacci Projection grid, we’ll need to identify a swing low, swing high, and price retracement against the swing high (for uptrends – reverse the definition for projecting price in a down-trend).  Let’s see an ideal example:

This example is done in the context of an uptrend.  We start our projection grid off a Swing Low and then draw the first line to the next Swing High.

1.  In an up-trend, Identify a Swing Low (retracement)
2.  Use your Fibonacci Projection Tool to move from the Swing Low to the next Swing High for the ‘base.’
3.  Draw the Second Line from the Swing High to a Retracement (Swing) Low

The first line (from Swing Low to Swing High) serves as the “Measurement Swing” by which we will soon create Fibonacci Projections.  The “Retracement” Swing provides the base from which to project Fibonacci relationships of the first swing.

For example, if the original swing is $10 and our retracement is $5 down, we would take the Fibonacci ratios of the $10 swing (61.8%, 100%, etc) and then add those values to the Retracement Low.  Luckily, most software programs do all this for us with three clicks – you just need to know where to point your mouse to click.

Now, unlike the Fibonacci Retracement tool where we are looking to find support, we are now looking to find points above price where the market is likely to experience Overhead Resistance.  These will now serve as Profit Targets to help us establish risk/reward relationships.

Fibonacci Retracement

The Fibonacci Retracement is probably the most heavily used Fibonacci tool in the toolset. You will find Fibonacci Retracements as a solid tool in identifying key support and resistance areas.

If prices have fallen from a recent swing high down to a swing low, the expectation is that price should retrace distance, high to low, by a ratio of the Fibonacci sequence. .

You can use Fibonacci retracements and extension from a tick chart through a daily, monthly and weekly.  Literally any time frame

It is important to note, the larger price move from swing high to swing low, the more accurate the retracement projections. Identification and selection of the correct swing points are keys to success.

While there are many variations of the ratio set, simple is better, lets focus on four major retracement levels.

• 23.6% -- The shallowest of the retracements. In very strong trending markets price typically quickly bounces in the area of this ratio.

• 38.2% --- This is the first line of defense of the current trend. Breaking this level starts to erode the underlying trend. 

• 50% -- The neutral point of any retracement. This is the critical tipping point.

• 61.8% -- retracing to this typically signals a breakdown in the trend.

• 100% -- Matching the move

In this section we will also show examples of how potential opportunities form when price retraces beyond 100% by following another set of Fibonacci ratios:

• 138.2%
• 161.8%
• 200%

Notice in each case we have simply added 100% to the standard ratio set. I use this set of retracements on a daily basis, from 23.6% all the way to 200% and sometimes 300% For my style of trading I find 38.2%, 50% and 61.8% quite reliable.I use the other primarily as confirmation levels.

So lets take a look at some examples of Fibonacci Retracements in use. 

Example 1:
Take the example below. The EUR/USD had risen from 1.3360 to 1.4278. The next day the EURUSD failed to make a new high and the potential swing point was in place. So I using swing points I placed a Fibonacci retracement on my chart.

The trend was obviously very strong and the first retracement to the 23.6% level was met with a violent change in direction. You can see the dip below the 23.6% level and the sudden reversal. While there are multiple entry methods, the most conservative would be to wait until the level is penetrated and price establishes itself above that level and enter on the open of the next bar as shown.

With the right money management, you can see in this example this could have been a serious winner.

Once you understand the method you can find countless examples. Every market, FOREX, Equities and Futures each exhibit these patterns to some degree. 

Example 2:
Lets look at another example using the USDCAD. You can see in this example there are multiple entry points for both trend and countertrend trades.

Lets zoom in and look at the area highlighted in blue. Fibonacci Ratios work on virtually any size price swing.

The chart below shows the Fibonacci Retracement applied to the smaller price swing.

The blue ellipses show the high potential entry points. Notice, in each of these cases you could have entered the market with a relatively tight stop loss with high reward potential.

Ok, we have shown some examples of well behaved price action. What happens if price retraces 100%?  How far can it go beyond this point? Fibonacci ratios provide some clues to answering this question and finding low risk entry points.

Example 3:
The example below shows the GBPUSD making a bottom and bouncing back. And multiple entry points from the same set Fibonacci  Retracement levels.

Of note are the high potential entry points at 38.2%, 50% and 61.8%. Each of these could have been entry points with solid profit potential. However, notice after the initial breakout above 100%, there were other opportunities to get in the trade. Ultimately price jumped to the 138% point before backtracking.

This example shows yet another way to use Fibonacci Retracements. This example shows why it is valuable to identify potential levels above and beyond the initial 100% retracement.

Retracements are the cornerstone of Fibonacci theory as it applies to the financial markets. Hopefully these examples have provided guidance from which to draw your own retracements and expand your trading toolset.

To recap, while there are other retracement values, my defaults Fibonacci Retracements always include:

23.6%	100%
38.2%	138.2%
50%	161.8%
61.8%	200%

You can never tell when price action it going blow well beyond the 100% level.

Fibonacci Fans

Fibonacci Fans

Having had a look at speed resistance lines in forex charts – their purpose as an indicator being to provide information on possible levels of support/resistance in a retracement following a trend and also the rate of retracement – we probably ought to check out Fibonacci fans, similar method, looking to supply a similar answer, given an initial trend….

A picture being worth a 1000 words etc. here’s the deal on a real chart.

Having found a trend line, the (here) 2 outer fan lines are drawn from the origin to intersect the perpendicular of the peak at the 2 Fibonacci retracement levels, 0.382 and 0.618, or 38.2%, 61.8% on the chart. (If you’re not up on Fibonacci calculations the background is here – Fibonacci retracement). There’s a 3rd fanline (here, black) at the secondary Fibonacci root 0.500.

The interpretation is simple – a price finds (trailing) support/resistance at the fan lines. It should/may bounce between these 2 containments for as long as the trend continues.

Naturally, the use of Fibonacci fans rest heavily on the principles of Fibonacci retracement in general – if you don’t entirely buy into this as a viable forex technique when taken out of the classroom – as I for one, do not – their use is, well, dubious… but, there’s room in this world – you’re always encouraged to think differently…

Fibonacci curve explanation

The Fibonacci method: How it reveals the intricacies of the forex trade market

The Fibonacci Method is one of the most essential aspects of forex trading. It basically includes indicators, charting and instrumental spotting patterns. The main strategies which are employed under the utility for the funds traded through exchanges, stock indices and different stocks indicated in the returns.

Furthermore, the Elliot wave concept is used, which includes the classic applications and principles. The main idea behind using the Fibonacci numbers is to predict as a potential tool in the trading system is to predict and calculate the important and pivotal points in the forex markets which might be indispensable in causing sudden twists and turns, analyze the business growths and other economical recycles which might occur. At the same time, these Fibonacci methods are also pivotal in predicting the profitable and benefiting aspects of the interest rate and their movements.

Thus, the Fibonacci numbers and shapes are very important for the forex traders to scrutinize the ups and downs of the market and make more potential profits.

All about the curve, rectangle and the triangle

The Fibonacci curve, rectangle and the triangle are used for important ways for analyzing the forex market. So let's have a look at the significance of Fibonacci rectangles, curves and triangles.

The numbers in the Fibonacci series are 0, 1, 2, 3, 5… and so on. In this sequence the first and the second consecutive number are added to give the third number, which once again added with the other consecutive number gives the fourth digit and so on. So, after following the Fibonacci numbers, squares can be drawn by calculating the small squares next to each other. Now, after making two squares, each of one-one unit, the third square is drawn on the top of the last two drawn squares. The third square which is consecutively drawn is three units in length. In the same manner, the squares are added one by one. This set of added rectangles, which are produced by consecutively adding the length of the successive last two squares, are termed as Fibonacci rectangles.

In the same manner, by joining the quarter of the circles, the curves are drawn, which are present one-one in both the respective squares. This is termed as a Fibonacci shell. In the same manner, if the shape is that of the nautilus shell or a snail shell, it is termed as the Fibonacci curve. In the same manner, the triangle is constructed.

How these work?

These extensions and tools in the Fibonacci trading system are used to measure the growth of the market by comparatively analyzing the overall movement. With these shapes, the forex traders get the ideas regarding the colloquial price areas.

With the application of Fibonacci on the charts, the ratio levels are plotted and the respective direction in which the market is currently moving is penned down. Through this incorporation, the respective levels of the potential resistance and support of the market are also calculated.

Fibonacci retracement

Zero percent is the considered as the peak of the crest of the move while hundred percent is considered as the bottom most point of the trough of the move. The trading signals are revealed by the Fibonacci retracement zones or levels which are calculated at 23.6%, 38.2% and 50%.

Since it's mostly seen that history is continuously repeated when it comes to the forex market, the Fibonacci methods prove be to be very applicable over here. Thus, with these shapes, the forex traders are not only able to predict the entire course of the market, they also end up preventing worthless investments.