Fibonacci Masterclass - Fibonacci Retracement and Extension

2021年7月15日

Hi guys, I have finally completed the thread on Fibonacci (Though it took longer than usual). I have tried with the best of my little knowledge to create this thread. This has everything you need to know about Fibonacci retracement and Fibonacci extension. Also, if the thread is free that doesn't mean I have compromised with the quality. All you have to do is just read this thread again and again until you get a good grasp of it. everything.

Table of Contents:
1. What Are Fibonacci Retracement Levels?
2. Significance of Fibonacci Retracement levels
3. Finding Fibonacci Retracement Levels
4. How to use the Fibonacci retracement levels?
5. What are Fibonacci Extensions?
6. Significance of Fibonacci Extension levels
7. Finding Fibonacci Extension levels
8. Difference Between Fibonacci Retracements and Fibonacci Extensions

What are Fibonacci Retracement levels?
• Fibonacci retracement levels are horizontal lines that indicate areas where the price could stall or reverse.
• These horizontal levels can act as a potential support or resistance levels
• They are based on Fibonacci numbers. Each level is associated with a percentage which means how much of a prior move the price has retraced.
• The Fibonacci retracement levels are 23.6%, 38.2%, 61.8%, and 78.6%.
• While 50% is not a pure Fibonacci ratio, but it is still used as a support and resistance indicator. This is because people worldwide regard it as an important level.
• The price won’t always bounce from these levels. They should be looked at as areas of interest. Hence, please use the Fibonacci retracement as a confirmation tool.

Significance of Fibonacci Retracement levels
Fibonacci retracements can be used to:
• Place entry orders
• Determine stop-loss levels
• Set price targets

For example, A stock may be in an uptrend. After a move up, it retraces to the 61.8% level. Then, it starts to go up again. Since the bounce occurred at a Fibonacci level during an uptrend, you can enter long positions with a stop loss just below the Fibonacci level or at the candlestick low.

Finding Fibonacci Retracement levels
In order to find the Fibonacci retracement levels, you have to find the recent significant Swing High and Swing Low.
• For uptrends, select the Swing Low and then the Swing High.
• For downtrends, select the Swing High and then the Swing Low.

Example: Fibonacci retracement in an uptrend


Example: Fibonacci retracement in a downtrend


How to use the Fibonacci retracement levels?
If the price is approaching a Fibonacci level, you should look out for the following things at the point of interaction or in the vicinity of the level.
• Some reversal candlestick pattern
• Volume is above average.
• Moving average
• RSI divergence
• Previous S/R level or pivot level

The trade will be a high probability trade if some of these factors create a confluence zone.

What are Fibonacci Extensions?
• Fibonacci extension is a tool that can be used to find price targets or estimate how far a price may move after the retracement/pullback is over.
• Extension levels are also possible areas of interest where the price may stall or reverse.
• It can be used to find projected areas of support or resistance when the price is moving into an area where other methods of finding support or resistance are not applicable or evident.
• If in a stock, a new high/low occurs, the trader can use the Fibonacci extension levels to get an idea of where the price can go.
• Fibonacci extension levels can be calculated to give the trader ideas on profit target placement.

Significance of Fibonacci Extension levels:
• Fibonacci extensions can be used for any timeframe and in any market- stocks, commodities, cryptocurrencies, etc.
• Fibonacci extension levels indicate a price area that will be significant for the stock after the pullback/correction is over.
• Extension levels can be drawn on different price waves over time. When levels from these different waves converge at one price, that could be a very important area.

Finding Fibonacci Extension levels
In order to find the Fibonacci extension levels, you have to find the recent significant Swing High and Swing Low.
• For uptrends, click on the Swing Low and then on the Swing High. Then go to the Fibonacci setting and click on reverse. Or if your software directly has the extension tool then it’s even easier.
• For downtrends, click on the Swing High and then on the Swing Low. Then go to the Fibonacci setting and click on reverse.

Example: Fibonacci extension in an uptrend


Example: Fibonacci extension in a downtrend


Difference Between Fibonacci Retracements and Fibonacci Extensions
• Fibonacci retracements provide levels for a pullback whereas Fibonacci extensions provide levels to move in the direction of the existing trend.
• For instance, a stock goes from 50 to 100, and then back to 75. The move from 100 to 75 is a retracement. If the price starts rallying again and goes to 150, that is an extension because the price moved past the previous swing high which is 100 in this case.

This is everything you need to know about Fibonacci retracement and extension levels. This thread is more than enough to make you profitable. Keep reading and revising until you learn everything written in this post. I hope you find this post useful. Also, if anyone is interested in getting a consolidated PDF version of this thread, then you can message me, I'll provide it.

Disclaimer: This is NOT investment advice. This post is meant for learning purposes only. Invest your capital at your own risk.

Happy learning. Cheers!
johntradingwick