The Fibonacci Long Bar Method

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Contents

Fibonacci – Traders Beginner Guide Part 1

Leonardo Bonacci – also known as Leonardo Fibonacci – was an Italian mathematician in the 12th century. He was considered the most talented Western mathematician of his time and one of the greatest of all time. Although Fibonacci himself did not come up with what is now known as the Fibonacci sequence, he certainly introduced the phenomenon to the West in his book Liber Abaci.

As can be seen, each number in the sequence is the sum of the prior two numbers. Thus, the Fibonacci sequence can be summarized using this formula: ?? = (??−? ) + (??−? )

How are the Fibonacci retracement and extension levels derived from the above sequence?

61.8% = divide current number with next (from 13 onward) e.g. 55/89 = 0.618 (approx.)

161.8% = divide next number with current e.g. 89/55 = 1.618. This is also called the “golden ratio”

38.2% = 0.6182 (or skip 1 sequence in division e.g. 55/144 = 0.382)

23.6% = skip 3 sequences in division e.g. 34/144 = 0.236 (approx.)

261.8% = 1.6182 or 1.618 0.618

0%, 50%, 100% & 200% are not Fibonacci numbers, but are nonetheless used by some traders as they are psychological levels

Important Fibonacci levels

As seen above there are many fibonacci numbers however traders use and rely on some levels more than the others. The most commonly used numbers are:

Here is an example where the EURGBP had an up move followed by a correction before it continued up. See how the fibonacci retracement levels are the places where the price stopped and fluctuated. This is because these levels act as support or resistance and many traders have their orders placed there: buy/sell, targets and stops.

What makes the Fibonacci Method of trading so popular?

First of all this is a self-fulfilling prophecy. It has nothing magical about this levels but when a huge part of the traders rely on them, they become important and relevant. Pure psychological correlation. You can say the same thing about trend lines for example. If many people draw a trend line the same way, and all these traders see the same thing, this trend line will become very very strong and reliable as all these traders are going to use it as a dynamic support or resistance.

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Another reason is that Fibonacci method is one of the oldest methods out there. There are tons of books, video tutorials, seminar and webinars on the subject. It has been around for years and the vast popularity is increasing every single day. Same as the Elliot Waves theory.

Fibonacci Retracements vs Extensions

The Fibonacci retracement tool as the name suggests is used when the price is correcting itself during a trend. The correct way to place the fibonacci retracement is to find a top or bottom (swing) and let the price run. Once you see an opposite move, this is where the second point is set. Let’s have a look at an example:

Note 1 – in this case once we saw the first break of a previous low, and after a green candle we could’ve placed the fibo tool.

Note 2 – notice that the trend is very strong and in price managed to retrace only to 23.6% and then at the second attempt up it almost reached 38.%.

In summary the fibonacci retracement is used to forecast levels to which the price is very likely to correct itself during a trend. Usually used as Entry levels.

Fibonacci Extension on the other hand is used to predict or forecast what levels the price might reach in the direction of the trend. The projection is a perfect way to set your targets. It uses 3 reference points on the chart as opposed to the retracement tool. Example:

This is a perfect example of how the extension tool works. Initial move (breaking last low, meaning the price is going into a down trend). Price stops and turn up (most likely going for correction, at least as long as last high is holding). Next step is to see a top created during the correction. Once that top is there we can use it to project the future price movements and where the price is expected to reach. The three most important levels are 61.8% , 100% and the 161,8%.

In this example price went to 100% by the pip! Of course you can expect a small deviation above/below a given level. Even though 61.8 didn’t hold, the price still respected the level which coincided with a strong supportive zone (look left on the chart). This is how you get multiple confirmations from both fibonacci extension and horizontal S/R.

How to plot Fibonacci levels on the chart

Almost all trading platforms will have Fibonacci as part of their technical tools, so one does not have to worry about calculating the retracement and extension levels manually. All the trader has to do is identify a distinct high and a distinct low and plot the Fibonacci levels by dragging it from one extreme to the next.

It is important to select the candlesticks’ wicks, so as to obtain more accurate results. They are always drawn from the left to the right:

  • for an upward trending market, it is drawn from the low to the high, and
  • for a downward trending market, it is drawn from the high to the low

Once plotted, the trading platform would automatically display the Fibonacci retracements and extensions, and also their corresponding price levels. The Fibonacci tool is highly customisable, so one could add or remove certain levels.

Combining Fibonacci with other technical tools

Trading is a game of probabilities. As traders and analysts, our aim should be to find opportunities which have higher probabilities of success. It is important to remember that fibonacci levels are not always as accurate and reliable as we would want to – just like any other form of technical analysis. This is why combining it with other methods of technical or fundamental analysis would bring better results and accuracy.

Converging fibonacci retracement/extension levels

One way would be to use fibonacci levels on multiple time frames and multiple trends. When there are two levels that would end up at the pretty much same zone you can expect that this level would be a pretty strong support/resistance zone.

Same applies for the extensions. When projecting the targets you would many times end up with two different projection levels at the same zone. These levels are called magnet levels and are a great zones for protections and entries as price tends to reach them and bounce off of them.

Divergences

Divergences are also another very accurate way to spot potential entries. Let me show you an example.

In red you can see where I have plotted the fibonacci retracement tool (1 and 2). Next in blue numbers I have marked the Fibonacci extension tool (1,2,3) thus creating a sell zone where I expect the price to stop and continue lower. The levels that converge are 50% and 61,8% from the retracement along with 61.8% and 100% (red text and lines) for the extension.

This is where we got bearish divergence. Not very extreme but still it was divergence, you can check the chart yourself to make sure :). This is an example of a well structured and argument based entry. This is how all your entries should look like when you go back and review them. There must be a reason or better of a few reasons why you have entered a certain trade.

Other methods to get extra confirmations are trend lines of course, horizontal support and resistance, false breaks, candlesticks patterns, formations such as flags or triangles/wedges.

Really anything that you have in your arsenal would be helpful.

Back to the example above. The entry would have happened right after the price entered the sell zone and the divergence was there for a fact. And when is the divergence a fact? When the macd history bar ticks down (down as this is bearish divergence). There is a strong red bar closing below the 3 previous candles which is also a good sign that the bearish momentum is there.

Place your stop loss above the high created and aim last swing low (0% fibo retracement – in other words #2 red or #1 blue).

It is important to always always always check your Risk:reward ratio. This is the correlation between the potential loss and potential reward you can get from this trade. You want a risk:reward ratio of minimum 1:2 meaning that you will risk $1 with the possibility to win $2.

That would be all for part one of this article. Fibonacci methods of finding entries and exits are amazing and I advise you to look into it. Many traders make money on daily basis, basing their trades entirely on the methods explained above. Remember that the strategy you use is not as important as mastering it.

Any strategy or method could produce extremely good returns for 1 trader while his buddy is losing money. If you like this post share with your friends – thank you in advance!

I would also love to hear your comments below. Do you use fibonacci tools? Do you find them accurate? What time frames do you mostly used them on? How about multi time frame analysis?

Sources: en.wikipedia.org / forex.com

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Thanks Vladimir, this a lot of gift to me, i appreciate the lesson and i lent more from your text i have been using fibo retracement and extension targeting 50% – 61.8% retracement but the extension i use for my take profit but now i learn to use extension for confirming the fibo retracement zone, i also use bkmgc2 indicator for more confirmation. i wish to learn more directly from you i will love to communicate directly with you.
thank you

Hi Abraham and than you for your comment!

Fibo 50-61,8% are indeed one of the most commonly used levels. You can talk directly to me by using the blog chat that you will find in the home page of the blog! Looking forward to hear from you and share ideas.

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Top 4 Fibonacci Retracement Mistakes to Avoid

Every foreign exchange trader will use Fibonacci retracements at some point in their trading career. Some will use it just some of the time, while others will apply it regularly. But no matter how often you use this tool, what’s most important is you use it correctly every time.

Improperly applying technical analysis methods will lead to disastrous results, such as bad entry points and mounting losses on currency positions. Here we’ll examine how not to apply Fibonacci retracements to the foreign exchange markets. Get to know these common mistakes and chances are you’ll be able to avoid making them—and suffering the consequences—in your trading.

Top 4 Fibonacci Retracement Mistakes To Avoid

Key Takeaways

  • A Fibonacci retracement is a reference in technical analysis to areas that offer support or resistance.
  • Foreign exchange traders, in particular, are likely to use Fibonacci retracements at some point in their trading career.
  • One common mistake traders make is confusing reference points when fitting Fibonacci retracements to price action.
  • New traders tend to take a myopic approach and mostly focus on short-term trends rather than long-term indications.
  • Fibonacci can provide reliable trade setups, but not without confirmation, so don’t rely on Fibonacci alone.

1. Don’t Mix Reference Points

When fitting Fibonacci retracements to price action, it’s always good to keep your reference points consistent. So, if you are referencing the lowest price of a trend through the close of a session or the body of the candle, the best high price should be available within the body of a candle at the top of a trend: candle body to candle body; wick to wick.

Incorrect analysis and mistakes are created once the reference points are mixed—going from a candle wick to the body of a candle. Let’s take a look at an example in the euro/Canadian dollar currency pair. Figure 1 shows consistency. Fibonacci retracements are applied on a wick-to-wick basis, from a high of 1.3777 to a low of 1.3344. This creates a clear-cut resistance level at 1.3511, which is tested, then broken.

Figure 1: A Fibonacci retracement applied to price action in the euro/Canadian dollar currency pair.

Source: FX Intellicharts

Figure 2, on the other hand, shows inconsistency. Fibonacci retracements are applied from the high close of 1.3742 (35 pips below the wick high). This causes the resistance level to cut through several candles (between February 3 and February 7), which is not a great reference level.

Figure 2: A Fibonacci retracement applied incorrectly.

Source: FX Intellicharts

By keeping it consistent, support and resistance levels will become more apparent to the naked eye, speeding up analysis and leading to quicker trades.

New traders often try to measure significant moves and pullbacks in the short term without keeping the bigger picture in mind. This narrow perspective makes short-term trades more than a bit misguided. By keeping tabs on the long-term trend, the trader can apply Fibonacci retracements in the correct direction of the momentum and set themselves up for great opportunities.

In Figure 3, below, we establish the long-term trend in the British pound/New Zealand dollar currency pair is upward. We apply Fibonacci and see our first level of support is at 2.1015, or the 38.2% Fibonacci level from 2.0648 to 2.1235. This is a perfect spot to go long in the currency pair.

Figure 3: A Fibonacci retracement applied to the British pound/New Zealand dollar currency pair establishes a long-term.

Source: FX Intellicharts

But, if we take a look at the short term, the picture looks much different.

Figure 4: A Fibonacci retracement applied on a short-term timeframe can give the trader a false impression.

Source: FX Intellicharts

After a run-up in the currency pair, we can see a potential short opportunity in the five-minute timeframe (Figure 4). This is the trap. By not keeping to the longer-term view, the short seller applies Fibonacci from the 2.1215 spike high to the 2.1024 spike low (February 11), leading to a short position at 2.1097, or the 38% Fibonacci level.

This short trade does net the trader a handsome 50-pip profit, but it comes at the expense of the following 400-pip advance. The better plan would have been to enter a long position in the GBP/NZD pair at the short-term support of 2.1050.

Keeping in mind the bigger picture will not only help you pick your trade opportunities, but will also prevent the trade from fighting the trend.

3. Don’t Rely on Fibonacci Alone

Fibonacci can provide reliable trade setups, but not without confirmation.

Applying additional technical tools like MACD or stochastic oscillators will support the trade opportunity and increase the likelihood of a good trade. Without these methods to act as confirmation, a trader has little more than hope for a positive outcome.

In Figure 5, we see a retracement off a medium-term move higher in the euro/Japanese yen currency pair. Beginning on January 10, 2020, the EUR/JPY exchange rate rose to a high of 113.94 over almost two weeks. Applying our Fibonacci retracement sequence, we arrive at a 38.2% retracement level of 111.42 (from the 113.94 top). Following the retracement lower, we notice the stochastic oscillator is also confirming the momentum lower.

Figure 5: The stochastic oscillator confirms a trend in the EUR/JPY pair.

Source: FX Intellicharts

Now the opportunity comes alive as the price action tests our Fibonacci retracement level at 111.40 on January 30. Seeing this as an opportunity to go long, we confirm the price point with stochastic, which shows an oversold signal. A trader taking this position would have profited by almost 1.4%, or 160 pips, as the price bounced off the 111.40 and traded as high as 113 over the next couple of days.

4. Using Fibonacci for Short-Term

Day trading in the foreign exchange market is exciting, but there is a lot of volatility.

For this reason, applying Fibonacci retracements over a short timeframe is ineffective. The shorter the timeframe, the less reliable the retracement levels. Volatility can, and will, skew support and resistance levels, making it very difficult for the trader to really pick and choose what levels can be traded. Not to mention in the short term, spikes and whipsaws are very common. These dynamics can make it especially difficult to place stops or take profit points as retracements can create narrow and tight confluences. Just check out the Canadian dollar/Japanese yen example below.

Figure 6: Fibonacci is applied to an intraday move in the CAD/JPY pair over a three-minute time frame.

Source: FX Intellicharts

In Figure 6, we attempt to apply Fibonacci to an intraday move in the CAD/JPY exchange rate chart (over a three-minute timeframe). Here, volatility is high. This causes longer wicks in the price action, creating the potential for misanalysis of certain support levels. It also doesn’t help that our Fibonacci levels are separated by a mere six pips on average, increasing the likelihood of being stopped out.

Remember, as with any other statistical study, the more data used, the stronger the analysis. Sticking to longer timeframes when applying Fibonacci sequences can improve the reliability of each price level.

The Bottom Line

As with any specialty, it takes time and practice to become better at using Fibonacci retracements in forex trading. Don’t allow yourself to become frustrated—the long-term rewards definitely outweigh the costs. Follow the simple rules of applying Fibonacci retracements and learn from these common mistakes to help you analyze profitable opportunities in the currency markets.

Числа Фибоначчи: циклом и рекурсией

Числа Фибоначчи – это ряд чисел, в котором каждое следующее число равно сумме двух предыдущих: 1, 1, 2, 3, 5, 8, 13, . . Иногда ряд начинают с нуля: 0, 1, 1, 2, 3, 5, . . В данном случае мы будем придерживаться первого варианта.

Формула:

Пример вычисления:

Вычисление n-го числа ряда Фибоначчи с помощью цикла while

  1. Присвоить переменным fib1 и fib2 значения двух первых элементов ряда, то есть присвоить переменным единицы.
  2. Запросить у пользователя номер элемента, значение которого он хочет получить. Присвоить номер переменной n .
  3. Выполнять следующие действия n – 2 раз, так как первые два элемента уже учтены:
    1. Сложить fib1 и fib2 , присвоив результат переменной для временного хранения данных, например, fib_sum .
    2. Переменной fib1 присвоить значение fib2 .
    3. Переменной fib2 присвоить значение fib_sum .
  4. Вывести на экран значение fib2 .

Примечание. Если пользователь вводит 1 или 2, тело цикла ни разу не выполняется, на экран выводится исходное значение fib2 .

Компактный вариант кода:

Вывод чисел Фибоначчи циклом for

В данном случае выводится не только значение искомого элемента ряда Фибоначчи, но и все числа до него включительно. Для этого вывод значения fib2 помещен в цикл.

Рекурсивное вычисление n-го числа ряда Фибоначчи

  1. Если n = 1 или n = 2, вернуть в вызывающую ветку единицу, так как первый и второй элементы ряда Фибоначчи равны единице.
  2. Во всех остальных случаях вызвать эту же функцию с аргументами n – 1 и n – 2. Результат двух вызовов сложить и вернуть в вызывающую ветку программы.

Допустим, n = 4. Тогда произойдет рекурсивный вызов fibonacci(3) и fibonacci(2). Второй вернет единицу, а первый приведет к еще двум вызовам функции: fibonacci(2) и fibonacci(1). Оба вызова вернут единицу, в сумме будет два. Таким образом, вызов fibonacci(3) возвращает число 2, которое суммируется с числом 1 от вызова fibonacci(2). Результат 3 возвращается в основную ветку программы. Четвертый элемент ряда Фибоначчи равен трем: 1 1 2 3.

Fibonacci – Traders Beginner Guide Part 1

Leonardo Bonacci – also known as Leonardo Fibonacci – was an Italian mathematician in the 12th century. He was considered the most talented Western mathematician of his time and one of the greatest of all time. Although Fibonacci himself did not come up with what is now known as the Fibonacci sequence, he certainly introduced the phenomenon to the West in his book Liber Abaci.

As can be seen, each number in the sequence is the sum of the prior two numbers. Thus, the Fibonacci sequence can be summarized using this formula: ?? = (??−? ) + (??−? )

How are the Fibonacci retracement and extension levels derived from the above sequence?

61.8% = divide current number with next (from 13 onward) e.g. 55/89 = 0.618 (approx.)

161.8% = divide next number with current e.g. 89/55 = 1.618. This is also called the “golden ratio”

38.2% = 0.6182 (or skip 1 sequence in division e.g. 55/144 = 0.382)

23.6% = skip 3 sequences in division e.g. 34/144 = 0.236 (approx.)

261.8% = 1.6182 or 1.618 0.618

0%, 50%, 100% & 200% are not Fibonacci numbers, but are nonetheless used by some traders as they are psychological levels

Important Fibonacci levels

As seen above there are many fibonacci numbers however traders use and rely on some levels more than the others. The most commonly used numbers are:

Here is an example where the EURGBP had an up move followed by a correction before it continued up. See how the fibonacci retracement levels are the places where the price stopped and fluctuated. This is because these levels act as support or resistance and many traders have their orders placed there: buy/sell, targets and stops.

What makes the Fibonacci Method of trading so popular?

First of all this is a self-fulfilling prophecy. It has nothing magical about this levels but when a huge part of the traders rely on them, they become important and relevant. Pure psychological correlation. You can say the same thing about trend lines for example. If many people draw a trend line the same way, and all these traders see the same thing, this trend line will become very very strong and reliable as all these traders are going to use it as a dynamic support or resistance.

Another reason is that Fibonacci method is one of the oldest methods out there. There are tons of books, video tutorials, seminar and webinars on the subject. It has been around for years and the vast popularity is increasing every single day. Same as the Elliot Waves theory.

Fibonacci Retracements vs Extensions

The Fibonacci retracement tool as the name suggests is used when the price is correcting itself during a trend. The correct way to place the fibonacci retracement is to find a top or bottom (swing) and let the price run. Once you see an opposite move, this is where the second point is set. Let’s have a look at an example:

Note 1 – in this case once we saw the first break of a previous low, and after a green candle we could’ve placed the fibo tool.

Note 2 – notice that the trend is very strong and in price managed to retrace only to 23.6% and then at the second attempt up it almost reached 38.%.

In summary the fibonacci retracement is used to forecast levels to which the price is very likely to correct itself during a trend. Usually used as Entry levels.

Fibonacci Extension on the other hand is used to predict or forecast what levels the price might reach in the direction of the trend. The projection is a perfect way to set your targets. It uses 3 reference points on the chart as opposed to the retracement tool. Example:

This is a perfect example of how the extension tool works. Initial move (breaking last low, meaning the price is going into a down trend). Price stops and turn up (most likely going for correction, at least as long as last high is holding). Next step is to see a top created during the correction. Once that top is there we can use it to project the future price movements and where the price is expected to reach. The three most important levels are 61.8% , 100% and the 161,8%.

In this example price went to 100% by the pip! Of course you can expect a small deviation above/below a given level. Even though 61.8 didn’t hold, the price still respected the level which coincided with a strong supportive zone (look left on the chart). This is how you get multiple confirmations from both fibonacci extension and horizontal S/R.

How to plot Fibonacci levels on the chart

Almost all trading platforms will have Fibonacci as part of their technical tools, so one does not have to worry about calculating the retracement and extension levels manually. All the trader has to do is identify a distinct high and a distinct low and plot the Fibonacci levels by dragging it from one extreme to the next.

It is important to select the candlesticks’ wicks, so as to obtain more accurate results. They are always drawn from the left to the right:

  • for an upward trending market, it is drawn from the low to the high, and
  • for a downward trending market, it is drawn from the high to the low

Once plotted, the trading platform would automatically display the Fibonacci retracements and extensions, and also their corresponding price levels. The Fibonacci tool is highly customisable, so one could add or remove certain levels.

Combining Fibonacci with other technical tools

Trading is a game of probabilities. As traders and analysts, our aim should be to find opportunities which have higher probabilities of success. It is important to remember that fibonacci levels are not always as accurate and reliable as we would want to – just like any other form of technical analysis. This is why combining it with other methods of technical or fundamental analysis would bring better results and accuracy.

Converging fibonacci retracement/extension levels

One way would be to use fibonacci levels on multiple time frames and multiple trends. When there are two levels that would end up at the pretty much same zone you can expect that this level would be a pretty strong support/resistance zone.

Same applies for the extensions. When projecting the targets you would many times end up with two different projection levels at the same zone. These levels are called magnet levels and are a great zones for protections and entries as price tends to reach them and bounce off of them.

Divergences

Divergences are also another very accurate way to spot potential entries. Let me show you an example.

In red you can see where I have plotted the fibonacci retracement tool (1 and 2). Next in blue numbers I have marked the Fibonacci extension tool (1,2,3) thus creating a sell zone where I expect the price to stop and continue lower. The levels that converge are 50% and 61,8% from the retracement along with 61.8% and 100% (red text and lines) for the extension.

This is where we got bearish divergence. Not very extreme but still it was divergence, you can check the chart yourself to make sure :). This is an example of a well structured and argument based entry. This is how all your entries should look like when you go back and review them. There must be a reason or better of a few reasons why you have entered a certain trade.

Other methods to get extra confirmations are trend lines of course, horizontal support and resistance, false breaks, candlesticks patterns, formations such as flags or triangles/wedges.

Really anything that you have in your arsenal would be helpful.

Back to the example above. The entry would have happened right after the price entered the sell zone and the divergence was there for a fact. And when is the divergence a fact? When the macd history bar ticks down (down as this is bearish divergence). There is a strong red bar closing below the 3 previous candles which is also a good sign that the bearish momentum is there.

Place your stop loss above the high created and aim last swing low (0% fibo retracement – in other words #2 red or #1 blue).

It is important to always always always check your Risk:reward ratio. This is the correlation between the potential loss and potential reward you can get from this trade. You want a risk:reward ratio of minimum 1:2 meaning that you will risk $1 with the possibility to win $2.

That would be all for part one of this article. Fibonacci methods of finding entries and exits are amazing and I advise you to look into it. Many traders make money on daily basis, basing their trades entirely on the methods explained above. Remember that the strategy you use is not as important as mastering it.

Any strategy or method could produce extremely good returns for 1 trader while his buddy is losing money. If you like this post share with your friends – thank you in advance!

I would also love to hear your comments below. Do you use fibonacci tools? Do you find them accurate? What time frames do you mostly used them on? How about multi time frame analysis?

Sources: en.wikipedia.org / forex.com

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Thanks Vladimir, this a lot of gift to me, i appreciate the lesson and i lent more from your text i have been using fibo retracement and extension targeting 50% – 61.8% retracement but the extension i use for my take profit but now i learn to use extension for confirming the fibo retracement zone, i also use bkmgc2 indicator for more confirmation. i wish to learn more directly from you i will love to communicate directly with you.
thank you

Hi Abraham and than you for your comment!

Fibo 50-61,8% are indeed one of the most commonly used levels. You can talk directly to me by using the blog chat that you will find in the home page of the blog! Looking forward to hear from you and share ideas.

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