The Usefulness of High-Compression Fibonacci Levels

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Important Fibonacci Levels in Forex

Fibonacci levels are extremely important for a correct Elliott count, and the patterns Elliott identified are strongly related to these levels. Regardless of whether an impulsive wave or a corrective one forms, Fibonacci levels are the decisive factor for correctly counting waves.

Elliott identified many types of patterns that evolve around Fibonacci levels, and there are both internal and external Fibonacci considerations when counting waves with the Elliott Waves theory. External considerations refer to the overall place of the pattern in the whole structure, while internal Fibonacci projections refer to either retracement or expansion levels that need to happen in a pattern.

Just to give you an idea, in a contracting triangle – one of the commonest patterns defined by Elliott – at least three waves need to retrace a minimum of 50% of the previous wave. Such a rule is an internal one, and it defines the overall pattern. If there are no three waves to fulfil this rule, then it is not a contracting triangle. As simple as that.

As you can see, Fibonacci levels are the pillars of the Elliott Waves theory, and the purpose of this article is to list the most important ones, together with the implications that arise from their interpretation.

Fibonacci Levels to Consider

Fibonacci retracement and expansion levels are both equally important, even though traders tend to focus more on the retracement ones. This happens because of the constant search for the third wave in an impulsive move, as this is considered to be the one that is most of the time the extended wave, and hence the most profitable one to trade.

When talking about Fibonacci levels, it is important to make a clear distinction between retracement and expansion levels. Both categories are used in the correct interpretation and count with Elliott Waves theory, but their application is a bit different.

The Most Important Retracement Levels

As retracement levels are more popular, it is only normal to start with them. Using retracement levels when trading is also extremely useful from a money management perspective, in the sense that traders place pending orders on specific retracement levels, and if those levels are not reached, it means that the corrective wave is not completed, hence no new trade is taken.

In this way overtrading is avoided, and discipline takes control over the trading account. Usually, the combination of the two results in the trading account growing.

The Golden Ratio

By far the most important Fibonacci retracement level is the 61.8%, or the so-called “golden ratio”. Fibonacci defined this as the crucial level for almost everything that surrounds us, and it is no wonder it is finds such an important use in the technical analysis field as well.

The 61.8% level is used in both impulsive and corrective waves, but the interpretation is quite different. In impulsive waves, its main use is to find the entry before the third wave, as the standard interpretation is that the second wave will retrace 61.8% of the previous first wave.

While the retracement level is alright, in the sense that one should indeed take a trade if the second wave retraces that much into the first wave territory, it is unlikely that the end of the second wave will be close to the 61.8% level. It is most likely that only part of the second wave, probably the a-wave, will end around the 61.8% level, and the rest of the second wave will follow.

This is one of the biggest mistakes traders who use Elliott as a trading tool make. However, for whatever the reason, this interpretation, even though most likely to be wrong in almost all cases, is extremely popular.

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The golden ratio level is used in corrective waves as well; as a matter of fact, it defines corrective waves. As you’re about to find out in our future articles, corrective waves are all about 61.8% retracement.

In order to correctly interpret a three-wave structure as either a zigzag or a flat pattern, all eyes should be on the b-wave retracement level. Whether this one retraces more or less than 61.8% when compared with the previous a-wave is the most important factor in deciding whether the three-wave structure is a flat or a zigzag.

Moreover, the golden ratio has implications in deciding whether a correction is a simple or a complex one. If the move that follows a simple correction does not confirm the correction, it means that market is forming an intervening wave or a corrective wave. This is the very first sign that a complex correction is about to unfold. Complex corrections are of multiple types, though, and these types are given by the retracement level the intervening wave reaches.

In other words, the 61.8% level is decisive for the analytical thinking that should be used with Elliott Waves theory. To answer all those questions related to the nature of a move, its type and interpretation, one will have to use the golden ratio in the process.

The 50% Retracement Level

The common wisdom when trading with Elliott Waves calls for the second wave to retrace anywhere between 50% and 61.8% into the first wave’s territory, and this makes the 50% retracement level an extremely important one. It is by far the most important use of it, and the next most important is to interpret the Fibonacci retracement inside a contracting triangle, as mentioned earlier in this article.

The 38.2% and 23.6% Retracement Levels

These two are not that popular, but they do have important application when looking to find the end of the fourth wave in an impulsive wave, or the b-wave in a zigzag. If the second wave in an impulsive wave is a complex correction, chances favour greatly that the fourth wave will be a simple one, and it will retrace just a bit. A good opportunity to trade the fifth wave therefore arises, and traders enter on 23.6% first, and then more aggressively on the 38.2% levels.

The b-wave of a zigzag cannot retrace more than 61.8% of the previous a-wave, and that makes the 23.6% and 38.2% levels good entries for traders who want to ride the c-wave. In a zigzag, the c-wave is always an impulsive wave, and this makes it a wave many traders want to be in.

Expansion Levels to Consider

In order of their importance, the following are the expansion levels to be considered when trading with Elliott Waves theory:

  • The 161.8% level – This is the defining level that gives the extension in an impulsive wave, but it has applications in corrective waves as well. Just to give an example, if the b-wave in a flat retraces more than 161.8% of the a-wave, then it is not possible for the c-wave to break the end of the a-wave.
  • The 138.2% level – This is one level that helps differentiate types of flats, as flats are the most-divided simple corrections.
  • The 123.6% level – Such a level is calculated again, to make a difference between two types of flat patterns.

The above retracement and expansion levels are the ones the Elliott Waves trader needs to be familiar with, as correct counting depends heavily on these levels.

Fibonacci levels as targets of movement

Interesting historical analogies sometimes arise in the market. The last strong drop in the pound, similar to the fall of last year, was recorded in 1992. By the way, it also began in August. Then the pound fell 6050 points from the level of 2.0110 to the level of 1.4060. At first, the pound quickly fell below the 100-week average (yellow in Figure 1) to the level of 1.6815, then adjusted to this average by more than 1000 points to 1.8050 and then continued to fall. That is, at first the pair broke through a strong level immediately, corrected for it, and then fell off from it, as if from resistance.

The objectives of market movements are often Fibo levels 123.6%, 150% and 161.8% of the first rise or fall. If we “pull” the Fibo grid, taking the first drop of 100-2.0110 for 1.6815%, we will get the following levels: 123.6% – 1.6040, 150% – 1.5175, 161.8% – 1.4775. Then the level of 123.6% was broken immediately, the level of 150% acted as local support, from which the price corrected again and fell below the level of 161.8% to a minimum of 1.4060. That is, with high volatility during a landslide fall, these levels worked poorly. But the fun began later.

In the spring of 1993, a strong correction occurred and it ended at the level of 123.6% of the fall and a 50-week average. On the graph, this point is indicated by a blue arrow. The fall continued. First, the price fell to the level of 150% Fibo by 1.5175, and then to 161.8% Fibo at 1.4775. The minimum was 1.4640. And at this level, many months of consolidation began. Level 1.4775, of course, was pierced by tails, but every time it is false. The maximum was pierced by 225 points. On the daily chart, I counted 14 significant rebounds from or out of this level. In figure 1 – red arrows.

The resistance was often the level of 150% Fibo at 1.5175. This consolidation ended with the formation of a reversal triangle, which, in the end, was broken up, and a strong rally began. And where did it go? Easy to guess three times. To the level of 123.6%. He, of course, was also struck first, but they didn’t go too far and again began a many-month consolidation, where this level was resistance at least seven times. As a result, the price again slipped to the same levels of 150% and 161.8% (almost reaching the last). And another growth began from under the level of 150%. Where this time? Yes to the level of 100% Fibo. And at this level, many months of consolidation also began.

Fig. 1. Weekly chart of the GBPUSD pair. Fibo grid work.

The conclusions are as follows. After a strong collapse, the market was in a state of relative range trading for many years, where the levels of 100, 123.6, 150 and 161.8% of the first fall very often acted as local support or resistance. And the main thing here is the levels. We do not know whether the story with the range will repeat itself, or whether the structural crisis may force the market to continue a collapse, or, on the contrary, strong growth will begin, but similar levels have already begun to work.

Fig. 2. The current state of the GBPUSD pair and its Fibo levels.

Last year, the pound fell 6600 points from 2.0150 to 1.3500. The first drop was to the level of 1.7445, from where the correction took place to a 50-week average. This time, the pound did not reach the 100-week pound, but the correction amounted to the same 1210 points. In 1992, it was 1225. I pull the Fibo grid onto this wave and get the levels 123.6% – 1.6800, 150% – 1.6090 and 161.8% – 1.5770. These levels also acted as local supports and resistance in the process of falling last year. But the market also tumbled below 161.8%. A strong correction took place this spring. She was much stronger than the correction of 1993, when the market grew by 23% from the fall. Now the market has corrected by 50% of the fall, but, most interestingly, the level of 123.6% broke only tail and turned down. This time, 50% and 123.6% coincided around 1.6800. And the maximum was at 1.7040, a 100-week average.

Fig. 3. The current state of the GBPUSD pair and its Fibo levels. Approximation.

From the level of 123.6%, the pound went down to 150% at 1.6090. The minimum was at 1.6112. He bounced from it up to the level of 123.6 (it did not reach 50 points) and again fell now to the level of 161.8% at 1.5770. From here there can be a decent bounce up. If history repeats itself, then the pound can arrange consolidation here, between the level of 161.8% at 1.5770 and 150% at 1.6090 or slightly higher. Resistance may be a 50-day average. So far, history has been repeating, and the levels have worked. Let’s see how the market will manage it further.

Fibonacci Targets: Unique and Amazing Levels

Christopher Svorcik

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The next ‘target’ of this blog is Fibonacci targets!

Last week we discussed the magic of the Fibonacci retracements (entries).

This time around the focus is on profitable exits… Let’s start with the basics.

Fibonacci Targets Basics

Fibonacci targets are levels which are based on the Fibonacci sequence numbers and have values above 1.000 or below 0.000 depending on how you draw the tool.

Fibonacci targets are projected spots on the chart where traders can exit for a profit; whereas Fibonacci retracement levels are entry spots that are potential bounce spots for trend continuation.

I myself add the Fibonacci targets to my Fibonacci retracement and entry tool. This saves me time because I only need to use 1 tool for both ENTRIES and EXITS. I highly prefer this method!

I like it more than separating targets and retracements (many traders do it but not me). They use the Fibonacci extension tool for calculating targets and the retracement tool for pullbacks. Obviously the target and retracement tools are separate.

If you are interested in using the Fibonacci TOOL for both retracements AND targets then you do that by changing the levels in the tool itself. Check out this video for more information on how to do that.

Fibonacci Targets: the Main Targets

The main targets are ALWAYS the -0.272 and the -0.618 Fibonacci levels. Be aware that these levels are unique and very powerful! The market respects these levels a lot. What I mean is that price will often continue to these targets and then switch gears and reverse only after hitting these levels. Quite remarkable! See the screenshots above and below for examples.

Check out the video here below to see more info on Fibonacci targets.

The -0.272 target is the main one for deep Fibonacci retracements like 78.6% and 88.6%. But the other Fibonacci retracement levels could stop at this target for a while before marching further to the next target. The -0.272 target is calculated by taking the square root of the -0.618.

The -0.618 target is the main one for other Fibonacci retracements like 23.6%, 38.2%, 50% and the 61.8% targets. The target is based on the golden ratio. In many cases the -0.618 is the best exit spot UNLESS a bigger trend continuation is expected.

Fibonacci Targets: All Levels

When a trend boom could occur, then price can accelerate towards higher targets as well. Here is the FULL list that I use:

  • -1.000 Target
  • -1.272 Target
  • -1.618 Target
  • -2.618 Target
  • -4.236 Target
  • +138.2 Retracement level (break into opposite direction)
  • +161.8 Retracement level (break into opposite direction)

Here are some other targets I don’t use but they are worthwhile as well:

  • -0.786 Target
  • -2.000 Target

I add the 2 levels above the 1.000 level, which is the invalidation level of the Fibonacci retracement, just in case price breaks my Fibonacci tool boundaries. In these cases price has actually broken below (uptrend) or above (downtrend) the last support or resistance level imagined beforehand. Obviously we don’t expect Fib bottoms or tops to be broken; otherwise the Fibonacci tool should be drawn differently. But sometimes it does occur and then having these levels on the charts helps, because price tends to respect them and sometimes bounces at them.

Keeping the targets flexible and adjusting them for every situation is essential to let winners run when possible and take profits at reasonable distances when a big run is not likely. See more in this post. We will be releasing more posts on this Fibonacci series on how you can complete that in real life!

Before leaving, make sure to read our entire Fibonacci series!

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  1. Почему – Итак это последний месяц конкурса, и все ринулись писать статьи. К сожалению компания решила прикрыть много кункурсов, согласен. Мы не оправдали их надежд. В Бинарах все лупят нахаляву, порой у победителей смотришь стайтмент а там. -1000% профита ))) а то и более, просто человек на удачу изо дня в день, пытался разогнать свой счет. то есть даблил-удваивал удачу. Если посмотреть то всего для победы нужна серия из 6 побед 1-2-4-8-12-16. Я все мечтал победить но увы. Теперь на реальные деньги страшнее. Конкурс статей в массе писатей пишут ни о чем. Технический анализ просто нужна удача и по возможности максимальное количество прогнозов. Тоже лотерея.

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amazing article , it contains a useful information

Робот не законченный, а где трейлинг-стоп ? А так работа в безубыток ?!

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