How to use Fibonacci Ratio Retracements Original Post

If you are looking to learn how to use fibonacci ratio retracements, you have come to the right spot. A few years back I read a book by Constance Brown – “Technical Analysis for the Trading Professional”. She made a very good point on how the ‘theorist’ among technical analysts would, incorrectly, choose the extremeities of a move to draw fibonacci retracements.

Choosing the right place to draw fibonacci ratio retracements could mark the difference between success and failure in trading decisions.

This shows the 'wrong' way to draw fibonacci retracements
This shows the 'wrong' way to draw fibonacci retracements

Such an approach would often result in their missing a good move because the market falls just short of their ideal retracement levels. The practising professional would spend a few extra minutes to see what were the pressure points in recent history and choose to ignore the spikes that shows up ever so often. Why make the same mistake as some poor trader whose stops were run in by the market at the extremities? Here is a demonstration of the two outcomes using the chart of Sterling Pound. The same technique for using fibonacci ratio retracements works equally well, whether you are considering the chart of a stock, an index, forex or a commodity.

The preferred way to draw fibonacci retracement grid
The preferred way to draw fibonacci retracement grid


15 Comments

  • c.venkatesh

    not very conversant with elliot waves..but now taking interest after reading your blogs…do you see gbp/usd in wave 3…

  • […] a recent post, I highlighted the importance of correctly drawing the Fibonacci grid. The chart you see here is another example of how one should ignore spikes while drawing Fibonacci […]

  • rajesh from india

    please suggest a good book to learn elliottwaves, its the best tool

  • shunty k

    Sir, i want to make a career in share market and i trade in nifty options , kindly suggest what knowledge i should gain to make good profits daily thanx

    • Hi Shunty, To be honest, I am not qualified to give you such advice. It is impossible to make good profits daily. Most good traders lose often, but when they make money they make a big profit that offsets many small losses. However, a majority of traders do the opposite. They lose often, like everyone else, but they take small profits. Thus they end up losing. These are well known tendencies of human nature and unless you are one of the rare ace traders, you should keep trading as a hobby and not a livelihood.

  • Juan Francisco Caudillo

    Today I read about your S&P perspective and I found it very interesting, the thing is I had the same EW labeling weeks ago and few people agree with me, not to mention EWI.
    My question is if you have consider harmonic-patterns (fibonacci related) and sepecifcly 112.8% retracement of may2011 (1.370) – oct2011 (1,074) retracement (-296 points), giving resistance at 1,408 points, then 118.9% giving 1,425 points and finally 127.2% giving 1,450 points.
    Finally I would like to send you some charts if you are interested, please let me know.

    • Hi Juan, Thanks for your comments. Your charts are most welcome on the Forum where others could also discuss with you. As for your views not finding general agreement, that is expected. So long as we all know that anyone could be worng (including us and them) it is fine, What matters is you have done your homework carefully, and know where you will be wrong. The goal of any analysis should be to make money. I share my work because I like to. Some may not agree with the views, but that is OK.GUess you too will want to take that approach.Good luck. Oh about the harmonic ratios, I try not to cloud the end points with too many projections, because we will have a target every 5 points using one or the other ratio!

  • thiyagu

    hi ramki im really shocked when you say that nifty goes down to below 5000 it really goes down! I am new to trading and i like to choose my profession as a day trader. please suggest me some technique or theory(like elliot ) before come into trading which are more than enough for day trader.thankyou

    • Hello Thiagu, It is never easy to make money in the markets. Elliott Wave is one of the tools one can use to help in trading decisoons, to have an edge, to enter the market when the odds are in your favor, and the risk-reward ratio is high. Inspite of ths, people will make losses because of their emotional set up. I am not able to give you any advice on career choice. It depends on your personal financial situation. Persoanlly, I would like to recommend trading as a hobby, not as a profession for most people.WaveTimes is where you learn about Elliott Waves.

  • karanjet

    Dear Ramki,
    I had learnt a little bit of Elliot Wave Theory and Fibbonacci numbers with candlestick behaviour and can trade successfully in commodity as well as equity..
    Thanks your site has put the seed in me and i have learnt to get a little bit perfection in myself……….
    Your site has given my life a new direction……….. Pls do continue…. and hey pls dont leave silver and gold analysis……… people wait for ur comments in commodity market…..
    with warm regards,
    Karanjet

  • Mike Lamoreaux

    So you’re referring to her prior swing comment and her book Fibonacci trading? Do you find starting at the top to gain support an accurate way to do it especially not moving away from the y-axis?

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