How to use Fibonacci Ratio Retracements

How to use Fibonacci ratio retracements is a topic that every serious trader should look into. 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 extremities 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.

Example of an incorrect use Fibonacci Ratio Retracements in real-world trading

This shows the 'wrong' way to use Fibonacci ratio 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 practicing 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?

Examples of how to use Fibonacci Ratio Retracements in real-world trading

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. Learning how to use Fibonacci Ratio retracements in Elliott Wave analysis is like winning half the battle.

The preferred way to draw or use Fibonacci ratio retracements grid
The preferred way to draw Fibonacci retracement grid

11 Comments

  • Jegan Mohan

    Hello Sir,

    Thanks for your great work.

    regards
    jagan

  • Brian

    Good day and thank you for all your work. I am a Harmonic Pattern/Structure based trader, and interested in your ideas about how the 1.414 ratio can be used to predict turning points (As well as the other ratios mentioned) Wishing you well. Brian

    • Hello Brian, If you go through my work carefully, especially FWTFF book,you will notice that I subordinate Fibonacci ratios to wave patterns. The right way to use these ratios is to validate our wave count and to anticipate likely distances a move could travel. If we attempt to “predict” turning points rather than anticipate and prepare for a move to these points, we will have success some of the times and failures at others. Good luck.

  • Pickett

    Ramki. Just bought your book. Trying to learn this stuff.

  • sathish rajendran

    just bought ur book..

    • Ramki Ramakrishnan

      Sathish, your have made the best investment in your trading education. All the best

      • bramamm

        hi sir pls tell how to get this book it is my passion to get knowledge on markets

        • Ramki Ramakrishnan

          Bramamm, You can buy the Elliott Wave book “Five Waves to Financial Freedom” by opening an account with Amazon.com or Amazon.in (as you are in India) and then searching for Elliott Wave books. You will find the above book listed there. All the best

  • Gagan Deep

    Hello Sir,

    Just bought your ebook from Amazon. Going through it but initial feedback is that it is very easy to comprehend. WIll try to finish it ASAP.
    Inclined towards wave based trading

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