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

Update on 29 August 2019:

If you are interested in my hugely popular online Elliott Wave Educational/ training program please visit https://elliottwaves.com

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30 Comments

  1. 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

    1. 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.

        1. 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

  2. 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

  3. Hello Sir,

    I am half way through your book and so far its going really really good. I am so amazed with the content of the book and I thank you so much for all your effort to share your knowledge. I also wanted to know if you conduct any seminars on Elliot Wave…

    1. Chethan, Welcome aboard! Yes, there will be an occasional seminar/workshop. Look out for notification on the blog,

  4. Sir, is there any relationship between harmonic patterns and elliot wave patterns ? please reply

    1. Vivek, As I havent studied harmocic patterns, I cannot answer your question truthfully.

  5. Dear Sir

    I have just begun reading your ebook on Elliott Wave as a beginner trader and I feel very fortunate to have come across your very generous teachings reflecting the understanding that the market is Brahman. Many good wishes and gratitude to you.

  6. Hello Sir,
    Thanks for sharing this wonderful post with us.
    May I give a gentle recommendation if you don’t mind? How about including this illustration in the next edition of your book FWTFF.

    Hope to meet you some day.
    Regards,
    Jatin A.Nagpal

  7. Hi Ramki,

    Elliot Wave caught my imagination just a couple of months ago and I came in your contact (Website and Youtube). I purchased your book. I have a very basic understanding of EWP. I read your book once and honestly just imbibed 20% of the concept. Will read it after a gap of 1 month so that I could understand it. It would be great if you can make very basic 10-15 videos for beginners…it would be amazing help. Will wait for an online course from you at reasonable price.

  8. Hello Sir, I am studying your book and using I’ve using this website. Yhank you for your time and the way you give us the knowledge is easy to understand

    Best regards,
    Dominik Pawlicki

  9. Hi Ramky, thank you for your job, I’m studying the book.

    Regard Fibonacci retracement I noticed that using a semilogarithmic chart the level can be different. What do you suggest we use.

    Best
    Cinzia
    (Italy)

    1. Hi Cinzia, Stick with normal charts as that works most of the time. It is only when you are looking at very large numbers and time frames, where impact of inflation also affects the price, that you need to use semilog scale.

  10. Just now I completed reading your book Sir. It provides really very good insights. Thanks for sharing your knowledge. I’m more confident in my trading than before.

  11. I just finished reading your book. it is very good book, now I am more confident to the next level of my trading. Thanks Ramki for sharing this knowledge. I am looking for your seminars sir

  12. Sir, Presently I am reading your both books and very eager to enroll for your online course. Sincere request to you about giving thought on offering discount on the backdrop of COVID-19 situation to new learners like me ,one you have offered in January .Thank you

    1. Hello Yogita. I have been receiving many emails with similar requests. So this is what I propose to do. I will drop the price by 50%, but to be fair to the others who paid full price, I will give access for 6 months. This will go into effect by tomorrow morning. Stay Safe!

  13. nice ! but sir I want some practice book . I read whole book and I learned most of things . but I think I have to do practice wok.

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