Using Fibonacci Analysis - Part One

This is a technical tool available to new or experienced investors regardless of your trading time horizon or market of choice. Fibonacci analysis is a way to forecast levels of support and resistance and project price targets. It can be used to set stops as well as timing entries, however, the most valuable information is what it can tell us about risk. In this lesson we will be introducing a few of the tactical concepts and tips you will need for this course.Fibonacci Analysis Fibonacci Concepts What are the ratios and how are they used? I will spare you the long, historical (and mostly erroneous) explanation of where the Fibonacci ratios come from and how it appears in the natural world. If you are really interested, here is an article to learn more. In the forex essentials course, we introduced Fibonacci retracements and the Fibonacci number series. From that number series we get the Fibonacci ratios, which are applied to price charts. While there are many Fibonacci ratios, in our experience, it is sufficient to stick with the standard levels of 23.6%, 38.2%, 50%, 61.8%, 100% and 161.8%. Slicing these levels into thinner segments results in a crowded chart and probably won’t improve your analysis. Where do the lines go? The sticky part of fundamental and technical analysis is that they are both very subjective, which means that they allow for a great deal of interpretation and individual preference. However, with Fibonacci analysis that subjectivity is easy to handle and I have a good example to show you why. In the chart below you can see a Fibonacci retracement drawn from the “top” of the market in June to the “bottom” of that trend in August where prices started to move back up. Once prices started to move back against the trend in late August we could anchor our Fibonacci retracement lines to that bottom. That analysis may seem a little subjective but I can show that as long as you are picking extremes in the trend it really won’t matter. I have simplified the chart to just show the 23.6% retracement level. To see the charts and a video, click here: [url]http://www.learningmarkets.com/index.php/200901051208/Forex/Forex-Technicals/using-fibonacci-analysis-part-one.html[/url]