applying fibonacci

Hi,

I am fairly new to forex and I read constantly of the importance of fibonacci but haven't a clue how to apply it, even in the physical sense on my MT4 platform. So firstly, I wonder if someone could tell me the correct way to apply fibonacci to my charts after I have clicked on the fib symbol.

Secondly could someone recommend some good reading on the subject suitable for a techical dumbo like me.

Thanks

There are many Fibonnaci-related tools, but you probably are talking about Fibonacci Retraces. In that case, firstly you gotta know that fib retraces work best in clearly trending scenarios. They are meant to measure the degree of retrace of each consecutive swing. If the trend is up, draw them from the swing low to the swing high, and pay special attention to the 38%, 50% and 61% levels. Each of those level work as support/resistance where the swing retrace *might* end. The optimum retraces are those that end between that area (between the 38 and the 61 fib), and if it bounces off any of those three levels right to the pip, even better.

Have a look at the current USDJPY Daily chart uploaded below.

PS: remember: Fib Retraces are, in my opinion, ONLY valid when in clearly trending markets.

Hi WTB,

Thanks very much for taking the time to respond. I notice that the fib levels on your daily chart only encompass the last 10/15 candles could you explain please why this is so? I suspect it's because it covers the latest trend up but Im not sure. How would I decide how much of my chart to apply fib levels to ?

Many thanks for your help.

I'd just like to add a few things here. Trading with fibs is the very cornerstone of how I plan and manage my trades. I have no idea if there really is some magical property of fibo retracements and expansions as it relates to the financial markets or not - and I really don't care. I find them to be extremely easy to use and understand. They're objective levels based on past price action and aren't derived from a fancy algorithm or anything of the sort. I do know that many traders use fibos which probably contributes to their popularity in a feedback-loop model: more traders use them, find sucecss, breeding more traders using them who also become successful, which in turn breeds more traders using them, etc. Think of them as a kind of self-fulfilling prophecy to some extent.

In any case, I think the above explanation of fibo retracements is terrific and concise. Do a quick google search and you will be innundated with links explaning the mathematics behind the fibonacci applications discussed by traders. I highly recommend you take some time to absorb this material. It's absolutely fascinating and whether or not you choose to utilize fibs in your trading or not, it's time well spent to learn about a unique property of one of the most dazzling number sequences in the field of mathematics. Plus, it's easy to understand!

To generate the fibonacci sequence (0,1,1,2,3,5,8,13,21,34,55,89, and so on) requires nothing more than simple addition. Start at the first 1 of the sequence, and add the number to the left to get the next number in the sequence: 0+1 is 1. Repeat over and over. 1+1 is 2, 2+1 is 3, 3+2 is 5, etc.

To really wrap your brain around all of the possibilities and empirical observations of fibo applications requires nothing more than a mastery of division to determine the various fibo rations. If you aren't so inclined, a small calculator will give you all the tools you need. I will leave the more advanced and truly amazing aspects of the fibo sequence to your discovery. In comparison, to understand and grasp superstring theory (even more fascinating IMO) requires a PhD.

As I mentioned before, I use fibos because of their objectivness. They're simple lines drawn on my chart which help to guide my thinking and decision-making as price data continually flows in. The real beauty of fibos as they relate to trading is that it's entirely up to you to determine how (or if) you use them and to what extent. You can adapt them to your trading style - a very powerful function of any trading tool. From my observation, fib levels are equally valid on all timeframes - from monthly to 1 minute. This tells me they're very robust.

For a good idea of how fibos can play a role in trading, check out the james16 thread. It will take you a long time to read it from start to finish (a LONG time), but you'll learn a lot about fibos and many other facets of trading from a very experienced pro trader.

Hopefully this helps you out - if you have any other questions don't be afraid to ask!

-=DAVE=-

Errrr I responded how to draw fib retraces in the post above mate. I even uploaded a picture with the points remarked on it. Let me quote myself:

It's got nothing to do with the amount of bars but rather with measuring the whole price swing.

Yes,

You cannot use a fib, unless you have a grasp on swing highs and swing lows.

I suggest you search that on the internet first, figure out how to spot those on a chart, and then search fibonacci.

Fibs are useless if not used with swing highs or lows. Period. And even though they are good a lot of the time. Sometimes they are useless anyways. (normally when I use them to get into a trade! )

The simplest way to describe a swing high, is when a candle reaches a higher price than the one before AND the one after it.

I am attaching a fairly clear example, but please do much more research and practice than I can show you.

Thanks Dave it did

Good luck

Anyone have a fib retracement indicator which also includes extensions for MT4?

If so could you post here?

Thanks.

here you go

fibs..he he. everyone is different! zillions of possibilities on all time horizons.
23.6,38,50,61.8,70.7,78.6...plus you got zig zags, flat patterns, doubl flats, double zigs, and dead times when there is nothing going on...you name it.~! thats why forex is hard to program and hard to make money at..
not to mention the extensions..1, 1.262,1.38,1.414,1.616 2., 4 ---5 s' and 3threes then an abc abc abc ...life is but a dream!

Thanxxx for the file...
It is automatic.
So I think there is no problme of looking for the right places to place the fibonacci.

And then there are alternate counts and X waves and Z waves and .... and ....

BTW what is 1.414 is that a derivation of 144? Hadn't seen it that way before if it is.

1.414 is..... larry presenvento stuff! I enclosed gartley... 1.414 is typically a 3 swings to the bottom type fib. --not heavily used.! my upload of his original junk failedbut if anyones interested. email me My only advise is to use elliot wave with
caution. You need to isolate time frames within timeframes or its very difficult to make any profitalble use of this junk.
If you want to learn ew study neely extension. Its a brutal read but...ew is not for the faint of heart. I know it upside down and backwards but trading is about risk and is no guarantee of making any coin.

You do realize that H.M. Gartley himself did not use fib ratios back in 1932 when his book "Profits in the Stock Market" came out.

In was only in recent times when Larry Pesavento applied fibs in his book "Fibonacci Ratios with Pattern Recognition". I guess he might be the one who came up with 1.414. Don't have either book so can't say one way or the other. Just curious though because I don't see it as an important number.

I do have Robert Miner's book Dynamic Trading which I highly recommend for anyone looking for practical real world Fib/EW trading and not just theory.

I am familiar with Pesavento and he does go very big in patterns but as you say time ratios and time frames along with price ratios and patterns are the key.