How do you differentiate between retracement and reversal? (In fibonacci)

I'm supposed to go long on one of the fibo lines (0.38, 0.5, 0.618) and project TP on fibo extension right?

But how do I differentiate between retracement and reversal? How can I be sure that market is gonna go back up and not dive its nose down?


http://www.forexfibonacci.com/fibonacci1.gif

Yes. The idea is to get good positioning within an existing trend, in this case, above an area of support.

The theory is that the greater the retracement (I think that's what you meant to say), the more likely that the trend is running out of gas and more likely to change direction. That's the theory - LOL.

The market can and does do anything that it wants at anytime.

Fibos and other indies are best used IMO to follow not forecast.
You use them to generate info that you can weigh out.Also, you should combine the fibos with market-generated pivot points and larger price areas.
For example: You see that your .50 retracement coincides with an area that has been bringing in buyers at long-term support around an even (say 1.800).

You'll have better success and learn more like that. Otherwise, just taking signals off of those calculated lines will be like stringing a line of buoys on the surface of the water and expecting the fish not to swim under them. Alternately, you can make a little shrine with a statue of Fibonacci and pray to it.

Hoping it helps,
Brent

I think you mean retracement , but you can't be sure it will stop at a certain line. All of those are possible, and it could even go further. I wouldn't look to buy until it hit at least .5 and showed signs of an upmove by breaking some resistance. You can never be sure what the market will do, so start with a small position and set a stop at about .8 and be prepared to lose, if it turns out to be a reveral instead. Practice a lot. Only chart time will help you know the difference.

Reading this, I feel my hands are tied a bit. I don't think fibs can tell you whether something will reverse or not, at least not reliably. So the whole presumption is fubar. Even price action is only as good as the sentiment behind it, and that's basically what you're trying to read.

The way I determine trend is to watch for consolidating chart patterns, followed by a breakout and confirmation. The trend is now in that direction until it either goes thru another pattern, or breaks past the previous one.

http://i46.tinypic.com/2nlh7k4.png


Notice how price consolidates then breaks out, making the new trend clear.

http://i45.tinypic.com/2m7ce3a.png

Notice how price is consolidating, and has recently made a move outside of the range. This move may hold, or it may fail and fall back within the range. Once it breaks out and tests (it'll test on a smaller TF, usually TF-1 or TF-2), we'll know.

I generally find that Fib retracement levels (especially 50 and 61) create some orderflow, and tend to offer at least some (temporary) support/resistance. I have the feeling the Fib expansion is applied by fewer traders, and therefore carries less value.

Besides that, trading a system based solely on Fibs will bankrupt most traders.

For me, as long as the price move below the 0.618 level, it will be considered as a reversal.