How to Use Fibonacci Arcs

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How To Use Fibonacci And Fibonacci Extensions

How To Use Fibonacci And Fibonacci Extensions

The Fibonacci tool is very popular amongst traders and for good reasons. The Fibonacci is a universal trading concept that can be applied to all timeframes and markets. There are also countless Fibonacci tools from spirals, retracements, Fib time zones, Fib speed resistance to extension.

In this article, I will explain how to correctly draw a Fibonacci sequence and how to use the Fibonacci extensions for your trading.

How to draw Fibonaccis – just do it

Often, traders who have no prior experience with Fibonaccis are worried that they are ‘doing it wrong’ and they then don’t use the Fibonacci tool at all. I can assure you, there is no right or wrong when it comes to drawing Fibonacci and you will also see that different traders use Fibonacci in slightly different ways.

The Fibonacci levels are %-based which means that even when you draw them differently, they will often line up correctly.

Step 1 – В Find an ‘A to B’ move

To use the Fibonacci retracements, you have to first identify an ‘A to B’ move where you can use the Fibonacci retracement tool. What do we mean with ‘A to B’?

A = the origin of a new price or trend move.В These are usually swing highs and lows, or tops and bottoms.

B = Where the trendВ move pauses and reverses to make a retracement.В

The following 4 screenshots show typical A to B moves

Now let’s apply the Fibonacci retracement tool to the A to B moves. For that, we pick the Fibonacci tool from your platform, select point ‘A’, drag it to ‘B’ and release it.

Connecting A to B moves with the Fibonacci retracement tool

Step 2 – Find the retracement point C

After you have identified an A to B move and plotted your Fibonacci tool on your charts, you should be able to find point C.

C = the point where the retracement ends and price reverses into the original direction.

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As you can see, the first 3 screenshots show the typical ABC move of a Fibonacci retracement. Point C is very obvious on all three charts and price bounced off the Fibonacci levels accurately.

В Finding the C-Fibonacci retracement level

click to enlarge

click to enlarge

click to enlarge

The fourth screenshot shows a scenario where price did not go back to the B-Fibonacci level, but breaks the prior A-Fibonacci. It’s important to understand that not all price moves will stop at a Fibonacci level. But, as you can see on the fourth screenshot, the Fibonacci tool can be used to identify support and resistance areas as well as we will explore in more detail shortly; the last screenshot shows nicely how price reacts to several different Fibonacci levels during the retracement.

Tip #1: Trial and error

Especially for beginners, the following exercise will help you build a strong foundation when it comes to drawing Fibonacci levels: Just grab the Fibonacci retracement tool and try to put it on different spots, while observing how price reacts to it. Usually, the more ‘snaps’ (price bouncing off a level) you see, the more important the Fibonacci retracement is.

Tip #2: Don’t force a Fibonacci

Not every time you’ll be able to use a Fibonacci retracement to make sense of a price move. If you can’t make the Fibonacci levels snap, don’t try to force it. The best and most helpful Fibonacci retracements are those where you don’t have to look long.

How to trade with Fibonacci

#1 Retracements as re-entries

The most common use for Fibonacci levels is the regular retracement strategy. After identifying the ‘A to B’ move, you pay attention to the retracement level C.

The screenshots below show a sudden bullish move in a larger uptrend. Often, traders miss such sudden outbursts and then try to find re-entries during pullbacks. The Fibonacci tool is ideal to identify swing-points during pullbacks as the sequence indicates. With the Fibonacci retracement tool, a trader would have been able to find 2 Fibonacci re-entries on the pullbacks.

[/sociallocker] Using Fibonacci retracements as re-entries in a trade – click to enlarge

#2 Support and resistance

Another possibility to use Fibonaccis is to find an AB-Fibonacci move on a higher timeframe and then go down to your regular timeframe and watch the retracement levels as support and resistance guidelines.

The first screenshot below shows the Daily timeframe of the current EUR/USD chart. As you can see, there was a regular ‘A to B’ move. The screenshot in the bottom shows the same Fibonacci retracement but on the lower, 4 hour timeframe. As you can see, throughout the whole time, price reacted fairly accurately to the Fibonacci levels.

Daily timeframe with an ‘A to B’ Fibonacci move – click to enlarge

Fibonacci levels acting as support and resistance on a lower timeframe – click to enlarge

#3 Fibonacci levels for Take Profits – Fibonacci Extensions

Finally, you can also use Fibonaccis for your take profit orders. Especially the Fibonacci extensions are ideal to determine take profit levels in a trend. The most commonly used Fibonacci extension levels are 138.2 and 161.8.

Most trading platforms allow you to add custom levels. Usually, the parameters to add the Fibonacci extensions are:

-0.618 for the 161.8 Fibonacci extension

-0.382 for the 138.2 Fibonacci extension

The rules for take profit orders are very individual, but most traders use it as follows:

A 50, 61.8 or 78.6 retracement will often go to the 161 Fibonacci extension after breaking through the 0%-level. A 38.2 retracement will often come to a halt at the 138 Fibonacci extension. The screenshots below show the Fibonacci moves from the beginning and this time we applied the extensions to the price moves. As you can see, the extensions provided great places for take profit orders.

In my strategy, I use the Fibonacci extensions to find trends that have completed an ABCD pattern and are likely to reverse. The Fib extension can be of great help here.

A 78.6 retracement goes to the 161 Fibonacci extension – click to enlarge

A 50 retracement goes to the 168 Fibonacci retracement – click to enlarge

click to enlarge

Conclusion: Fibonaccis are multifunctional

The article demonstrated how to use Fibonaccis efficiently in your trading. However, don’t make the mistake of idealizing FIbonaccis and believing that they are superior over other tools and methods. Nevertheless, Fibonacci is a great tool to have and can be used very effectively as another confirmation method. Whether you are a trend following or a support and resistance trader, or just looking for ideas how to place your take profit orders, Fibonaccis are a great addition to your arsenal.

Use Fibonacci Arcs

Use Fibonacci Arcs (дуги Фибоначчи)

Этот инструмент графика создает три изогнутые линии, которые тянутся с целью прогнозирования ключевых уровней поддержки, сопротивления и области диапазона, которые используются для измерения различных уровней отката в пределах рынка.

  1. Нажмите на Arc, чтобы активировать ее (получается темно-серый).
  1. Нажмите на Arc, чтобы выбрать ее, поместите курсор мыши на графике, нажмите и перетащите на другое место. Квадратики по бокам указывают, что дуги были выбраны.
  1. Для перемещения объекта в другое место, нажмите и перетащите его в новое место.
  1. Чтобы изменить цвет колец Arc, нажмите на Color number для отображения выпадающего меню в конце строки.
  1. Выберите и нажмите на цвет из выпадающего меню.
  1. Для увеличения или уменьшения размере дуги, нажмите по центру или внешнему квадрату обода и растяните до нужного размера.
  1. Для удаления дуг, щелкните на объекте внутри квадратов и нажмите Delete, чтобы удалить его с графика . См. рисунки ниже.

Created with the Personal Edition of HelpNDoc: Free HTML Help documentation generator

The Basics of Fibonacci Retracements, Fans, Arcs, and Time Series

October 10, 2020

Fibonacci retracements, fans, arcs, and time series are some of the best technical analysis tools for traders. They are not perfect indicators (what is right) but they are incredibly helpful if you understand the basics.

Many years ago an Italian gentleman named Leonardo Fibonacci discovered ratios that exist throughout all of nature. These ratios are used to describe the proportions found in atoms as well as patterns found among stars and planets. The proportions help to keep balance in the natural world, and it also appears that stock markets exhibit a similar proportion.

Bees Can Teach Us About Trading

One example of this ratio is found in bees. If you count the number of female and male bees in any particular hive then divide the number of females by the number of males, you will find the number to be something close to 1.618. Another example that’s easier to measure is the human body. For this, you will first measure the distance from the shoulder to the fingertip. Next, measure the length from the elbow to the fingertip. Divide the larger number by the smaller number. The result? You get a number in the region of 1.618.

This quotient (1.618) is referred by many times as the golden mean, the golden ratio, or the divine proportion. Nearly everything in nature contains measurable properties that conform to this ratio. What’s more? Even financial markets follow this same pattern.

How Does This Relate To Trading?

In the world of stock analyzing, the golden ratio is normally expressed in three different percentages – 61.8%, 50%, and 38.2%. When applying the Fibonacci ratios to stock trading, there are four main methods used: fans, arcs, retracements, and time series.

Fibonacci Fans, just as the name suggests, are made from diagonal lines. They comprise three diagonal lines that use Fibonacci ratios to help identify key levels of support and resistance. To create Fans, the high price and the low price in a given period are first determined. Thereafter, a vertical line is drawn through the point furthest to the right. This line is then divided to show the key Fibonacci ratios of 61.8%, 50%, and 38.2%. From the point furthest to the left, three lines are drawn to the new percentage markers.

In addition to being used to construct support and resistance trendlines, Fibonacci Fans also help to measure the speed of a trends movement. For example, if prices move below a Fibonacci Fan trendline, it is highly likely that the price will fall even further until it reaches the next Fibonacci Fan trendline. On the same note, if prices rise above a Fibonacci Fan trendline, then that trendline is likely to act as resistance.

In a nutshell, Fibonacci Fans can help predict areas of time in which prices might change direction.

A Fibonacci Arc is a charting technique consisting of three curved lines that are drawn to predict key support, resistance levels, and reversal zones of counter-trend bounce. Once again, the peak and the trough for the Base Line are first identified. From the desired point, lines resembling mathematical compass curves are drawn to represent 61.8%, 50% and 38.2% distance from the point. The radius of the first Fibonacci Arc is equivalent to 38.2 percent of the Base Line. For the second Fibonacci Arc, the radius is in the middle of the Base Line at 50 percent. Finally, the third Arc has a radius measuring 61.8 percent of the Base Line.

Like all other annotation tools, Fibonacci Arcs rarely work effectively as standalone systems. In fact, it’s not advisable to rely on them fully since they’re hardly perfect. For better results, you need to use other related tools to help you confirm support, resistance, and reversals.

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Retracements

Fibonacci retracements are hugely popular tools used by many traders to help identify strategic places in which to place transactions, target prices, and even stop losses. Additionally, these horizontal lines can also be used to show the points of resistance or support. After identifying the high and low prices on the chart, five lines are marked. The first line will be at 100% or the high point. The second line appears at 61.8%. The third line appears at 50%. The fourth line appears at 38.2%. The fifth and final line will be at 0% which is also the low point. Whenever a noticeable price fluctuation occurs, the new support and resistance areas will be within these lines.

Fibonacci retracements levels are characterized by prices that do not change. This static nature of prices means that traders and investors can count on these tools to anticipate and react wisely once price levels are tested.

Traders can also use Fibonacci retracements to help identify the end of a correction or a counter-trend bounce. For better results, however, it’s important to use additional signals such as candlesticks, volume patterns, or momentum indicators to confirm reversals.

Time Series

This method is quite different from the three described above due to the use of vertical lines drawn in series. Typically, Fibonacci Time Series act as indicators that technical traders can use to predict periods in which the price of particular assets are likely to experience a substantial movement. This charting technique entails a series of vertical lines that correspond to a particular sequence of numbers popularly known as the Fibonacci numbers. Each successive number in this sequence equals to the sum of the two previous numbers. For reasons that are still unclear, these numbers help to determine the relative regions in which the prices of financial assets are more likely to experience significant moves in prices or change courses.

History has a way of repeating itself, which is the foundation of stock analysis. The Fibonacci ratio and its application to stock markets is a wonderful tool in identifying the support and resistance for stock prices.

What are your thoughts on today’s post? Feel free to join me in the comment section where I’ll be answering all questions which you may have on Fibonacci Retracements, Fans, Arcs, and Time Series.

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