The Truth About Fibonacci Trading

The Truth About Fibonacci Trading

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The Truth About Fibonacci Trading The truth about Fibonacci levels is that they are useful (like all trading indicators). They do not work as a standalone system of trading and they are certainly not the “holy grail”, but can be a very effective component of your trading strategy. But who is Fibonacci and how can he help you with your trading? Leonardo Fibonacci was a great Italian mathematician who lived in the thirteenth century who first observed certain ratios of a number series that are regarded as describing the natural proportions of things in the universe, including price data. The ratios arise from the following number series: 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144 …… This series of numbers is derived by starting with 1 followed by 2 and then adding 1 + 2 to get 3, the third number. Then, adding 2 + 3 to get 5, the fourth number, and so on. The ratios are derived by dividing any number in the series by the next higher number, after 3 the ratio is always 0.625. After 89, it is always 0.618. If you divide any Fibonacci number by the preceding number, after 2 the number is always 1.6 and after 144 the number is always 1.618. These ratios are referred to as the “golden mean.” Additional ratios were then derived to create ratio sets as follows:

© 2004 Profits Run, Inc.

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Price Retracement Levels 0.236, 0.382, 0.500, 0.618, 0.764

Price Extension Levels 0, 0.382, 0.618, 1.000, 1.382, 1.618

The first set of ratios is used as price retracement levels and is used in trading as possible support and resistance levels. The reason we have this expectation is that traders all over the world are watching these levels and placing buy and sell orders at these levels which becomes a self-fulfilling expectation. The second set is used as price extension levels and is used in trading as possible profit taking levels. Again, traders all over the world are watching these levels and placing buy and sell orders to take profits at these levels which becomes a self-fulfilling expectation.

Most good trading software packages include both Fibonacci Retracement Levels and Price Extension Levels. In order to apply Fibonacci levels to price charts, it is necessary to identify Swing Highs and Swing Lows. A Swing High is a short term high bar with at least two lower highs on both the left and right of the high bar. A Swing


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Low is a short term low bar with at least two higher lows on both the left and right of the low bar.

Fibonacci Retracement Levels In an uptrend, the general idea is to go long the market on a retracement to a Fibonacci support level. The price retracement levels can be applied to the price bar chart of any market by clicking on a significant Swing Low and dragging the cursor to the most recent potential Swing High and clicking there. This will display each of the Retracement Levels showing both the ratio and corresponding price level. Let’s take a look at some examples of markets in an uptrend. The same points made by these examples are equally applicable to markets in a downtrend. Example 1: Here we plotted the Fibonacci Retracement Levels by clicking on the Swing Low at about $71.31 and dragging the cursor to the Swing High at about $89.83. You can see the resultant levels plotted by the software. Now the expectation is that if the market retraces from this high it will find support at one of the Fibonacci Levels, because traders will be placing buy orders at these levels as the market pulls back.


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Example 1

Example 1.1


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Example 1.1: Now let’s look at what actually happened after the Swing High occurred. The market pulled back right through the 0.236 level and continued the next day through the 0.382 level before finding support. After a few days, the market resumed its upward move. Clearly buying at the 0.382 level would have been a good short term trade.

Example 2: Again, the Fibonacci Retracement Levels were plotted on the chart in the same manner as described in Example 1. Again, we are looking for the market to retrace from the Swing High and find support at one of the Fibonacci levels.

Example 2.1: Now let’s look at what actually happened. The market again pulled back right through the 0.236 level and continued to pull back until it found temporary support at the 0.50 level (a lot of buyers at this level). However, once the buying power was exhausted, the market continued to retrace all the way down to the 0.764 level before resuming its upward trend. In this case, buying at the 0.764 level would have been a good short term trade.


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Example 2

Example 2.1


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Example 3: Here’s another example. If the market retraces from the Swing High, where will it find support?

Example 3


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Example 3.1: Well, in this case the market found support at the 0.50 level. Buying at this level would have been a great trade as the market gapped up a few days later.

Example 3.1


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Example 4: Here’s one more example.

Example 4


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Example 4.1: Whoops! The market gapped down through all levels of support and never looked back. A long trade here would have been a loser or at least an open lose position.

Example 4.1

You can see from these examples that the market often finds at least temporary support at the Fibonacci Retracement Levels – not always, but often. It should be apparent that there are a few problems to deal with here. First, there is no way of knowing which level will provide support. The 0.236 level seems to provide the weakest support, while the other levels provide support with approximately the same frequency. Second, the market will not always resume its uptrend after finding temporary support, but instead continue to decline below


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the last Swing Low. Thirdly, placement of stops is a challenge – it is probably best to place stops below the last Swing Low, but this requires accepting a high level of risk in proportion to the likely profit potential in the trade. Another problem is determining which Swing Low to start from in creating the Fibonacci Retracement Levels. One way is from the last Swing Low as we did in the examples. Another is from the lowest Swing Low of the past 30 days. The point is, there is no one right way to do it, and consequently it becomes a guessing game.


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Fibonacci Price Extension Levels In an uptrend, the general idea is to take profits on a long trade at a Fibonacci Price Extension Resistance Level. The Price Extension Levels can be applied to the price bar chart of any market by clicking on a significant Swing Low and dragging the cursor to the most recent Swing High. Then by clicking on the Swing High and back down to the retracement Swing Low and clicking there. This will display each of the Extension Levels showing both the ratio and corresponding price level. Let’s take a look at some examples of markets in an uptrend. The same points made by these examples are equally applicable to markets in a downtrend. Example 5: Here we plotted the Fibonacci Price Extension Levels by clicking on the Swing Low at about $38.20 and dragged the cursor to the Swing High at about $47.67 and then down to the retracement Swing Low. You can see the resultant levels plotted by the software. Now the expectation is that if the market continues higher it will find resistance at one of the Fibonacci Levels, because traders will be placing sell orders at these levels to take profits on there long trades. Example 5.1: Now let’s look at what actually happened after the retracement Swing Low occurred. The market rallied making new highs pausing at the 0.382 level and again at the 1.000 level after a retracement down it rallied again going right through the 1.382 and 1.618 levels. Taking profits at the 0.382 level would have been premature, but taking profits at the 1.000 level would have made a nice trade. © 2004 Profits Run, Inc.

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Example 5

Example 5.1


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Example 6: Again, the Fibonacci Price Extension Levels were plotted on the chart in the same manner as described in Example 5. Again, we are looking for the market to continue higher before finding resistance at the Fibonacci Levels.

Example 6


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Example 6.1: Now let’s look at what actually happened. The market rallied, making new highs and pausing between the 0.382 level and the 0.618 level, and then continued higher. This up move could well continue up to at least the 1.000 level. Taking profits at the 0.382 level would have been premature and only time will tell if taking profits at the 0.618 level was the optimal place to exit the long trade.

Example 6.1


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Example 7: Here’s another example. Will the market continue higher to one of the Fibonacci Price Extension Levels?

Example 7


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Example 7.1: Well in this case the market found resistance at the 0.382 level which would have been the place to take profits on any long trades.

Example 7.1


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Example 8: Here’s one more example.

Example 8.1


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Example 8.1: Like the last example, the market found resistance at the 0.382 level which would have been the place to take profits on any long trades.

Example 8.1

You can see from these examples that the market often finds at least temporary resistance at the Fibonacci Extension Levels - not always, but often. As in the examples of the Retracement Levels, it should be apparent that there are a few problems to deal with here as well. First, there is no way of knowing which level will provide resistance. The 0.382 level was a good level to cover any long trades in two of the examples, but in the other examples taking profits at that level would have been premature. Another problem is determining which Swing


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Low to start from in creating the Fibonacci Extension Levels.

One way

is from the last Swing Low as we did in the examples; another is from the lowest Swing Low of the past 30 days. Again, the point is that there is no one right way to do it, and consequently it becomes a guessing game. Alone, Fibonacci Levels will not make you rich. However, Fibonacci Levels are definitely useful as part of an effective trading method that includes other analysis and techniques. You see, the key to an effective trading system is to integrate a few indicators (not too many) that are applied in a way that is not obvious to most observers. All successful traders know it’s how you use and integrate the indicators (including Fibonacci) that makes the difference. The lesson learned here is that Fibonacci Levels can be a useful tool, but never enter or exit a trade based on Fibonacci Levels alone. Good Trading,

P.S. If you’re really serious about learning how to use what you’ve learned here along with other indicators, you need to try my trading course, Instant Profits. Turn the page to find out more.


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This is a tutorial about a Fibonacci Extension method that can be used to set very precise take profit levels and to determine Support and Resistance levels. In this tutorial I use screen shots from VT trader. It is free to use with a demo account. The grey screenshots are from Tradestation. The setup in popular charting tools like Tradestation or e-signal is very similar. As an alternative you can download my MS Excel based Fibonacci Calculator http://www.aergo.ch/download/webFIBOcalc-v2.zip and use a free chart at www.netdania.com My preferred timeframe for this method is the 1h chart, but it is working on any timeframe.

Step by Step Tutorial To use Fibonacci you must know the High, Low and the retracement depth of a swing. Sequence in a Upswing: Low -> High -> Retracement Sequence in a Downswing: High -> Low -> Retracement The next screenshots shows what we are looking for.

Important: Highs and Lows ARE ALWAYS the peaks, for retracements you can choice if you take the peak or the candle body as the reference.

To draw the Fibonacci lines press the button left to the arrow. Then click on a Swing High, hold the left-mouse button, move the cursor to the low and release the mouse-button. After that double click on a Fibo line to open the properties and enter the values from the next screenshot. Set it as default to have it in all charts.

The rule & Levels Based on the depth of the retracement I set my Take profit levels on the related Extension level. Retracement Level 61.8% 50 or 38.2% 26.4%

Take Profit Extension 176.4% 161.8% 127.2%

The 233% Extension is strong level as well, that’s why I always include it into my charts. Example: If the price retraces to the 61.8% Level I set my main Take Profit level near the 176.4% Extension (a little bit below in an Upswing and a bit above in a Downswing).

In the above example the retracement low-peak was at the 50% level but the candle closed above the 61.8% level. In this case you can choice if you now place your take profit Levels at the 176.4% or the 161.8% level. Lets take a look into the following swing. Retracement to the 38.2% Swing = Master Extension level = 161.8% but it is always a good idea to take part profits on the 127.2% level.

For a Downswing you have to draw the Fibo from Low to High.

Another downswing example in Tradestation:

Clustering the Fibos You properly noted that the Extensions are often acting as Support and Resistance levels for further price action. A cluster appears when multiple extensions and/or retracement levels from other swings are near each other, these levels are heavy barriers.

I hope you liked this tutorial, further examples are included in the manual which comes with our Excel based Fibonacci Calculator downloadable here: http://www.aergo.ch/download/webFIBOcalc-v2.zip

Author: Dave @ aergo.ch

TEKNIK ANALISA FOREX – 2

~TEORI 123 ~ ~ TEORI ELLIOT WAVE ~ ~ FIBONACCI RATIO ~

Teori 123 (Law of charts) Umumnya pergerakan harga akan membentuk suatu pola zigzag atau biasa disebut teori 123. Dimana jarak 1-2 lebih panjang dari 2-3 dan harga akan meneruskan sesuai trend pada 1-2. Pola ini dapat terjadi pada chart dengan dengan skala time frame berapa saja.

Strategi Teori 123 Bila terjadi pola 123 dimana C adalah harga saat ini maka tempatkan entry point pada titik B dan Stop Loss pada titik C atau A. Tempatkan target point kurang lebih setengah dari AB. Bila TP1 tercapai pindahkan SL ke C dan begitu selanjutnya.

Eliot Wave Theory (Pola 5-3) Mr. Elliot menemukan bahwa pergerakan harga memiliki pola gelombang 5-3 yang selalu berulangulang, dimana pola gelombang 5 disebut impulse wave dan pola gelombang 3 disebut corrective wave. Teori Elliot ini di dasarkan pada psikologi pasar, seperti dijelaskan di bawah ini : Elliot Wave Theory menjelaskan sbb: Wave 1 Harga stock bergerak naik, disebabkan beberapa orang berpikiran saatnya untuk BUY. Wave 2 Harga stock turun, disebabkan beberapa orang merasa harga sudah cukup tinggi dan waktunya untuk take profit. Wave 3 Harga kembali naik, disebabkan orang ingin mengulangi profit saat wave 1 dan merasa stock tersebut dapat menghasilkan profit. Biasanya harga bergerak lebih tinggi daripada wave 1. Wave 4 Harga kembali turun, disebabkan harga sudah cukup tinggi dan saatnya untuk take profit. Wave 5 Harga kembali naik, disebabkan orang-orang memburu stock tanpa alasan, setelah melebihi harga wajar maka trend berubah menjadi pola ABC.

TEKNIK ANALISA FOREX Halaman 1 dari 5

Pola 5-3 dapat pula terbentuk dari beberapa pola 5-3 yang lebih kecil

Kalau kita amati lebih jauh sebenarnya teori ini adalah pengembangan dari teori 123 dimana Elliot menemukan bahwa dalam suatu pergerakan harga pola 123 terjadi 2 kali sebelum akhirnya berbalik arah dan dilanjutkan dengan pola 123 kembali pada arah sebaliknya.

Fibonacci Ratio Fibonacci Ratio adalah pengembangan dari teori 123 dan Elliot Wave dikombinasikan dengan perhitungan Fibonacci Ratio yang berfungsi untuk menentukan level Support & Resistance. Prinsip dasarnya sama dengan teori 123 yaitu dimana gelombang panjang (1-2) disebut swing akan diikuti dengan gelombang pendek (2-3) disebut retracement. Dengan perhitungan Fibonacci kita dapat mengetahui level support dan resistance dari pergerakan retracement. Untuk menenentukan Fibonacci harus diidentifikasikan dulu Swing High dan Swing Low pada chart. 1. Fibonacci Retracement Level Biasanya pergerakan retracement akan mencapai level 23,6%; 38,2%; 50%; 61,8% kemudian kembali lagi ke level 0% hingga berlanjut ke extension level. Jika harga tidak sanggup menembus level 0% maka harga akan bergerak ke level 100%. Begitu pula sebaliknya.

2. Fibonacci Extension Level Yaitu level support & resistance yang diharapkan akan dicapai setelah pergerakan harga berhasil melewati level 0%


Berikut ini gambar contoh penerapan Teori 123, Elliot Wave & Fibonacci dalam chart. • 1,2,3 menggambarkan Teori 123 • A,B,C,D,E & a,b,c menggambarkan Teori Elliot Wave • Garis kuning adalah level Fibonacci & garis biru adalah level expantion Fibonacci

PENERAPAN TEORI 123, ELLIOT WAVE & FIBONACCI Ketiga teori di atas dapat diterapkan secara bersamaan dalam Time Frame berapa saja. Prinsip dasar sebenarnya yaitu prinsip breakout strategi juga dimana secara psikologis harga akan bergerak berkelanjutan jika berhasil menembus level high atau low sebelumnya. Strategi 1 : 1. Tentukan dahulu swing harga yang sudah terjadi dengan sempurna (level High & Low) dan pastikan harga sekarang ada di antara level High & Low. 2. Pasang order stop BUY pada level High + 2xspread, dan pasang order stop SELL pada level Low – 2xspread. 3. Pasang Stop Loss untuk kedua order tersebut di level 50% Fibonacci atau pada posisi high/low. 4. Jika anda ingin menggunakan Target Poin gunakan level Fibonacci Expantion sebagai target poin. (Jika Anda tidak ingin menggunakan Target Poin bisa lanjutkan ke Strategi 2). 5. Pindahkan Entry Anda yang belum tersentuh ke level swing baru yang sudah terbentuk sempurna. Hal ini berguna apabila Trend berubah dan harga berbalik arah sebelum mencapai target poin. Strategi 2 : Trailing Stop Jika harga sudah menembus Entry poin dan berhasil mencapai target yang diharapkan gunakan Trailing Stop untuk meminimalkan resiko dan mengamankan profit yang sudah Anda dapatkan. Gunakanlah selalu Stop Loss (SL). Dan pindahkan SL jika target sudah tercapai. Contoh : C = harga saat ini B = entry order Buy A = entry order Sell D = Prediksi Target Poin Saat swing C-D terbentuk pindahkan SL ke B Sehingga posisi Anda aman, resiko = 0 Saat swing E-F terbentuk pindahkan SL ke E Diposisi ini profit Anda aman. Saat swing G-H terbentuk pindahkan SL ke G Begitu seterusnya.


Strategi 3 : Compounding Profit Tambahkan entry point saat harga sudah mencapai target. Contoh : C = harga saat ini B = entry order Buy A = entry order Sell D = Prediksi Target Poin Saat swing C-D terbentuk pindahkan SL ke B Sehingga posisi Anda aman, resiko = 0 Saat swing E-F terbentuk pindahkan SL ke E Diposisi ini profit Anda aman. Saat harga di G stop order Buy di F dengan SL di G Saat swing G-H terbentuk pindahkan SL1 ke G Begitu seterusnya tambahkan order Buy setiap posisi Anda aman maka profit Anda akan berlipat-lipat.

KELEMAHAN TEORI 123, ELLIOT WAVE & FIBONACCI Tidak ada satupun teori yang 100% sempurna begitu pula dengan ketiga teori di atas. Meskipun teori di atas dapat memperkirakan formasi yang akan terjadi tetapi tidak dapat menentukan kemanakah arah zigzag selanjutnya? Arah zigzag dapat terjadi baik ke atas maupun ke bawah.

Kalau kita lihat chart di atas seharusnya harga bergerak naik sesuai prinsip Elliot Wave tapi kenyataannya zigzag malah terbentuk ke bawah. Kelemahan lain teori ini adalah apabila terjadi gerak sideway (consolidasi). Biasanya gerak sideway terjadi setelah adanya swing yang cukup panjang. Untuk mengetahui market sideway gunakan indikator tambahan untuk melihat kekuatan momentumnya. Contoh : (indikator MACD, Oscilator MA & Slow Stochastic)


Setelah terjadi swing yang cukup panjang A-B, disusul kemudian retracement B-C lalu swing C-D. Pada C-D tidak bergerak jauh dari level B karena momentum lemah (MACD trend Up, Osma Up, Stochastic oversold). Kemudian terjadi swing D-E. Disusul kemudian swing E-F dimana F menyentuh level D. Menurut teori seharusnya harga akan terus bergerak turun, tetapi harga malah berbalik karena momentum tidak kuat (MACD trend Up, Osma Up, Stochastic oversold). Hingga terbentuklah swing F-G, sekali lagi terjadi harga menyentuh level E yang menurut teori harga seharusnya terus bergerak naik malah berbalik (MACD masih trend Up, Osma mulai menurun, stochastic overbought). Bila terjadi market sideway sebaiknya gunakan indikator untuk mengambil keputusan. Salah satu contoh Fibonacci yang gagal :

A = stop order BUY B = stop order SELL C = harga saat ini SL di 50%

Pada contoh di atas harga menyentuh stop order Sell di D tetapi harga malah berbalik ke E. Pindahkan stop order Buy di C dengan SL buy pada level 50% swing Fibo yang baru.

Harga kemudian bergerak kembali menuju F, pindahkan stop order Buy ke titik E dengan SL buy pada 50% swing yang baru.

Saat harga menyentuh level E maka order Sell yang sudah aktif akan close terkena SL, selanjutnya yang aktif adalah order Buy hingga mencapai titik G. Dalam trading ini Anda loss kurang lebih 50% dan win kurang lebih 50% sehingga resiko Anda menjadi 0. Untuk mengatasi kelemahan teori ini tetap harus didukung dengan indikator lainnya, support & resistance. Dan jangan lupa tambahkan spread dalam entry order Anda.

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The Truth About Fibonacci Trading

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