29/03/2010 – Fibonacci Techniques for Math Geeks — and Everyone Else, Too

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How to Apply Fibonacci Math to Real-World
Trading
Have you ever given an expensive toy to a small child and watched
while the child had less fun playing with the toy than with
the box that it came in? In fact, I can remember some of the
boxes I played with as a child that became spaceships, time
machines or vehicles to use on dinosaur safaris.

In many ways, Fibonacci math is just like the
box kids enjoy playing with imaginatively for hours on end.
It’s hard to imagine a wrong way to apply Fibonacci ratios or
multiples to financial markets, and new ways are being tested
every day. Let’s look at just some of the ways I apply Fibonacci
math in my own analysis.

Fibonacci Retracements
Financial markets demonstrate an uncanny propensity to reverse
at certain Fibonacci levels. The most common Fibonacci ratios
I use to forecast retracements are .382, .500 and .618. On occasion,
I find .236 and .786 useful, but I prefer to stick with the
big three. You can imagine how helpful these can be: Knowing
where a corrective move is likely to end often identifies high-probability
trade setups (Figures 7-1 and 7-2).

Kennedy then goes on to explain Fibonacci
extensions, circles, fans and time, using 11 charts to
show what he means. Whether or not you are a math geek, you can
learn a lot from this six-page introduction to Fibonacci math.

Get
Your Fibonacci Techniques Right Here. Jeffrey Kennedy
has been using and teaching these techniques for years, and he
has written a quick description of five Fibonacci techniques in
his Trader’s Classroom column — now available to you for
free by signing up as a Club EWI member. Read more about
the 6-page
report here.