Elliott Wave International | World's Largest Market Forecasting Firm Since 1979
Please Login
 
 | What's My Password?
EWI
Futures Focus

Sign up to get Futures Focus delivered free in the EWI Independent.
Edit my current email notification | Email this article to a friend | Printer Friendly

How to Use Fibonacci Retracements to Identify Market Opportunities
8/13/2010 3:15:00 PM

"The Fibonacci sequence (1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, etc.)" would make a great title for a future Dan Brown novel. As ubiquitous as his books at the bookstores, the Fibonacci sequence of numbers and ratios is found throughout the natural world. R.N. Elliott also recognized the presence of the Fibonacci ratio in financial markets when he discovered the Wave Principle in the 1930s.
 
Fibonacci ratios and multiples have many practical applications, but I'd like to focus on how to apply Fibonacci math to forecast price retracements in real-world trading.
 
In his latest eBook entitled Commodity Trader's Classroom, (download your FREE copy now) Elliott Wave International's Senior Commodity Analyst Jeffrey Kennedy has this to say about 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."
 
 
 
The chart above shows Corn's 2005 price action. As you can see on the left-hand side, after advancing from the June low and reaching a high in July, prices fell to retrace to the .500 Fibonacci ratio level. Corn then rallied into a major top, fell, and then the upward correction that followed reversed after having retraced around .382 of the decline off the July high.
 
 
In Orange Juice, we see an example of a .786 retracement from the high in July that same year. Prices then rallied from the July low to reach a high in October, and then retraced just past the .618 level before advancing once more.


Other useful Fibonacci applications include Fibonacci extensions, circles, fans and timing projections. You can learn these and many other real-world techniques in Commodity Trader's Classroom -- a free 32-page eBook packed with lessonsCreate your free Club EWI profile now to download your free copy.
 

Already a Club EWI member? Click here to download Commodity Trader's Classroom now.


 
Send me Email Alerts of Free Updates
from Elliott Wave International!


* confirmation popup window

Featured Educational Resource

 
Get your copy of SafeWealth's NEW 200-page manual now!

SafeWealth GuideBookExperts can tell you how to accumulate wealth. But few can show you how to protect your wealth.
Learn More>>

 
Press Room
IN THE MEDIA
Browse Recent Media Articles that Mention EWI or Feature EWI Analysts

As the markets enter what Bob Prechter calls "the point of recognition," we notice that mainstream media pundits who get it start to notice us, our analysts and our forecasts. You can browse dozens of recent media articles about EWI in the EWI Press Room.
 

|
|
|
|
|
|
|
|
|
|
The Elliott Wave Principle is a detailed description of how financial markets behave. The description reveals that mass psychology swings from pessimism to optimism and back in a natural sequence, creating specific Elliott wave patterns in price movements. Each pattern has implications regarding the position of the market within its overall progression, past, present and future. The purpose of Elliott Wave International’s market-oriented publications is to outline the progress of markets in terms of the Wave Principle and to educate interested parties in the successful application of the Wave Principle. While a course of conduct regarding investments can be formulated from such application of the Wave Principle, at no time will Elliott Wave International make specific recommendations for any specific person, and at no time may a reader, caller or viewer be justified in inferring that any such advice is intended. Investing carries risk of losses, and trading futures or options is especially risky because these instruments are highly leveraged, and traders can lose more than their initial margin funds. Information provided by Elliott Wave International is expressed in good faith, but it is not guaranteed. The market service that never makes mistakes does not exist. Long-term success trading or investing in the markets demands recognition of the fact that error and uncertainty are part of any effort to assess future probabilities. Please ask your broker or your advisor to explain all risks to you before making any trading and investing decisions.