How to use Fibonacci Ratio Retracements

Author

Ramki
May 12, 2009

If you are looking to learn how to use fibonacci ratio retracements, you have come to the right spot. A few years back I read a book by Constance Brown – “Technical Analysis for the Trading Professional”. She made a very good point on how the ‘theorist’ among technical analysts would, incorrectly, choose the extremeities of a move to draw fibonacci retracements.

Choosing the right place to draw fibonacci ratio retracements could mark the difference between success and failure in trading decisions.

This shows the 'wrong' way to draw fibonacci retracements

Such an approach would often result in their missing a good move because the market falls just short of their ideal retracement levels. The practising professional would spend a few extra minutes to see what were the pressure points in recent history and choose to ignore the spikes that shows up ever so often. Why make the same mistake as some poor trader whose stops were run in by the market at the extremities? Here is a demonstration of the two outcomes using the chart of Sterling Pound. The same technique for using fibonacci ratio retracements works equally well, whether you are considering the chart of a stock, an index, forex or a commodity.

The preferred way to draw fibonacci retracement grid

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