Indicator This is one of most popular technical analysis tools used to identify potential levels of support and resistance.And I just applied this technique into Short-short Method because I've found it useful for trading and compatible with my techniques.
If you have read my previous posted("Exit Stop Loss and Exit Target"). You already known that my techniques is compatible with short term trading what gained profit for +10 point in 1-4 hours from you started trading and exit before the trends begin swing.
What about Fibonacci Serie?
The Fibonacci sequence of numbers is as follows :0,1,1,2,3,5,8,13,21,34...
Notice that each numbers have relationship with the 2 numbers before it(Ex.2=1+1,3=1+2,5=3+2) and a scientists've found this series is a number of natural.
Fibonacci replacement is created by taking two extreme points on a stock chart and dividing the verticle distance by the key Fibonacci ratios of 23.6%,38.2%,50%,61.8% and 100%.
The key Fibonacci ratio of 61.8% also referrred to as "The Golden Ratio" or "The Golden Mean" is found by deviding one number in the series by the number that follows it(Ex.8/13=0.3153).
The 38.2% ratio is found by dividing one number in the series by the number that is found two places to the right(Ex.13/34=0.3819).
The 23.6% ratio is found by dividing one number in the series by the number that is three places to the right.(Ex.8/34=0.2352).
How to apply it in trading?
Almost trends will often retrace a percentage of the previous move before reversing.In many times this retrace point was closed to 3 levels of the key Fibonacci ratio - 38.2%,50%,and 61.8% the 50% level really does not have anything to do with Fibonacci ,but traders use this level because of the tendency of trends yo reverse after retracing half or the previous move.
Look at "A ",The 0% key was tracked at the lowest point at that time(This is the first step to do). This point is the point that the trend retraced and you'll see it move on above the 23.6% key ("B") and retraced near the same key.After that,it up to 61.8% ("C") key and retraced again.If you move the Fibonacci retracement indicator to that point you will get new ladder key .But it's not necessaries now.At last,after retraced near "C" point,it go up to the 100% ("D")and got new resistance.In this point,you should insert your new Fibonacci retracement line and continue analyze if it not enough reason to start trading.
