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While this complaint is valid, knowing that fibs
indicator are only another indicator of many and that nothing works
perfectly every time can give a trader enough confidence to use them
effectively. There are many retail trading platforms that don't give
data for more than ten or twenty years back in time. When you see the
AUD/USD at all-time highs on your platform only able to see back to
1990 , be aware that this pair has traded much higher than now back in
the 1980's. In this case, using Fib extensions can be very helpful.
Traders can use Fib retracements on larger time frames to
determine supply and demand areas, and on smaller time frames to help
see join a trend in progress. Using the Fib extensions can help
traders determine targets for possible profit taking. While previous
supply and demand will be more effective than mere Fib extensions to
determine exits, when we don't have/see previous supply and demand,
these measurements are one of the only tools we have to set our
targets.
So what are the Fib extensions to use? Because I prefer the "Big 3"
retracement percentages of 38.2, 50, and 61.8, use the 138.2, 150,
161.8, 200, 238.2, etc., just adding a 1,2,3, to the Fib retracements
to find the more common extensions. Are there more Fib levels
available? It then comes down to a trader's preference on how many
lines you want to see on the chart. If you threw in every possible
combination of retracements plus measurements from different price
swings, it would be nearly impossible to see the actual price action!
Fibonacci retracement lines with extensions from the swing high of
1.4963 to the swing low of 1.4308. The extensions show up above the
swing high. You can plainly see that as the EUR/USD was breaking to
all-time highs, it paused for several candles at the 138.2-161.8
extension range before finally making its way to where it peaked right
on the 261.8! Not too coincidentally this lines up within a couple of
pips
When trading, the most important piece of information is: Where
did the price action close relative to yesterday's close? In the case
of the red candle left chart , it appears to be a red day. But in
fact when compared to the previous session's close, it was a green
day. This is obvious in the case of the green candle because the fact
that the candle is green means that it closed higher than the previous
day's close, even though it is filled in signifying that it closed
lower than its own open. See for the explanation of how to read the
candles on the candlesticks with trend charts.
That is to say, we need two or three candles to print in the
direction of where we wish to enter the market. In addition, an
oscillator, or other type of indicator also needs lining up, would be
helpful in validating the entry.
Psychologically, this makes the investor feel better about
taking a trade confirmation will cost us. If one waits too long for
price to tell us that it's alright to enter, the risk has expanded and
the reward diminished, which is obviously not what we want. To make
matters worse, when "confirmation" is achieved, the typical trader
will place their stop too tight only to have it trigger just before
the move resumes. |
