NEW WAVE Fibonacci Drawing: Part 1

Transcription

1 NEW WAVE Fibonacci Drawing: Part 1 This is actually information that is included in my new book I ll be publishing soon, Seize the High Ground. It will be much more expanded in the book. But I saw that so many traders need to know the basics of this tool now, and I wrote this article up this morning for you! ~Vance I have been asked many times to explain how I use the Fibonacci tool. I sometimes hold live sessions where I invite others to learn about how I use them. My next one is Monday, November 14 th at 9:30AM ET. I will post a link to join in my Forex Art of War Facebook wall 30 minutes before that session. The Fibonacci tool (Fib) is always drawn from left to right For a sell trade, you draw then from the top of the chart down For a buy trade, you draw them from the bottom of the chart up The snap tool will allow you to get the Fib at exact start and end points. Fib settings are 23.6, 38.2, 50, 61.8, and 76.4 We only use 38.2 or more, but 23.6 gives us perspective 23.6 and 38.2 are natural profit taking retracement levels 50 and 61.8 are correction levels 76.4 is the last stand for that price wave or trend Here is a picture of a Fib drawing. I have left of moving averages for now to keep things simple. We are just watching price advance. I chose that spot to end the Fib only because there is a color change in the candles.

2 Waves Price moves in waves. The green lines below are all price waves that I see, up and down. Notice that I m paying attention to color change. In each move up, created by blue candles, you will notice that I illustrate a wave down when a red candle appears. Why? You have to frame information in some way in order to use it. I have found that color change works best in most cases. Now, these are all waves, but we don t want to use the Fibonacci tool (Fib) on all waves. We want to draw them only on New Waves. I define a new wave in this way: 1. Price retraces 38.2% or more 2. Price advances the trend. In this picture, notice what I am doing. Price is moving up. I see a color change, so I draw a Fib. Notice that price does not retrace 38.2%. The yellow line is the high of that price move. Because price then moves higher than the yellow line (advances) without retracing 38.2%, this new price advance is not a new wave. It is the same wave. So we would not move the starting point of the Fib. So you can see that I moved the end point of the Fib, but left the starting point in the same place. Why? Price did not retrace 38.2% or more. The higher yellow horizontal line is the new high, followed by the color change.

3 Here is another example. Notice that I have drawn the Fib on the price wave, and it ends when I see a color change. Also notice that price did not retrace 38.2% Remember at our old end point, price did not retrace 38.2% (see previous picture). So when price advances as shown by the higher yellow line, we move our end point, but not our start point. Now notice that price now has retraced 38.2 or more. Price has touched the 38.2 level at the red candle on the far right. How do you know if you are doing this right? As you get more experience, price will tell you if the Fib is in the right place. How? It will show you the relevance of each level. In other words, you will see that price is respecting the Fib levels you have drawn.

4 As I continue to show, traders want to trade in the direction of the trend. So at some point, if this is a real price move, they are going to want to buy. Price does retrace lower. Once again, 38.2 or more. As price begins to advance higher, you know that you have a new wave happening. So the new starting point is now the lowest point that price retraced to. These are simple rules to follow with time and practice. Here you can see I did start the new Fib there, and ended when I saw a color change. Look at the little white arrows to see how price is respecting the various levels. This is what I meant by the market will show you if the Fib is in the correct place. There are two exceptions to these rules. These two you will need to learn with more experience. 1. If price consolidates, the best place to draw the fib will be at the most recent point. 2. If price advances VERY strongly, you pay attention to the next advancement that does retrace 38.2 or more

5 This picture shows both exceptions to the rule. On the left, price never retraced Notice on the right that I have chosen the latest point prior to price advancing price. This is a little subjective, but with practice, the market will teach you exactly where to put that start point. The end point is the high where you see a color change. Let s look at another example. I didn t start this Fib at the top, because that first little move down from the top of the chart did retrace 38.2 or more. Notice that I m just following those simple rules. We see a color change and that s where I ended the Fib. Then we see price respect the 23.6 level. Why does it work? Why does a pine cone grow in the pattern of the Fibonacci sequence? It s just the nature of our world. It doesn t matter why. All that matters is that we can recognize the patterns.

6 Ok, here comes that exception to the rule. Price is advancing now after a very strong move, and there happens to also be a period of consolidation. I do realize the blue candle to the left of that last candle did break the low, but I m ignoring that. That little white arrow (I m betting) will be the new starting point for a new wave. You can now see how price is respecting these levels at all of the little white arrows on the right. I expand on all of this, and show you how exactly how I use this in my trades in my book, Seize the High Ground. But you can find information on this under notes on the Forex Art of War wall on Facebook. Just look for the word Intermediate. I know this will help you in your trading. Cheers! ~Vance