How to Use Fibonacci Retracement in Harmonic Trading

How to Use Fibonacci Retracements in Harmonic Trading

Fibonacci Retracements Video Highlights

Fibonacci retracements can be used in conjunction with harmonic pattern identification in order to predict in advance the most likely price reversal zone for a stock.

Watch the video, and hopefully it will help you in your trading.

How to Use Fibonacci Retracements in Harmonic Trading

How to Use Fibonacci Retracements in Harmonic Trading

Fibonacci Retracement of the Pre-ABC Move

When analyzing an ABC pattern for harmonic trading purposes, fibonacci retracements are a key component of the analysis.

The first step is to use the fibonacci retracement tool to identify the retracement levels of points A and C. They should be near to one of the key fibonacci ratios: 38.2%, 50%, 61.8%, 70.7%, 78.6%, or 88.6%.

Fibonacci Retracement of 0-X Move

Bearish Gartley Pattern

External Fibonacci Retracement of Wave B

The second step is to use the retracement tool to draw an external retracement (which is greater than 100%) of wave B. Use the common fibonacci ratios of 113%, 127.2%, 141.4%, and 161.8%.

External Retracement of Wave B

External Retracement of Wave B

Fibonacci Projection of Wave A from Point B

The third step is to examine the size of wave C relative to wave A. To do this, some charting packages have a projection tool, or a retracement tool can be used on wave A, and then moved to begin at point B.

Use the projections of 78.6%, 88.6%, 100%, 113%, and 127.2% as possible projections of wave A to predict the likely end of wave C.

Using a Fibonacci Projection of Wave A

Fibonacci Projection of Wave A from Point B

Looking for an Area of Confluence

Now that you have made these 3 fibonacci studies on the chart, you can look for areas of overlap. The best harmonic trading patterns will have 3 lines in very close proximity on the chart, indicating a fibonacci harmonic pattern in every facet.

In this example of CHK, notice the close proximity of the 78.6% retracement of the 0-X move, the 127.2% external retracement of wave B, and the 100% projection of wave A (in pink) up from point B. That tight confluence zone is the most probable price reversal zone for the stock.

Fibonacci Confluence Zone

An area of fibonacci confluence at point C

Further Analysis And Training

• StockMarketAlchemy Blog
  Stock market technical analysis