Page 6 - Module 11 The Fibonacci science

Module 11 – The Fibonacci Science

A trader should understand that retracements and extensions
often bounce at or near these percentages of the price swing.
When beginner traders look at a chart all they see are prices
Retracement increasing then decreasing, then decreasing some more then
increasing again and so on. The main reason most beginner
traders lose money is they have no idea how to make sense of
When a currency pair all that movement. Where do they get in the market? Where is
moves X pips in one the safest place? How do they risk the least and gain the most?

direction, and then To a technical trader or analyst, the chart is nothing more than
turns around and what an x-ray is to a doctor. It tells a story. To a good technician,
moves Y pips in the one of the stories the chart is telling is the probability of the next
previous direction, we price move. As a trader you will never be 100% right in all your
trading decisions. What you can do is learn about the market
say that there was a and trade in the direction that gives you the greatest and
retracement (or highest potential for success.
simply, a pulling back) The reason for entering at the .618 is that if the trend is to stay
of Y pips. strong or continuous, the market will usually retrace back to the
.618 then rallies from there. Putting your stop at the last low
Putting it another way, keeps you out of the wave of the market. From a point of equity
a retracement is how management, the .618 and the .786 retracement points offer
the best place to enter. If the swing is small it lends itself to a
deeply the previous tight stop.
move within the trend When stops are placed at the last low in an uptrend, the .382
was penetrated by the and .50 retracement values are too far away from the low and
do not lend themselves to sound equity management. In other
correction move words, if the trade does not work out the loss would be
unacceptably large.

Trends Move at Different Speeds
Price Swing

Swing High is a price As the market moves there are times when it becomes more
aggressive or volatile in its price movement. Fundamental
bar (or, candlestick) announcements are usually the cause for aggressive increased
having at least two price change.
As it up trends or down trends, it moves in a numerical
lower highs on its left sequence of retracement values. The numbers are 38%, 50%,
and another two lower 62% and 79%. The most aggressive movement is the 38%
highs on its right. retracement and the least aggressive movement is the 79%
retracement.

Swing Low is a
Trends within Trends
candlestick with at
least two higher lows Since markets move at different speeds based on the
on its left and another retracement values it is helpful to find the trends inside the
trends and mark the inner trends and outer trends. If the
two higher lows on its market is trending up for the month it will create perhaps
right. several trends moving at different retracement values. Why?
Fundamental announcements have perhaps a 4- to 6 hour
volatile effect on the market. Shortly after the announcement if
the market turns volatile, many times it will bounce at the 38%
retracement and then turn around and aggressively take out
the highs or lows, depending on which direction it is trending.
After aggressive trading took place, the market calms down. It
may continue to trend; however, it may start to retrace back to

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