Fibonacci Retracement Vs Extension? (grid?)

[shooly76 10]

ok, so Im learning a little about fib grids and levels and that its basically supp and resistance..

 

its my understanding that a fib retracement is used for a potential long trade. So is a fib extension used in a potential short trade?

 

also in a fib retracement, the top of the fib grid is at a new high, so 0.0% level is lined up at the level of the new high. so if in a potential short trade (or fib extension) would the grid be flipped? IOW 0.0% lined up w the new low?

[shooly76 10]

ok..so Im thinking about this, and it seems that Im a little off base w my interpretation of retracement for long and extension for short.

 

so I guess its a retracement of the trend itself whether in a downtrend or uptrend. if it goes back to the mean, its a retracement either way.. is this correct?

 

so what is an extension?

 

and I still need info about the grid and levels...like I know that the 0.0% gets lined up w a new high, for potential long entries. but what about for short entries? does the 0.0% get lined up w the new low level?

[SIUYA 11]

fib levels are one of those very personal things. One person can interpret it completely differently to another and they may both be looking at the same chart in the same time frame.

A lot will depend on your definitions of other such things as "uptrend". "downtrend" etc;

Also how do you determine from where to draw the start and end point from which to measure.....these are very personal and ideally should just be worked out for you in a sense for you.....and then apply it in a consistent fashion.

 

Often you might say that if something consolidates or starts to bounce from a 50% retracement level then it is likely that the recent move is just a retracement of the prevailing bigger trend, and so going with that trend is a potentially safer trade.

 

As a starter I tend to think about it as such....

If I determine an instrument is in an uptrend, and it looks like its having a pullback, and that pullback is near the 50% level, then if might offer a long opportunity. (note all the might and if words)

and

if I am long and the fib has extended, then the 100% fib extension from where i measured it might be a place I would expect some profit taking to occur.

 

http://www.traderslaboratory.com/forums/attachments/2/24865d1307596798-fx-eurotrash-eurchart.gif

 

OR

if if I thing something is in a downtrend and it has a corrective ABC move back up retracing the downtrend, then the C leg of the ABC move may be a 100% extension of the AB leg from B...this could offer a shorting opportunity. (sorry dont have picture at present, but will get one)

 

 

 

 

There are ample sites around showing how to draw these, and every charting program while similar may also differ - so read their help logs.

 

to keep it simple as a suggestion focus first on 50%, 61% retracements, and 100% and 161% extensions.....then see what works for you in regards other ratios. Otherwise you will find many many lines to trade from

Edited June 16, 2011 by SIUYA

[pbylina 10]

A Fib Retracement or Extension have nothing to do with short or long. A Retracement is anywhere between >0% to <100%. Most popular retracements are 32.8% and 61.8%. An extension is >100%. Popular ones are 127% and 161.8%.

[Dutchie 10]

A Fib Retracement or Extension have nothing to do with short or long. A Retracement is anywhere between >0% to <100%. Most popular retracements are 32.8% and 61.8%. An extension is >100%. Popular ones are 127% and 161.8%.

 

So true! The 127.2 extension (also referred to as external retracement) is a fabulous profit target that is reached very often in my experience. Also check this out....

 

Cheers,

 

Dutchie

Edited September 27, 2011 by Dutchie