![\"\"](\"http:\/\/tradersnest.com\/wp-content\/uploads\/2014\/04\/MM_target.gif\")
Okay, so you\u2019ve got a signal to trade \u2013 great.<\/p>\nOkay, so you\u2019ve got a signal to trade \u2013 great.<\/p>\n
You might even know where you want to put your stop loss.<\/p>\n
But how on earth do you gauge where to take profits? How far is the market going to move?<\/p>\n
You don\u2019t want to get out too soon, and miss out on a big move.<\/p>\n
But you also don\u2019t want to be greedy and fail to ever reach your profit target.<\/p>\n
The tool I want to show you today, is a real favourite of many traders, and one of the trading techniques that I\u2019m asked about most often.<\/p>\n
I\u2019m talking about Fibonacci levels.<\/p>\n
There\u2019s a degree of mysticism about Fibonacci trading. And the science behind it has a venerable history, going back to the thirteenth century. Fibonacci sequences appear all over the natural world \u2026 in the breeding habits of rabbits \u2026 in the arrangement of leaves on a stem \u2026 in the uncurling of a fern \u2026 and they\u2019re even in the \u201cunnatural\u201d world, like in the way cities develop and grow \u2013 and, we\u2019re told \u2013 in the way prices on the financial markets move.<\/p>\n
Its proponents tend to fall into one of two camps:<\/p>\n
The thing is, it doesn\u2019t really matter why the market reacts at Fibonacci levels \u2013 just that it does. So, as traders, we need to have a plan of how we\u2019re going to use this crucial information.<\/p>\n
What are Fibonacci Levels<\/p>\n
A Fibonacci sequence looks like this: 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89 \u2026 etc.<\/p>\n
Each number is the sum of the previous two numbers.<\/p>\n
The magic number hidden in that sequence is called the \u201cgolden ratio\u201d \u2013 1.618 (or its inverse, 0.618). This is found by dividing one number by the next, and as you progress through the sequence, you move ever closer to this \u201cmagic number\u201d.<\/p>\n
Therefore, the key figures that the Fibonacci trader needs to know are:<\/p>\n
61.8% (one number divided by the next number), 38.2% (divided by the number next but one) and 23.6% (divided by the number next but two away).<\/p>\n
Fibonacci lines will generally also include the Gann level of 50%.<\/p>\n
One of the reasons many traders don\u2019t like Fibonacci levels is that they require some discretion in drawing them.<\/p>\n
Not every trader will have their Fibonacci levels drawn in the same place on their charts, because these lines are dependent on where you judge your recent high and low to be.<\/p>\n
Once you\u2019ve judge your recent high-low \u2013 one becomes your 0%, the other your 100% \u2013 and your all-important 23.6%, 38.2% and 61.8% will appear inbetween the two.<\/p>\n
Here\u2019s an example \u2026<\/p>\n
![\"\"](\"http:\/\/tradersnest.com\/wp-content\/uploads\/2014\/04\/mm_310513_1.gif\")
<\/p>\n
The recent swing high\/low that you use for your Fibonacci levels has to be in line with the timeframe of your trading and the scale of the move you\u2019re following.<\/p>\n
Strictly speaking, a high is typically identified by a recent high, with two lower highs on the left and right of the high itself. And a low would be a recent low with at least two higher lows on either side.<\/p>\n
However, charts are often simply not that tidy for us. And getting your recent high\/low may take a little practice to get right.<\/p>\n
So, the next question has to be \u2026<\/p>\n
Fibonacci levels are a very valuable tool to tell us where the market is likely to move to, and where it is likely to get stuck. For this reason, they make great profit targets.<\/p>\n
It is common practise to set profit targets very close to Fibonacci levels. And if you\u2019re placing multiple profit targets, then you may want to take profits at your first Fibonacci line \u2026 and again at the next key level.<\/p>\n
Remember, that Fibonacci levels are just like any other support and resistance level, which means that there is often some congestion around them, as they will be a hot-spot for buy and sell orders. So, don\u2019t expect neat text-book bounces \u2013 real trading is usually a lot messier than that!<\/p>\n","protected":false},"excerpt":{"rendered":"
Okay, so you\u2019ve got a signal to trade \u2013 great. You might even know where you want to put your stop loss. But how on earth do you gauge where to take profits? How far is the market going to move? You don\u2019t want to get out too soon, and miss out on a big […]<\/p>\n","protected":false},"author":8,"featured_media":788,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_bbp_topic_count":0,"_bbp_reply_count":0,"_bbp_total_topic_count":0,"_bbp_total_reply_count":0,"_bbp_voice_count":0,"_bbp_anonymous_reply_count":0,"_bbp_topic_count_hidden":0,"_bbp_reply_count_hidden":0,"_bbp_forum_subforum_count":0,"_et_pb_use_builder":"","_et_pb_old_content":"","_et_gb_content_width":"","_mi_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[10],"tags":[],"yoast_head":"\n