Identifying Trade Setups From Fibonacci Price Relationships


As far as the price analysis that I run every day in the markets, there are three different types of Fibonacci price relationships I use in my analysis. They are price retracements, extensions and projections.

First I run price retracements of prior swings for possible support or resistance using the ratios of 0.382, 0.50, 0.618, and 0.786. I will also run price extensions of prior high to low or low to high swings using the ratios of 1.272 and 1.618 for possible support or resistance. The third type of price relationship I look at is what I call a price projection which is calculated using three points on a chart. This is where I am actually comparing swings in the same direction. For projections I would measure a prior low to high swing and project from another low, or measure a high to low swing and project from another high. For the price projections I mostly use 100% and sometimes 1.618. (Many technical analysis packages actually call the tool using three points an extension tool rather than a projection tool. Bottom line it does not matter what you call it, but that you use the tool will allow you to choose three points to calculate this third type of price relationship.)  

By running all possible price relationships on any particular chart, I work to identify one of the three trade setups that I look for every day. They are Fibonacci price clusters, Symmetry setups and two-step pattern setups. The first two are more common than the third. 

Fibonacci Price Cluster: The coincidence of at least three Fibonacci price relationships that come together within a relatively tight range. These clusters identify a key support or resistance decision. 

Symmetry Setup: The definition of symmetry is similarity or equality of swings in the same direction. We find symmetry setups by running a 100% price projection or “measured move” of a prior swing and then projecting the results from a new high or low (depending on what direction you are coming from) The only symmetry setup I like to focus on is when swings are similar or equal within the context of the trend. For example, if we are in a clear uptrend, I will measure the prior corrective declines within an uptrend and project 100% of those from any new high to help you enter the market in the direction of the trend. A single symmetry projected IS considered a setup, though other price relationships may overlap these projections which only strengthens the setup.  

Two-Step Pattern Setup: A two-step pattern setup is also a Fibonacci price cluster as it will include the coincidence of at least three Fibonacci price relationships, but it will be within the context of a zig-zag pattern. For more information of this trade setup, please refer to the members webinar on this subject. I have also written a full chapter on this pattern in my book Fibonacci Trading – How to Master the Time and Price Advantage (McGraw Hill).

Carolyn Boroden, who is renowned for her expertise in Fibonacci price and timing analysis, hosts the Fibonacci Market Analysis service at ElliottWaveTrader.