Read this article...it walks you through my tools and tactics for Fibonacci Trading...and be sure to check out the E-Mini S&P, commodity futures, and stocks examples below

Fibonacci Levels are a staple in my trading, intraday and end-of-day.  After I identify the major and minor trendlines and recent Minor Lows and High, I draw my Fibonacci Levels using one of two tools: 

the Fibonacci Retracement Tool

the Fibonacci Extension Tool 

Unfortunately, Fibonacci Levels are a cause of confusion for far too many traders. Either they don’t know how to draw them or they don’t know what to do with them once they have drawn them.  If you think of Fibonacci Levels as support and resistance then you have taken a huge step forward in simplifying their active role on your charts. 

 Minor Lows and Highs are simply points at which prices change direction.  A Minor High is established when the current high has a lower high before and after it.  A Minor Low then is established when the current low has a higher low before and after it.  (please see “Using Minor Lows and Minor Highs to Pinpoint Reversals”).  It is these highs and lows that will give us a guideline as to where to begin drawing the starting and ending points of the Fibonacci Retracement Tool.  We are looking for the “last major move” which is typically the most recent rally or sell-off.  Fibonacci Retracements are used to measure the bounce or pull-back from the “last major move.”   

The chart below is an example of a recent Fibonacci Retracement in the Eurodollar FX market.  The starting point where the Fibonacci Tool begins is marked with an “A” and the ending point with a “B”.  The subsequent levels that are calculated are the retracement levels.  The levels represent potential reversal areas.  Think of them as support and resistance because that’s truly what they are.  As you can see the .786 level at 1.24745 was indeed support -- and prices reversed.  In this example, the best way to use these Fibonacci Retracements is to assume that any of the levels could be where prices find support and that we should pay extra attention to them.   

What we now have is a series of predictable “alert levels” where instead of having to randomly guess at what point we should set stop loss orders or profit targets, we can pinpoint what these levels are and implement them into our trading plan before even placing an order.   

Risk to reward ratios can be planned with levels that have basis in price action… 

Trendline breakouts can be confirmed with Fibonacci Price Levels… 

Entries and Exits can be measured within an established trend… 

The real-world applications are powerful and accurate.  This is how powerful and easy to use eSignal’s Fibonacci Retracement Tool is.   

When learning how to draw Fibonacci Retracement Levels there are often questions as to where to draw the Levels which I hope we addressed effectively here, but there are also issues of when to draw new levels when price action has established new Minor Highs and Lows.  Traders can now can automate Fibonacci Levels.  So now instead of fighting with whether the levels you used are correct or whether to draw a new level, you can let the software studies handle it for you. 

This is the exact software I use in our day to day trading and it has allowed me to seamlessly analyze multiple markets and multiple time frames with ease.  Just like many of you, I often used to find myself with not enough time to do the sort of thorough chart analysis successful trading demands.  

I automated my own chart analysis for many of the same reasons other traders seek to as well:  save time, increase accuracy and remove fear, greed, and emotion from our analysis!