Jump to navigation

Free Newsletter Modern Trader Follow

Main menu

  • Futures
    • Modern Trader Magazine
    • Commodities
    • Futures Mag Archives
    • ETFs
    • Financials
    • Forex
    • Managed Funds
    • Market Analysis
    • News
    • Options
    • Regulation
    • Technology
    • Trading Strategies
    • Education
    • Futures Op-Ed
  • Favorites
    • Alpha Pages Most Popular
    • Futures Magazine
    • Modern Trader Magazine
    • Most Popular
    • Slideshows & Lists
    • Special Topics
      • Alpha Hunters
      • Bad Boys
      • FINtech
      • High-Frequency Trading
      • Trader's Life
      • Trading Strategies
      • FUTURES MAG's 500th ISSUE
      • We asked traders
  • Traders
    • Market Data
    • Hot Charts
    • Interactive Charts
    • Trading Calendar
  • FINalternatives
  • Hard Assets
    • Home
    • Base Metals
    • Precious Metals
    • Rare Earth Metals
    • Commodities
    • Mining Investments
    • Slideshows
  • Modern Trader
    • Subscribe
    • Past Issues
  • All +
    • Follow Us +
      • FuturesMag
      • Newsletters
      • Facebook
      • Google+
      • Linkedin
      • Twitter
      • RSS Feeds
    • About Us +
      • About
      • Advertise
      • Contact
      • Contribute
      • Privacy Policy
  • !
Follow Futures          
       
more >>

We Asked Traders

We asked traders for their opinion on the launch of bitcoin futures

Sponsored Content

Trading

Equities.com launches unlimited trading via Tradier Brokerage, Transforming into a news & fintech portal

Featured Topics

more Commodities>>

Commodities

Energy demand steps back in play
Advertisement
more Volatility>>

Volatility

Volatility & opportunity in the energy sector
Daily Price Action: E-mini S&P 500
more Options>>

Options

Trading Vertical Option Spreads

Fibonacci expansion: A better way to time price targets

By Toni Hansen

February 1, 2014 • Reprints

Identifying turning points in the market can be a daunting task. If you are already in a position, it’s easy to let your emotions take over and throw your larger goal out the window in favor of smaller, more immediate returns. Often, this is the wrong approach and you will stand on the sidelines as prices continue to rise or fall in accordance with your initial bias as you mentally slap yourself for your lack of discipline.

When your instincts are telling you that the odds are in your favor, why is it so difficult to just stay the course? For most, the reason boils down to confidence. While the seeds of confidence are often sown in instinct, it is reason that nurtures your ability to trust those instincts.

The greatest key to building confidence and hanging onto winning positions longer is to have a solid target and exit strategy in place before initiating a trade. The majority of traders try to improve their odds of correctly identifying these targets through the use of indicators. Most indicators, however, are only as good as the trader using them and correct applications and interpretations can take years to master.

A disconcerting fact for those studying market indicators is that there are relatively few that can assist in all aspects of trade management. One exception is a form of market analysis that we know today simply by the name of the author who is credited for introducing the system’s underlying numerical sequence to the West: Fibonacci.

Sweet sequence

Fibonacci indicators that have become popular in technical analysis today are based upon ratios that are derived from the numbers that make up the “Fibonacci sequence.” This sequence is the result of adding each new number to the one that precedes it, beginning with 0 and 1. For example: 0+1=1, 1+1=2, 1+2=3, 2+3=5, 3+5=8, etc.

After the first several numbers, an interesting symmetry begins to develop. For example, from 13 onward, every time you divide a number by the one to the right of it, the result is 0.618. When you divide a number by the one two places to the right, the result is 0.382. These numbers are converted by market analysts into 61.8% and 38.2% respectively.

The significance of the Fibonacci numbers and resulting ratios is a topic that has been debated widely over the years. While scholars argue the veracity of many claims that Fibonacci is part of the underlying fabric of natural design, in the financial markets it is the skeptics that often take a back seat. Support and resistance levels based on Fibonacci numbers and ratios hold remarkably well when applied to chart analysis. This is true especially for forex and futures markets and in individual, high-volatility securities.

There are numerous applications for Fibonacci ratios in technical analysis. Among the most popular are Fibonacci retracement levels, price and time extensions and Fibonacci fans. While these tools transcend markets, they also transcend time frames and are viable for traders and investors alike.

Page 1 of 3
>>next >

About the Author

Toni Hansen is president and co-founder of the Bastiat Group, Inc., DBA Trading From Main Street. Toni is one of the most respected technical analysts and traders in the industry. She has been trading and educating new traders, money managers, professional market analysts and traders throughout the boom and bust of the last decade. She has worked in conjunction with some of the world's top financial exchanges. Learn more about Toni Hansen and the educational services she provides through her website at http://www.tonihansen.com.

Related Articles
Fishing With Alternative Data
Here is your free look at the Modern Trader’s annual Hedge Fund Issue
Short-term signals in E-minis, crude and gold
Unemployment drops below 5% but payrolls disappoint
Trading vs. Gambling: The age old question
Previous
The New World of energy
Next
Trading under pressure with on-balance volume
Related Terms
financials 2975technical analysis 1328Bastiat Group Inc. 324Fibonacci 265Toni Hansen 221DBA Trading 215Education 156Trading Strategies 14excellent tool 8extension tool 2particular tool 1expansion tool 1correct applications 1

Free Newsletter Modern Trader Follow

Main menu

  • Futures
    • Modern Trader Magazine
    • Commodities
    • Futures Mag Archives
    • ETFs
    • Financials
    • Forex
    • Managed Funds
    • Market Analysis
    • News
    • Options
    • Regulation
    • Technology
    • Trading Strategies
    • Education
    • Futures Op-Ed
  • Favorites
    • Alpha Pages Most Popular
    • Futures Magazine
    • Modern Trader Magazine
    • Most Popular
    • Slideshows & Lists
    • Special Topics
      • Alpha Hunters
      • Bad Boys
      • FINtech
      • High-Frequency Trading
      • Trader's Life
      • Trading Strategies
      • FUTURES MAG's 500th ISSUE
      • We asked traders
  • Traders
    • Market Data
    • Hot Charts
    • Interactive Charts
    • Trading Calendar
  • FINalternatives
  • Hard Assets
    • Home
    • Base Metals
    • Precious Metals
    • Rare Earth Metals
    • Commodities
    • Mining Investments
    • Slideshows
  • Modern Trader
    • Subscribe
    • Past Issues
  • All +
    • Follow Us +
      • FuturesMag
      • Newsletters
      • Facebook
      • Google+
      • Linkedin
      • Twitter
      • RSS Feeds
    • About Us +
      • About
      • Advertise
      • Contact
      • Contribute
      • Privacy Policy
  • !
images