Using Fibonacci ratios in a consistent style can enhance trading and analytical skills. The standard approach is to analyze Fibonacci retracements as measured from the extremes of a move or trend. I will now look at other methods some chart users employ: different starting points of the Fibonacci retracements.
Not all trends start in a dynamic fashion. When trends start at a subdued pace, markets might take some time to generate a forceful trend acceleration. In this case, some traders will be more inclined to select as the beginning of their Fibonacci retracement analysis the start of the acceleration, rather than the lowest low for an uptrend or the highest high for a downtrend.
Consider the massive uptrend of the Nikkei 225 Index (.N225). The lowest low was reached during the week of June 8, 2012, at 8,239.96. However, .N225 waved around for approximately five months and started its historically significant uptrend during the week of November 16, 2012, at 8,619.45.
The Fibonacci retracements performed well. Notice that the violent bearish engulfing reversal formed during the week of May 24, 2013, and the subsequent decline obliterated the 14.6%, 23.6% and 38.2% Fibonacci retracements, but the 50% retracement provided a perfect floor. The recovery was then capped by the 14.6% Fibonacci retracement at 14,873 on a closing basis, and as at the time of this analysis, the 38.25 Fibonacci retracement supports well at 13,145.
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