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In this video, how to trade Fibonacci, retracement and extensions and the first thing that you need
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to know is that it is based upon a mathematical sequence discovered in the 12th century by Leonardo
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Fibonacci.
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And basically, it is a scenario that looks something like this.
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You have consignee numbers where you add the first two, you get the answer to the third one, the ad,
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the second third one, you get the fourth.
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So it's this plus this equals this, this plus this equals this, this plus.
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This equals this.
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And without going into deep mathematical conversations, there are.
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They are all based upon.
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Sixty one point eight percent or point six one eight is the golden ratio, and there are.
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Not Alice Rivers, mountains, peaks, everything that you can think of seems to have this never involved
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in it as far as measuring it.
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Now you can study as much as you want about Fibonacci, but know that as far as finances are concerned,
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it is something that is widely followed.
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The idea is that there should be some type of action around a Fibonacci retracement level and or an
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extension level.
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And traders look for setups at these areas.
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Now, there are a lot of debates out there as to whether or not there's any efficacy to this.
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And the reality is that there are enough people to believe in it, that there is something to it, whether
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or not there's any mathematical nature to it in markets, that's completely up for debate.
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The idea is with a retracement.
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And that you take a swing low in a swing high, and when it pulls back, you expect it to be at one
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of these ratios, for example, this might be sixty one point eight percent on this and then you buy.
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So let's take a look at it in real life.
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Let's see really how we could have looked at this.
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So we are looking for swing lows and swing highs, it works in both directions.
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Again, though, it is somewhat subjective because you have to have everybody agree on one of the swing
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low in the swing high.
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As you can see, this is the Fibonacci retracement tool.
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So this was a swing low.
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This was a swing low.
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So let's take this one and drag.
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You drag it up to the swing high and then you look and you can see the price basically went down to
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the sixty one point eight percent Fibonacci retracement level.
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The catch with Fibonacci, though, is it really can't be used by itself.
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There are some people that simply by a 50 percent pull back, which ironically actually isn't a Fibonacci
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number.
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It's just that for years traders have always bond to 50 percent pullback.
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So they included in the tool.
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It should also be noted that there are a multitude of other numbers that you can have.
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I only have the important ones, the fifty the sixty one point eight, the thirty eight point two percent.
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There are other ones like the seventy eight point six, et cetera, et cetera.
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But really, those aren't used anywhere near as much of these three level thirty eight point two, sixty
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one point eight, and the 50 percent that tend to attract the most attention.
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So you can see that we have a swing low, swing high.
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We pull back to just about the sixty one point eight.
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And in fact, we closed above the fifty.
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So you could say that offered support, I suppose.
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Here's the thing, though.
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The reason this works isn't necessarily just because of that.
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There was obvious resistance there previously.
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So you can make an argument.
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Did fib work or was it?
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The previous resistance is now acting as support.
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The reality is this is a good setup because it's a hammer, which is a very bullish candlestick.
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And you'll learn about those later right at the fifty percent Fibonacci retracement level and the previous
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resistance level.
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So.
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You can make an argument either way.
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That being said, that is one way that you can look at it.
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You know, what's the difference between Fibonacci and horizontal support resistance?
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The reality is you better hope there's none because you need one or the other.
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And you can see that the sixty one point eight held on this bounce back just to show you that that it
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does cause some attention in both directions.
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You can see that we had fallen bounced right up to the thirty eight point two before going lower and
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the euro yen.
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Again, though, you can't just pick a level and say, OK, I'm going to start buying or selling there,
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there's a cluster here, there's a shooting star here, Bears Candlestick, and you short it again.
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That's something that you'll learn in the candlestick section.
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But this all kind of ties together nicely and even, you know, a big hot mess like Uber, which has
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been all over the place.
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You can start to see some semblance of pattern here, you can see right around the 50 percent Fibonacci
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retracement level of this big move lower, we did, in fact see some resistance.
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Fibonacci is also used for the extension tool, and it's in the same menu just to use trend based extension.
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So if you remember this Manassero one, the original one went from there to there.
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So you click on both of those levels and then you pull back to the beginning and what you get is the
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50 percent for every trace.
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But notice that beyond the highs, there is the one one hundred percent and then there's a one point
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six one extension.
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And that is an area that a lot of people will aim for.
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Again, though, I would draw your attention up here.
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Makes sense that there would be a little bit of profit taking in that region.
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The higher you go up the chain, though, the less likely it is to hit.
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So like the two point six one eight level is a very long time type of long term type of move.
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And to be honest with you, if your day trading, you're very rarely going to hit one sixty one.
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But it is something to look at if you're already involved in this move.
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So say you're here and you've seen a pullback of that nice move.
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You want to know where the market may be able to go?
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You can go back to the last swing low and use it.
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So it's a way to enter kind of late.
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Actually, feebs is not something that you fibonacci's not something that you can ignore because it
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is something that catches the attention of so many traders.
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But like I said, you have to kind of take it.
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For what it is, it's just a guideline to where things could happen, you know, you could very easily
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say, well, swing kind of swing low and look right here at the 50 percent Fibonacci retracement level
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and REPL.
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But.
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What would be even more impressive is.
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If we were at an area that had been resistance and possibly even support in the past, there's a gap
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there.
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Resistance, resistance, resistance, resistance and resistance and the 50 percent Fibonacci retracement
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level with a very bearish candlestick and an overextended move, you could probably put on other indicators
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that we'll be looking at the next few videos to give you yet another reason to short report that level.
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So, again, don't get too hung up on Fibonacci, but do realize that it gives you an opportunity to
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look for places where people are going to be trading and that's really all it is.
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In the next video, we'll take a look at how to trade exponential moving averages.
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