Fibonacci Projection Lesson

I’m going to give a quick lesson on Fibonacci Projection so that we can
all understand.   This is a hypothetical example  as if
the date was September 12th, 2005.  You’ll understand why in a
bit.  First we need to select a low point and a high point. 
I’m taking the 2005 low back in January, 101.67.   I’m taking
the July, 2005 high of 113.71.

If we subtract point A (low) from point B (high), we get
12.04.  The fibonacci projection figures to use are 61.8%, 100%,
and 161.8%.   So we now take the first projection figure of
61.8% and multiply this by 12.04.  .618 x 12.04 = 7.44.  Now
we need to select a third point.  So now we will assume that it is
September 12th.  The pair has been in retracement since the July
high of 113.71.  By the time September 12th comes, the pair has
retraced 38.2% to 109.12.  This is the third time in 2 months that
the pair retraces to this point and support is well established. 
So the third point is 109.12.  To figure the 61.8% projection, we
take our figure from above, 7.44 and add it to 109.12.  This gives
us a price projection of 116.56. 

We can do the same for the 100% and 161.8%:

100%
: 1.00 x 12.04 = 12.04              
  Next price projection is 12.04 + 109.12 = 121.16
161.8% : 1.618 x 12.04 =  19.48     
     Next price projection is 19.48 + 109.12 = 
128.6

We
have 3 fibonacci projection levels of 116.56, 121.16, and 128.6. 
What do we do with these now?  Well, let’s just say on September
12th, you went long on the USD/JPY.  Then technically, you could
wait until the first projection level of 116.56 until you need to make
a decision to exit the position.  Most likely all the
institutional traders will be looking at these 3 important
levels.  We should too!  As the pair inches its’ way towards
116.56, you need to watch closely.  If it doesn’t seem like it’s
going to break it, you can exit and make a decent profit.  If it
breaks the first projection point, then you may want to wait until it
approaches the 121.16 point.  Then same goes for this.  If
the price point is broken, wait once again for the 161.8% projection of
128.6.  Now you want to think about exiting the position which by
now how netted about 2000 pips.

Popularity: 2%