No Longer Random: Here's Why I Believe in Fib Ratios & Harmonics
I am going through a book on Harmonics and Fibonacci ratios (The Harmonic Trader by Scott Carney), and I'm seeing for myself how these ratios can be used as key areas of reversal.
I used to believe that day-to-day price action was random, but after looking at several charts for myself, I now reject my old belief and concede that price action is greatly tied to key Fibonacci levels and conforms decently to harmonic patterns.
The key levels I highlight here are
- 0.382
- 1.618
In the first leg, we draw our Fib off of the pivot around the $51 level to the pivot high around the $70 level. Here, we can see a reversal off the 0.382 level almost 100% cleanly.
In the second leg, we draw our Fib off that same pivot high around the $70 level to the pivot low around the $63 level. Here, we see a reversal off of the 1.618 extension level, another key reversal level.
In the third leg, we draw our Fib off that same pivot low around the $63 level to the pivot high around the $76 level. Here, we see a test of the 0.382 level, again.
But wait, there's more.
We can also draw an AB=CD harmonic using the following levels.
- A: Pivot low around $56
- B: Pivot high around $70
- C: Pivot low around $63
- D: Pivot high around $76
The AB leg is roughly the same length as the CD leg.
As you can see, AB=CD reversal also happens to be in that same 1.618 area.
All of this works together in unison.
Amidst all of these reversals off these levels, here's my Golden Rule: Use market structure as confirmation of these reversals. Look for 'M's (double tops) and 'W's (double bottoms), as well as bullish/bearish candles when appropriate, to confirm the direction of the reversal. Don't blindly trade solely off of levels.
I didn't cover them here, but I also love seeing reversals off of 0.618 and/or 0.786 levels. Those occur very frequently, too. Just gotta train your eyes.
I used to believe that day-to-day price action was random, but after looking at several charts for myself, I now reject my old belief and concede that price action is greatly tied to key Fibonacci levels and conforms decently to harmonic patterns.
The key levels I highlight here are
- 0.382
- 1.618
In the first leg, we draw our Fib off of the pivot around the $51 level to the pivot high around the $70 level. Here, we can see a reversal off the 0.382 level almost 100% cleanly.
In the second leg, we draw our Fib off that same pivot high around the $70 level to the pivot low around the $63 level. Here, we see a reversal off of the 1.618 extension level, another key reversal level.
In the third leg, we draw our Fib off that same pivot low around the $63 level to the pivot high around the $76 level. Here, we see a test of the 0.382 level, again.
But wait, there's more.
We can also draw an AB=CD harmonic using the following levels.
- A: Pivot low around $56
- B: Pivot high around $70
- C: Pivot low around $63
- D: Pivot high around $76
The AB leg is roughly the same length as the CD leg.
As you can see, AB=CD reversal also happens to be in that same 1.618 area.
All of this works together in unison.
Amidst all of these reversals off these levels, here's my Golden Rule: Use market structure as confirmation of these reversals. Look for 'M's (double tops) and 'W's (double bottoms), as well as bullish/bearish candles when appropriate, to confirm the direction of the reversal. Don't blindly trade solely off of levels.
I didn't cover them here, but I also love seeing reversals off of 0.618 and/or 0.786 levels. Those occur very frequently, too. Just gotta train your eyes.
