"Buy the dip". I'm sure you've heard it before. But how low will it dip? Wouldn't it be nice to buy as low as possible? Well if you read my last post on using the Fibonacci to buy the dip then you know, we start at the lowest point and extend the Fibonacci to the highest point of a trend. In this situation instead of starting from the absolute lowest at the beginning of the trend, we start from the previous lowest point and extend it to the our most recent top. If you look to the left on the you will see that there is a Fibonacci retracement there. If you connect the lowest point (start on trend) with the highest point then you will see that we retraced to the .382. To avoid making the chart looking cluttered, I left the first Fibonacci retracement to the side and used the dotted red lines to show where the top is and where the .382 is. Because this is a 4 hour chart you have time to decide whether or not it's the top. What I personally do in these situations is draw the Fibonacci to the highest point even during the slightest of dips. This gives me an idea of where it could retrace, if it continues to retrace.
Moving on to the second Fibonacci we do it a little different. Instead on starting from the absolute lowest, we start at the previous low. We start at the low and look for the top. Looking at it now it's easy to say "yeah that's clearly the top". But when you're watching it in real time it's not as clear. That's why we turn to our good friend bearish divergence. Bearish divergence is perfect for knowing when to short or exit your position. So let's say you sold your position because you saw the divergence. We now know where the top is. Well when do you buy back in? At the Fibonacci! Remember the .618 and how it's the golden ratio? Well if you look at the chart we perfectly hit the .618. Note that if the first dip retraces to a .236, .382 or .5 level then there's a higher probability that we will retrace further to a .618 or .786 level on the second dip. The probability of price retracing to the .236 is lower than the probability that it will retrace to the other levels. If you're unsure of which fib level to buy in at, then ladder your buys. Instead of putting all your money in all at once, buy a little at each fib level. Let me know if you have questions
Moving on to the second Fibonacci we do it a little different. Instead on starting from the absolute lowest, we start at the previous low. We start at the low and look for the top. Looking at it now it's easy to say "yeah that's clearly the top". But when you're watching it in real time it's not as clear. That's why we turn to our good friend bearish divergence. Bearish divergence is perfect for knowing when to short or exit your position. So let's say you sold your position because you saw the divergence. We now know where the top is. Well when do you buy back in? At the Fibonacci! Remember the .618 and how it's the golden ratio? Well if you look at the chart we perfectly hit the .618. Note that if the first dip retraces to a .236, .382 or .5 level then there's a higher probability that we will retrace further to a .618 or .786 level on the second dip. The probability of price retracing to the .236 is lower than the probability that it will retrace to the other levels. If you're unsure of which fib level to buy in at, then ladder your buys. Instead of putting all your money in all at once, buy a little at each fib level. Let me know if you have questions
