Wave Relationships and their relation by Fibonacci Ratios are among the most helpful tools for target prediction.
There are different types of Fibonacci and different tools with different names in different software packages. This may make users somehow confused . Here, we try to shed some light on various mostly used Fibonacci types and explain their usage for target prediction. Also we explain their related tool in TradingView and their way of implementations.
As shown on the chart, there are four main types of Fibonacci :
1- Internal Retracement
2. External Retracement (Extension)
3. Expansion
4. Projection
Before going through details, it is worth to mention that knowing wave relationships is a key to implement Fibonacci tools accurately. Different types of wave relationships is beyond the scope of this publication. Here, for simplification, we show most simple type of wave cycle which is ascending complete cycle with one 5 leg up impulse and one abc form of correction . Also, we try to explain more typical Fibonacci Ratios for target prediction and skip less often ones.
1. Internal Retracement:
This is simply for calculation of the amount of correction in the main trend. It means we can predict where a counter trend correction may end.
As shown on the chart, it can be used for target prediction of wave 2 and 4 in an up trend and also wave B in a down trend. It can also be used for calculation of end of wave C which is the end of correction of whole up going wave. Green arrows on the picture show the direction of using this tool which is "Fib Reracement" in TradinView. For example, we put first point at the start of wave 1 and second point at the end of this wave for obtaining possible targets for wave 2 and so on.
Wave 2 can end at 0.382, 0.5, 0.618 and 0.786 Fibonacci Retracement levels of wave 1. Fibonacci levels at which wave 2 ends can send us a signal about the amount of next waves. This is again beyond the scope of this publication.
Wave 4 can typically end at 0.382 or 0.5 Retracement of wave 3. Less and more amount of Retracements are also possible, but those make wave relations more complicated and does not match with our simple shown example.
Wave B typically corrects 0.382 , 0.5 and 0.618 of wave A in a simple zigzag correction. More Retracements signals for more complicated corrections e.g a flat correction.
Wave C Retracement levels are similar to wave 2 in shown wave cycle since it is end of a larger degree wave 2.
2. External Retracement:
This Fibonacci which is also called " Extension" can be used for calculation of end of wave 3 or 5 in an up trend and end of wave C ( which is end of whole correction) in a down trend.
We have same tool as internal retracement in TradingView however ,unlike internal Retracement, an extension should be drawn from a high to a low in an up trend and vice versa as shown by green arrows on the related figure.
Wave 3 Fibonacci Ratios by extension depends on the amount of wave 2 correction. For example, 1.618 or 2.618 extension of wave 2 can be the target for wave 3. Robert. C. Miner has proposed a very useful table for targets using external retracement.
Wave 5 typical targets are 1.272, 1.414 and 1.618 extensions of wave 4. This ratios are also the same for calculation of end of wave C.
3. Expansion:
Based on my experience, Fibo expansion is most useful when we have over extended waves for example over extended wave 3. In this case , 1.618 or even 2.618 Fibo levels can be the typical targets.
Related tool in TradingView is Trend-Based Fib Extension. Please note that this tool in TradingView is a three point Fibonacci while expansion is two point Fibonacci tool. Therefore, Implementing this tool for obtaining Expansion levels is a little tricky. For example, for calculation of wave 3 we should put first point at the start of wave 1 and double click on end of wave 1.
There are also more details in implementing Fibo expansion for example we have different types of Fibo expansion. We can skip details here to keep this publication as simple as possible.
4. Projection:
This is the only 3 points Fibonacci that we have. Some software packages call this Fibonacci as Expansion !!. Its related tool in TradingView is Trend-Based Fibo Extension. It is a very useful tool for calculation of end of wave 3, 5 and C.
Again green arrows show how to use this tool . For example, For wave 3 target calculation we set first point at the start of wave 1, second point at end of wave 1 and third point at the end of wave 2 or start of wave 3.
1.618 and 2.618 Fibo levels are typical for end of an extended wave 3 when using Fibo projection.
100 % Projection of wave 1 from low of wave 4 is a typical one for end of wave 5 target. Also 0.382 or 0.618 projection of wave 1-3 from low of wave 4 is a helpful ratio for wave 5 target calculation.
For a wave C, most common projection is 100 % of wave A from top of wave B.
How to make a Potential Reversal Zone ( PRZ) :
We can make our potential reversal zone stronger by combining all proposed tools . Take another look at the figures. What can we see? yes. We know four tools now for calculation of end of wave C. Suppose how strong a possible buy zone can be when 4 different tools suggest it as potential reversal target !
Hope this to be helpful. Please do not hesitate to ask questions if you feel need to ask.
Good luck every one.
There are different types of Fibonacci and different tools with different names in different software packages. This may make users somehow confused . Here, we try to shed some light on various mostly used Fibonacci types and explain their usage for target prediction. Also we explain their related tool in TradingView and their way of implementations.
As shown on the chart, there are four main types of Fibonacci :
1- Internal Retracement
2. External Retracement (Extension)
3. Expansion
4. Projection
Before going through details, it is worth to mention that knowing wave relationships is a key to implement Fibonacci tools accurately. Different types of wave relationships is beyond the scope of this publication. Here, for simplification, we show most simple type of wave cycle which is ascending complete cycle with one 5 leg up impulse and one abc form of correction . Also, we try to explain more typical Fibonacci Ratios for target prediction and skip less often ones.
1. Internal Retracement:
This is simply for calculation of the amount of correction in the main trend. It means we can predict where a counter trend correction may end.
As shown on the chart, it can be used for target prediction of wave 2 and 4 in an up trend and also wave B in a down trend. It can also be used for calculation of end of wave C which is the end of correction of whole up going wave. Green arrows on the picture show the direction of using this tool which is "Fib Reracement" in TradinView. For example, we put first point at the start of wave 1 and second point at the end of this wave for obtaining possible targets for wave 2 and so on.
Wave 2 can end at 0.382, 0.5, 0.618 and 0.786 Fibonacci Retracement levels of wave 1. Fibonacci levels at which wave 2 ends can send us a signal about the amount of next waves. This is again beyond the scope of this publication.
Wave 4 can typically end at 0.382 or 0.5 Retracement of wave 3. Less and more amount of Retracements are also possible, but those make wave relations more complicated and does not match with our simple shown example.
Wave B typically corrects 0.382 , 0.5 and 0.618 of wave A in a simple zigzag correction. More Retracements signals for more complicated corrections e.g a flat correction.
Wave C Retracement levels are similar to wave 2 in shown wave cycle since it is end of a larger degree wave 2.
2. External Retracement:
This Fibonacci which is also called " Extension" can be used for calculation of end of wave 3 or 5 in an up trend and end of wave C ( which is end of whole correction) in a down trend.
We have same tool as internal retracement in TradingView however ,unlike internal Retracement, an extension should be drawn from a high to a low in an up trend and vice versa as shown by green arrows on the related figure.
Wave 3 Fibonacci Ratios by extension depends on the amount of wave 2 correction. For example, 1.618 or 2.618 extension of wave 2 can be the target for wave 3. Robert. C. Miner has proposed a very useful table for targets using external retracement.
Wave 5 typical targets are 1.272, 1.414 and 1.618 extensions of wave 4. This ratios are also the same for calculation of end of wave C.
3. Expansion:
Based on my experience, Fibo expansion is most useful when we have over extended waves for example over extended wave 3. In this case , 1.618 or even 2.618 Fibo levels can be the typical targets.
Related tool in TradingView is Trend-Based Fib Extension. Please note that this tool in TradingView is a three point Fibonacci while expansion is two point Fibonacci tool. Therefore, Implementing this tool for obtaining Expansion levels is a little tricky. For example, for calculation of wave 3 we should put first point at the start of wave 1 and double click on end of wave 1.
There are also more details in implementing Fibo expansion for example we have different types of Fibo expansion. We can skip details here to keep this publication as simple as possible.
4. Projection:
This is the only 3 points Fibonacci that we have. Some software packages call this Fibonacci as Expansion !!. Its related tool in TradingView is Trend-Based Fibo Extension. It is a very useful tool for calculation of end of wave 3, 5 and C.
Again green arrows show how to use this tool . For example, For wave 3 target calculation we set first point at the start of wave 1, second point at end of wave 1 and third point at the end of wave 2 or start of wave 3.
1.618 and 2.618 Fibo levels are typical for end of an extended wave 3 when using Fibo projection.
100 % Projection of wave 1 from low of wave 4 is a typical one for end of wave 5 target. Also 0.382 or 0.618 projection of wave 1-3 from low of wave 4 is a helpful ratio for wave 5 target calculation.
For a wave C, most common projection is 100 % of wave A from top of wave B.
How to make a Potential Reversal Zone ( PRZ) :
We can make our potential reversal zone stronger by combining all proposed tools . Take another look at the figures. What can we see? yes. We know four tools now for calculation of end of wave C. Suppose how strong a possible buy zone can be when 4 different tools suggest it as potential reversal target !
Hope this to be helpful. Please do not hesitate to ask questions if you feel need to ask.
Good luck every one.
