TOTAL FIBONACCI TRADING
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Class II: Focusing the Grid
Review of Lesson 1
• How Fibs puts money in our pocket
• Establish Support and Resistance to identify measurable swing ranges.
• Rules for measuring ranges using Fibonacci ratios.
Rules for establishing ranges:
• ALWAYS work from right to left.
• Use internal data to help bring the grid into focus.
• When possible, place gaps at the 50% ratio.
• Take note of significant moves and place at either the
beginning or middle (50%) of the range.
• Candle wicks may need to be excluded.
(Example: A shooting star wick is often truncated.)
• Often the secondary move in a new range is more accurate
than the initial break.
• Think of ranges like a sentence…locate the punctuation!
Two Common Mistakes:
I. Amateur traders remain fixated on the extreme highs and lows.
➡ Begin and end the range at prices where strong buying or selling
pressure is observed.
➡ Often the secondary swing after the actual turn offers greater value.
II. Beginners often fail to compensate for expanding and contracting market conditions.
➡ Using the techniques to “focus the grid” in today’s lesson will minimize the impact of
changing market cycles.
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CLASS II: FOCUSING THE GRID
TOTAL FIBONACCI TRADING
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Focusing the Grid
Market Cycles
There are three cycles in every market:
• Symmetry
• Expansion
• Contraction
Market Cycles: Symmetry
• When analyzing waves in a symmetrical market, price movements remain constrained to
our raw fibonacci ratios.
• Use the “Fib Extension” tool.
• Ratios:
➡ 0.382, 0.50, 0.618
➡ 1.00, 1.382, 1.618
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CLASS II: FOCUSING THE GRID
TOTAL FIBONACCI TRADING
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In an up-trend:
➡ Select your initial point from a previous swing high. (1)
➡ Complete your range at the bottom of the subsequent
retracement. (2)
➡ Select your third point from a new swing high. (3)
➡ Measure potential Fibonacci ratios. (4)
In a down-trend:
• Select your initial point from a previous swing low. (1)
• Complete your range at the top of the subsequent
retracement. (2)
• Select your third point from a new swing low. (3)
• Measure potential Fibonacci ratios. (4)
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Advantages of Symmetry analysis:
• Quick and easy -- immediate analysis
• Because of its speed, some traders like it for intraday trades on faster markets like Forex.
Disadvantages of Symmetry analysis:
• Only works in a symmetrical market
• Least reliable of all Support and Resistance methods
Notes
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CLASS II: FOCUSING THE GRID
TOTAL FIBONACCI TRADING
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Market Cycles
• Failure to compensate for market cycles will result in a faulty grid.
• This is one of the most common mistakes made by beginning traders.
• If your analysis fails to line up with the price movements, check to be
sure you have properly accounted for the current market cycle.
Market Cycles: Expand/Contract
• Symmetry is only 1/3 of the number of ways a market can behave. In Notes
practice it occurs much less than 33% of the time.
• Typically markets will be in either a mode of expansion or contraction.
• The educated trader recognizes the cycle and adapts his/her trading plan
accordingly.
• To discover if a cycle is expanding:
➡ Draw an initial range starting at the strongest part of the overall move.
➡ Using consecutively larger high/low swings, draw additional ranges and
measure the 50% ratio.
➡ Remember your rules for drawing ranges.
➡ In an up-trend, if the 50% ratios are consecutively higher, the market is
expanding.
➡ In a down-trend, if the 50% ratios are consecutively lower, the market
is expanding
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CLASS II: FOCUSING THE GRID
TOTAL FIBONACCI TRADING
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To discover if a cycle is contracting:
• In an up-trend, if the 50% ratios are consecutively
lower, the market is contracting.
• In a down-trend, if the 50% ratios are consecutively
higher, the market is contracting.
Up-Trend Down-Trend
Expanding 50% Ratios Higher 50% Ratios Lower
Contracting 50% Ratios Lower 50% Ratios Higher
How does this put money in my pocket?
• When a market is expanding or contracting, assume your simple fibonacci grid will be out
of focus. Entries and exits should be conservative.
• Develop analysis that adapts to these changing market conditions.
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CLASS II: FOCUSING THE GRID
TOTAL FIBONACCI TRADING
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Confluence I f yo u
Identify Confluence Zones m e a s u fi n d y o u r
r se
• A confluence zone is a group of Fibonacci ratios in a tight cluster. ranges i n g t o o m l f
,t a
• To establish zones of confluence, draw multiple ranges beginning with l o n g e r ry looking ny
the same point of origin and ending on relevant swings. a t
spot si t i m e f r a m e a
• Note the ratio clusters and delete your Fib lines. gnifica t o
nt mov
• Confluence literally brings the grid into focus and gives you es.
confidence in the ranges you selected.
Identify Confluence Zones (continued)
• Confluence zones offer two important perspectives:
➡ Potential trade entries based upon a retracement
➡ Gauging the lifespan of a current trend
• If there is a lack of confluence to offer support or resistance in a retracement, prepare for
a potentially large trend reversal.
• Notice the lack of confluence zones below 10,898 and the free fall that resulted.
• A confluence zone acting as support does not become resistance. Once the zone is
broken, it is no longer a target. This is also true for zones acting as resistance.
OR
• Be sure all ranges begin with the same price and adhere to the rules of range drawing.
• A lack of any confluence means you need to reanalyze your choice in ranges.
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CLASS II: FOCUSING THE GRID
TOTAL FIBONACCI TRADING
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Homework
• Using historical data, work to find an example of both an expanding and
contracting market in both an up-trend and a down-trend (four total).
• Set up and practice using your Fib-Extension tool by drawing 5
retracements that resulted in a respect of the fibonacci ratios in a
symmetrical market. (Hint: Use smaller timeframes)
• Work with your range drawing to find a minimum of 5 confluence zones
that were respected.
Next Lesson
• Establishing Price Targets
• Fibonacci Expansions
• Projections of Confluence
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CLASS II: FOCUSING THE GRID
