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Investor Debt Outpaces S&P 500 Growth

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Trading with Elliott Waves using Fibonacci Retracement Levels

One of the ways to determinate end of corrections (potential reversal areas) is by using Fibonacci retracement levels in your analysis approach. In this blog, we're going to explain some basic things about Fibonacci retracements.

Fibonacci retracement is a popular tool among Elliott Wave practitioners and is based on the key founded by mathematician Leonardo Fibonacci. The most important Fibonacci ratios are 23.6%, 38.2%, 50%, 61.8%, 76.4% and 100%.

Determination of right retracement area is based on a several things like previous wave structure and market correlation.

In most cases regular corrections end at 50%-61.8% Fibonacci retracement area. Examples: Wave 2 of 5 wave structure, Wave X of double/ triple three, Wave B of Zig Zag.

Idealized Fibonacci Retracement

Strong trending market ends corrections as shallow pullbacks/ recoveries at 23.6%-38.2% area. The best example is wave 4.

Deep corrections could be found in triangle structures (76.4%) and Flat patterns (90%, 100%)

There are a lot of examples when correction ends at 50-61.8 fib area, let's take a look at some of them:

$DAX 1.5.2015. Index is correcting the cycle from ((X)) low, it's currently at 61.8 fib level. We are expecting the trend line and ((X)) low to hold and favor the longs from this area

DAX Chart
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$DAX 1.13.2015. Index dropped further to 76.4 fib level (lower end of the box) and has resumed the rally as expected.

DAX Chart 2
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$DAX 3.10.2015. The index is correcting cycle from 1186.84 low in wave X pull back which is expected to end at 50-61.8 fib retracement zone (potential buy)

DAX Chart 3
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$DAX 3.11.2015. The Index has reached 50 fibs and turned higher as expected.

DAX Chart 4
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$EURUSD 12.15.2014. The price is correcting decline from 1.2908 in wave (X) which is expected to give us 50-61.8 Fibonacci retracement area (sell zone)

EUR/USD Chart 1
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$EURUSD 12.23.2014. We got nice decline from 50 fib area as expected.

EUR/USD Chart 2
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$USDCAD 12.9.2014. The pair has reached 50-61.8 Fibonacci area as expected, pull back ((x)) is in place there & rally should follow.

USD/CAD Chart 1
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$USDCAD 12.11.2014. The pair has turned higher as expected and now it approaching taking profit zone.

USD/CAD Chart 2
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