Using Fibonacci Retracement and Projection Levels
Simply put, Fib Retracements
(calculated in the tables on the left
side above) are used to measure how far a market has retraced its primary move. They help to gauge how much the market has taken back, from that which it has just given. If the market "takes back" only a small portion (38.2%) before continuing in the primary direction, we know that the trend is strong and that it will likely continue past the most recent swing pivot. If the market "takes back" a slightly larger piece (50.0%), then we know that continuation of the previous trend is less likely. And if it "takes back" an even larger piece (61.8%), we know that the trend is much more poorly established than original impressions might have left.
While Fib Retracement takes into consideration only likely market development within a specified price range, another way of using Fib numbers is to project how far price may move past the price range under consideration. In other words, Fib Retracement values are applied inside a price range, while Fib Projection values are applied outside the price range. Use the calculation tables on the right side above. Enter the beginning and ending values of a primary move (A & B) and then also the extreme retracement value of that primary move (C). The resultant Projection Levels become our targets for the next move in the same direction as the primary.