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Fibonacci Complementary Tools

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The analysis with rhythmic wave diagrams shows a relationship between the ratios so it will allow traders to further understand the relationship between them and help to make better decisions in trading. To understand the great contribution of the analysis of the harmonic proportions, it should be mentioned that the confluence zones are connected between them by harmonic relations. Also, if you want to know when the market is going to develop a strong movement in a bias you can also apply the harmonic proportions as a relevant indicator.

When the harmonic proportions are plotted, there are points where the harmonic intervals overlap and the market respects these points known as the diatonic Pythagorean scale; As the market respects the areas where different harmonic proportions coincide, this indicates that there are areas of confluence that weigh more than others so that the harmonic proportions will be a complement to the tools already studied, thus giving the trader the information on which major resistances and supports will be more important to the market.

A very important suggestion that must be considered by the trader is never to operate a single index, since in the market there are always assets that are correlated either proportional or inverse, so for certain assets there will be some other index that takes the lead and will serve to predict how the market behaves in the active trading. To see that assets can be correlated with an asset of interest you should analyze assets in the same sector, bonds, global indexes or raw materials.

fibonacci harmonic series

In the graph above the harmonic series is exhibited; There are analyses that apply these series to the market and in the points, that overlap series with others, will be areas that will be more important to the market, as not all areas of supports and resistances weigh the same for the market.

Retaking the Fibonacci analysis, there are certain tips that need to be considered. The highest or lowest prices are not always used to perform the analysis. The market gives the parameter to locate the range such as, the development of a rally in the market, very strong decision bars, gaps or certain technical patterns that indicate a change in the bias. If there are several signs of the market, it is better to draw several ranges to make sure that you are not leaving important areas without analysis, but considering that the ranges and their respective divisions must be areas respected by the market in the past because if this does not happen the drawn range will be irrelevant.

Other tools that serve to support the Fibonacci analysis are the oscillators like the RSI, but it is advisable to use them only when the market is in the confluence areas because otherwise it could give erroneous signals and is not reliable. If the market is reaching areas of confluence that are larger supports or resistances, oscillators will be able to give clues as to how the market behavior will be when it touches these points

Future price projections will be obtained by the projection of boxes where the important is the height of the boxes whose edges will be the ranges that were used for the Fibonacci analysis. If the market does not respect the first box of a small range, you should draw larger boxes that cover larger ranges and oscillations and their respective subdivisions that generate areas of confluence. This is the first step in creating future projections.

Using this Fibonacci analysis with the boxes starting from points of confluence to prices where a strong movement has been triggered and its subsequent subdivision with the Fibonacci ratios can be projected future prices in the oscillations that are formed. Many people do not know how to project in this way so they resort to Fibonacci expansions, a topic discussed in the article “Foundations of Fibonacci Extensions” (Foundations of Fibonacci Extensions) which is just as valuable and perhaps a little easier.

Another form of analysis is the Fibonacci channels. The channels are a variation to the Fibonacci retracements in which separate trendlines are drawn from a base price channel at distances provided by Fibonacci ratios. As a result, you get parallel trendlines that form channels used to estimate resistance and support zones as well as a Fibonacci retracement, only projected on a different axis. To create a parallel channel, it is observed first pivots that are confirmations of confluence zones that were analyzed in the horizontal axis, the lines of support or resistance in the channels must be respected where there are areas of confluence using the Fibonacci retracements. The pivot points will serve to create the channels are made in such a way that they respect important areas encountered previously.

The first step is to draw a channel where there are important pivots and based on this main channel are projected the Fibonacci percentages. This type of analysis also creates support areas and resistance and the knowledge becomes more robust because traders not only have the areas of horizontal confluence also have important areas diagonally. On many occasions, the intersections between different axes mark the entry point, but you should keep in mind that the stop loss points must be beyond the confluence zones and outside the Fibonacci channel.

Fibonacci channels

In the previous graph you can see some Fibonacci channels having as the basis of the channel the trend line of the market and then based on this project the Fibonacci ratios It’s important to have in mind that to be projected based on this trend line, the pivot points must have respected this trend line and the confluence areas that have been encountered with the Fibonacci retracements.

Fibonacci retracements

In this second graph, you can see the horizontal Fibonacci levels and the Fibonacci channels. As mentioned in this article, areas where support is intercepted or resistances with the channels will be areas that respect the market with greater determination and will be interesting areas to analyze. If you add this to the analysis with harmonic series, it will be a well-done analysis with enough tools to make no mistakes.

Summarizing, regardless of the asset, you should follow the same steps to analyze your important areas. First, it should be determined whether the areas you want to find are support or resistance zones, and depending on this you will proceed to stipulate the range to use Fibonacci retracements and other tools. There may be many ranges. They will always have the same starting point, but it will be carried at different price levels to obtain different ranges and several confluence zones. After identifying these areas, you should verify that the market has respected them in the past in different time horizons and be clear that the areas that have been found as major supports do not serve as resistance, that is another stage in the analysis. When you have identified the most relevant areas of the market it is advisable to shade them and eliminate those areas irrelevant to make the graph easier to interpret. Using the channels, retracements and Fibonacci expansion, oscillators, and Elliot’s principle, you will have the necessary tools to project the future direction of the market and thus make the best decisions of entry and exit.

 ©Forex.Academy

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