# Chapter 10, Part II. Fibonacci Retracement.

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 Part II. Fibonacci Retracement.
Commander in Pips: Today we will focus on Fibonacci retracement. Do you remember what ratios we should use for retracement calculation?

Pipruit: Sure – here they are: 0.382; 0.5; 0.618; 0.786; 0.886; 1.0. Also there are a couple of minor ratios - 0.236 and 0.707.​

Commander in Pips: Excellent. By the way, if you really want to study extremely powerful and useful approach to applying Fibonacci on financial markets, I strongly recommend you to read Joe DiNapoli's book “Trading with DiNapoli levels”. Although it’s not new, and possibly needs a second edition, many tools that are described in this book work extremely well.

1. It’s preferable that the market shows a thrusting move for application of retracement;

2. The major rules for using retracement as follows: “Buying deeps or selling rallies”. What does it mean?

- “Buy deeps” rule applies during a market up thrust and means that we should buy from one of retracement levels. In this case Fibonacci retracement levels act like support levels;

- “Sell rallies” rule applies during a market down thrust and means that we should sell from one of retracement levels. In this case Fibonacci retracement levels act like resistance levels.

Now, let’s study the proper way to calculate retracement levels and we will start from an upward thrusting move.

To make our further discussion simpler, let’s appoint some terms first:

1. “X” point will stand for starting point of thrust, that will be used for building a retracement;

2. “A” point will stand for final point of thrust that will be used for building a retracement.

So, here is how we will mark the thrusting move from which we would like to estimate retracement levels - “X-A”. In our terms the move on the market will always develop from X to A. It means that during the up thrust X-A, the move will be ascending, and during down thrust – descending.

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Lasted edited by : Mar 1, 2016
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