Fibonacci Retracements and Fibonacci Extensions

Important Fibonacci levels

61.80 Fib Retracement | 61.80 % and 100 % Fib Extension levels

Understanding Fibonacci Analysis

The charts below show the importance of the Fibonacci Analysis, which consists of Fibonacci Retracement levels as well as Fibonacci Extension levels.

Fibonacci Retracement levels highlight some important price levels during the retracement of a recent swing, which could lead to some price reaction. The 61.80 % Fibonacci retracement is the most important price retracement level (IMO).

The Fibonacci Extension level is the complete price range of a recent swing moved to the highest retracement level of this recent swing to target important price levels during the next impulsive leg, Hence the Fibonacci Extension levels can be drown when the retracement of the recent impulsive swing has terminated. The deepest price retracement level is the price point where the complete price range of the recent impulsive swing gets plotted on to show hidden Support/ Resistance levels. Important Fibonacci Extension levels are the 61.80 % Extension and the 100 % Extension. A minor Fibonacci Extension level is the 161 % level.

The Fibonacci Retracement gets employed first to find important price retracement levels when a recent swing is getting retraced whereby the Fibonacci Extension gets employed when the retracement terminates and a new impulsive leg starts to find important hidden support/ resistance.


On the 1 hour chart below we see that the 100 % Fibonacci Extension from the first leg down plotted on the beginning of the next leg down marks the price zone, where the EUR/USD found hidden Support after market breached the daily S2 Pivot.

1 hour Fibonacci Extension

On the 5 min chart below the 61.80 % Fibonacci Retracement provided resistance to the price retracement of the larger leg down (blue arrow). Further, the leg down consists of three minor swings/ waves down,  whereby momentum was fading away with every new swing. The retracement of the first leg down started at the daily support level (pink line) after market failed to break the daily S2 Pivot.

5 min Fibonacci Retracement

Triangle Consolidation Pattern

Triangle patterns

Typical Triangle Consolidation pattern

Consolidation price zone

On the 5 min chart below we see the large triangle consolidation pattern, which got broken to the downside.
The market price of the EUR/USD moved down to the 61.80 % Fibonacci Extension and started a retracement back into the triangle consolidation price zone.

The Consolidation price zone of a recent consolidation pattern often acts as Resistance/ Support when market price retraces back into this price zone for the first time. So, the Euro retraced back up into the triangle consolidation price zone and market price rolled over to the downside most probably due to the recent consolidation chart pattern.

The Euro terminated its retracement and started its second leg down. The following typical three market swing consolidation pattern  between 11 a.m. and 1 p.m. GMT took as usual more time then the prior impulsive leg and the consolidation pattern also consists of three market swings. The consolidation pattern terminated after the third market swing of the consolidation pattern and market price continued its move down to the major Support zone of the monthly Pivot and daily S2 Pivot, from where market price finally bounced back to the upside.

5 min Triangle Consolidation Chart Pattern

Another Example of a Triangle Breakout 

Butterfly sell chart pattern on 5 min chart

The Triangle breakout

occurred with the beginning of the new hourly candle after the previous hourly candle closed exactly at the downward sloping upper resistance trend line of the triangle (Breakout Timing - red thick circle).

The Euro found resistance at the daily R1, which coincided with the 161 % butterfly sell pattern on the 5 min chart below. The Euro retraced down close to the typical 161 % Butterfly sell "book" target of this reversal pattern, which coincided with the daily Pivot Point.

The Fibonacci Analysis allowed to figure out support and resistance zones on the EUR/USD. The green ellipses mark Consolidation and Continuation patterns. If price retraces back into the price zone of the prior consolidation pattern then market price often temporarily finds Resistance/ Support at these chart price levels.

1 hour Triangle Breakout

5 min Butterfly sell pattern

Next Example from June 2012: Triangle Consolidation 

1 hour Triangle Breakout

On the hourly chart we see that the Euro formed a nice 3 wave triangle consolidation pattern (red triangle) after the explosive up move out of the ending diagonal triangle (blue lines). After the consolidation terminated the Euro slowly moved up from the daily pivot point (no confirmed close below it) supported by the 20 SMA (purple line)  and later by the 10 SMA (red line). Market respected (closed at) the weekly pivot at 12 a.m.GMT before the Euro broke through it at the beginning of the 2 p.m. hourly candle. Market moved up to the resistance zone at about 1.25 due to the 61.80 % fib retracement (swing down from 28th to June 1st), the previous low of May 25th (pink line), the 61.80 % fib extension (A-B at C), the 200 SMA and the daily R1. Market could not break this resistance zone so far.

Triangle Pattern in the EURUSD

1 hour Triangle pattern

On the hourly chart we had a nice triangle consolidation (blue lines) after yesterdays drop down, which, as mostly, is a continuation pattern. The triangle pattern took place at the 100 % fib extension at about 1.2706 from the prior wave down.
The triangle breakout occurred in today's European Session and it took out the prior low (minimum target of the triangle).
The weekly S3, the daily S2 and the 61.80 % fib extension at 1.2641 could provide some support.

5 min Chart Analysis 

On the 5 min chart we see that the 100 % fib extension from wave A-B at C at about 1.2756 acted as resistance yesterday. Furthermore, the sharp drop in price yesterday (D-1.2688) found support at the prior consolidation.

The breakout of the triangle occurred shortly after market touched (respected) the blue support line at 10 a.m. GMT (hourly candle). After the touch of the hourly candle the triangle support line got weaker and the break occurred in the beginning of the next hourly candle (11 a.m. GMT).
After market respected a level with the touch of a candle (particularly when the candle closed at this support/ resistance level) the next candle has the chance to break through this level either for a true breakout or for stop fishing the stops placed below the support/resistance (Timing).

The breakout candle on the 5 min chart at 12:25 a.m. GMT fished the stops placed below the recent low and daily S1. However, there was no close of the succeeding candles below the range of the breakout candle (no confirmation, so mainly stop fishing).