Fib Price Expansions

This is a very valuable technique that you should incorporate into your trading. It's primarily meant for setting profit-objectives, and it's used after you are in a trade not as part of the decision process for entering a trade. In my opinion this issue of profit-objectives is the least understood component in the trading-process. It's often glossed over with the cliché "You can't go broke taking a profit". Hopefully this technique will assist you in your profit-taking strategy. But additionally, many of us have noticed that this method can be avery valuable addition to our trade-entry setups. If you have a trend-change in effect (detailed later in this course) and price has reached a profit-objective, the effectiveness of the trend-change is enhanced many-fold.

You're looking for an A-B-C pattern. You can see the parameters I'm using. The central idea is that each of the price-expansion levels acts as a resistance level (in a downtrend they act as support levels) and are good places to consider taking profits. Starting with the second level (the 1.0 expansion) you're simply looking for a pivot to form on or just below the level as a confirmation that a correction to the trend is imminent.

Below is another simple example. Both of these examples are the traditional "vanilla" use of this technique.

In my own use, if pivot C exceeds a 62% retracement of A- B, as shown below, then I draw it differently.

Just use the A - B pivots if pivot C exceeds a 62% retracement.

Let me show you how I use it in my own trading. I draw both the 3 pivot and 2 pivot Fib Expansion. Where levels cluster together, as shown in the area within the red circle, price often congests. As a swing-trader I DO NOT want to be in a trade here!

Below I've defined two sets of 3 pivots, allowing me todraw a total of 4 Fib Expansions. Now we have a sophisticated way of seeing where price will congest. This information is invaluable to an active trader.

I truly hope you make this part of your trading routine.Profit objectives and having an idea where price will congest is something all traders have either have trouble with or they ignore the issue entirely.

MetaStock Example

MetaStock allows you to connect two points, not three, in drawing Fib Price Expansions. You can still connect multiple pivots and find it to be a useful technique. Note: to use the clustering technique first connect alow to a high - the traditional approach - then connect a low to the next low. Many MetaStock users are unaware that the Fib Retracement drawing tool can beused to draw Fib Price Expansions. To draw a Fib Retracement you'd connect A to B (see below). To draw the Expansion while drawing move the mouse cursor to the left of A (point C, which is any place to the left of A) and the expansion lines will draw. Once drawn you can right-click any of the lines and select"Properties" to set which Fib Levels you want to use, plus you canadd your own levels.