WHICH TIME INTERVALS SHOULD WE CHOOSE?

In using Fib lines, the question often asked is: Which lines and which points should be
chosen? In answering this question, it’s important to be practical. There are many Fib
lines in any of the chart time frames used. Even though trades may be taken off an intraday interval, with the 15- and 5-minute time intervals being common, it is still important
to use the big Fib levels that are generated off the weekly, daily, or 4-hour charts.
The way the Fib lines can be correctly chosen is to start where the price is at the hard
right edge. Figure 11.5 shows the steps in drawing a Fib line.
The key is to first ask yourself: Where is the price, and where is it coming from?
The trader wants to find the preceding significant low or high and its preceding low or
high. Doing so will locate the most recent completed movement. In Figure 11.5, the price
was coming from a preceding high, which came from a preceding low connecting point
2 to point 3. Select point 3 as the starting point of the Fib tool, and the Fib lines will be
generated. Notice that the 100 percent level is at the low, meaning that if the price falls
back to that level it will have given back 100 percent of the move.
Even if the point of start was switched to either point 2 or point 3, what would not
change would be the middle three Fib lines. Some firms do not show any Fib levels and
simply show the lines.
Knowing basic Fib retracement levels will provide the new forex trader a tool that
can be used to help improve an understanding of when to put on the trade. There are
many variations of Fib levels. Fib extension levels take the retracement ratios beyond
100. There are graphic tools such as Fib fans and Fib circles. There are even Fib time
zones. Whatever tool you choose, the core concept that price behavior often moves in
Fib ratios is a major principle of trading forex, and, in fact, Fib patterns are commonplace
in many other fields.




By ABE COFNAS