Fibonacci channels are channels were the coefficients are divided into Fibonacci ratio's. The trick is you have to enter them as decimals so they show up in the channel as percentages. This is important or it won't show up correctly. So, 0.382 = 38.2%, 0.5 = 50%, and 0.618 = 61.8.. As long as the 0.5 or 50% is in the middle it doesn't matter which side you put the 61.8% or the 38.2% because we are more concerned with proportional moves in price than which line we're at.
For me it hasn't mattered. I know some get hung up on the golden ratio but if you think about it they're interchangeable depending on if price is moving up or down from the top or bottom of the channel. When price is moving up from the bottom channel line the top coefficient line is the 61.8% line. When price is coming down from the top channel line the bottom coefficient line is the 61.8% line. This is because the lines are the same proportions from each other and the top and bottom channel line.
Ok, so, below is the $NQ_f with two fib channel lines. One a long term channel from 2009, another a short term channel from the high this year. Below is a daily chart. I like to make my channels on daily charts but these channels work on any time frame as do fib retracements. I put the dates I started the channels on the chart because where you start your channels is EVERYTHING! The same way it matters so much in drawing Fibonacci retracements is the same way it matters here.
So many give up on Fibonacci because they draw the retracements wrong and that leads to everything else being wrong. You must look for significant price action to start your fib channels or retracements or extensions or anything!
Click the pic to enlarge it and check it out.
Below is an hourly chart of that same short term channel on top of the long term one. Check it out.
Below are more clues again on an hourly chart but further back in time. You need to go kind of far back in time to check for clues so if you recently make a channel extend it to the left and the right. I just extended mine to the right only because I drew it so long ago.
You see how price went above and beyond gap fill? This will fool traders into thinking it will go higher but look how it stalls out on the next fib line! This would tell you to get short!!! Then look how price acted after that! Chop city!! But with these channels you could even trade the chop!! There is a psychological aspect to it though.
These are hour long bars so in real time the action could be taxing. I run into this problem a lot where I have to calm myself and remind myself to respect my analysis. This is easier blogged than done with real money on the line. Some days I'm cooler than Elvis' blue sued shoes, others, not so much! But I've gotten so much better and still i work on it. So don't think these channels are the end all be all. They'll help a lot but there's always more to work on in your trading.
Look at this beauty below. A sweet double bottom play.
It's very important to be more than just A one trick pony if you really want to succeed at trading.
Below is a kill kill kill short play from a while back.
There are no shortcuts to great trading though traders, and I can't stress this enough! You have to put the time in with technical analysis to really get good at it. Good enough to have confidence in your trading. You need to trust your trading system more than you trust the television, or your StockTwits stream, or your twitter stream. This only comes with constant work. And if you slack off on your work it will leave you! TA is a jealous mistress! She will kick you to the curb with the quickness if you don't pay her enough attention!
I hope this is helpful to you and any questions that aren't super super time consuming (if it's just one "super" I'll probably answer it) to explain I'll be happy to answer.
I also have a premium service where I'll go over my full arsenal with you 1-on-1 on skype and or the phone and break down whole trades. Access to a locked twitter account where I'll tweet trades in real time is also included in that. Only the highest probable trades, not the wild wild west ones I tweet on my normal twitter account and Stocktwits account. I'll make sure those trades don't even go to Stocktwits so they'll be exclusive. You can leapfrog all the growing pains I went through with this service. If your interested you can get pricing and sign up details HERE.
Until next time traders, happy hunting!!