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Friday 24 February 2012

Fibonacci retracement (used in opposite fashion)

A friend pointed out to me that I have been plotting my fibonacci retracements in the opposite way. (ie 0% and 100% should be drawn opposite ends)

I have checked with websites showing how it is to be drawn (ie from the top to the bottom for uptrends) and indeed I have drawn them in the OPPOSITE fashion. The difference in figures between drawing the opposite way is that the 23.6% and 78.6% are different. The key point of 61.8%  (which I use) is the same as 38.2%. drawn the right way. And of course 50% is always the same, no matter which way it is drawn.

The reason why I drew it this way was because of the Kim Eng workshop I attended some time back. The presenter drew it this way. The advantage that drawing this wrong way gives is that I have target prices which based on fibonacci, if the trend continues its way up or down after rebounding. This gives me 123.6%, 138.2%, 150% and 161.8% targets to look forward to. The presenter said that generally we should aim for 161.8%

Let me show you what I mean with the STI chart. 


I draw from the bottom during March 2009 and plot to one of the tops in June. (just an example).
Notice how the fibonacci points help to become target points? That's the reason I plot it this way. If I plotted it the Right way round, I wouldn't have projections. 

Of course, you should make your own decision if you want to follow the standard way to draw or the reverse way. It's ultimately each trader's opinion. Just be confident of what you draw.

Cheers!

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