Gold Trading Boot Camp: How to Master the Basics and Become a Successful Commodities Investor

CHAPTER 20

Fibonacci Retracements

I monitor Fibonacci retracements, again, to gain as much information as possible, technically and fundamentally. Sometimes, the location of Fibonacci retracement levels can become a deciding factor in making decisions from both a trading and investing standpoint.

Retracement levels are derived through the work of Italian Leonardo Pisano and his Liber Abaci, penned in the thirteenth century and finally published in a mathematics text in 1857. Using observations linked to a study of the Great Pyramid of Gizeh, Pisano calculated the Fibonacci summation series, which measures relationships not only on the basis of space but also relative to the solar year, and thus time.

Hence, it might be correct to suggest Fibonacci retracements (many figures can be calculated using the Fibonacci summation series), but to keep things simple and robust across all markets, I use only three retracements—one-third (38 percent), half (50 percent), and two-thirds (61 percent).

As a result, Fibonacci analysis can be applied over any time frame and is equally effective in mapping short-term intraday swings and daily gyrations. However, the real value-added offered by Fibonacci retracements (Fibo) can be specifically gleaned from their application to long-term secular charts.

Traders often get caught up in the heat of battle, particularly when a trend is undergoing a correction, which can intensify anxiety and second-guessing. This is especially true among investors who ...