Fibonacci Retracement Levels, Additional Techniques (cont.)

Referring to the next chart "Treasury Bond Rally US H0 and Fibonacci Retracements" [Thumbnail - Full Size ], a 15 minute bar chart, the top of the first deep retracement described above is labeled "A" and the low of the retracement is labeled "B" with its Fibonacci levels in red. The next intermediate high is labeled "C" and defined by the move down into the February 1st low marked "D" with its levels in blue.

Notice that price moved down at "D" to the previous intermediate high at "A" and used this as a "springboard" to move higher very quickly.

Important point: This should raise a flag for us to look back at the low at "B" to see if a similar case can be made here. That is: Did the move down at "B" have any similarities to the move down at "D"? If so, then the move up from "D" should have similarities to the move up from "B", giving us a road map to the next leg up.

Looking back at the "B" bottom, price moved down to the high area at "1" (so labeled on both charts) which was a high just before a 23.6% retracement, and moved higher. So we might be able to make the case that the move up from "D" may have some similar characteristics as the move from "B" to "C". While the move lower at "A" was accomplished in 20 minutes, the move down at "C" was taking considerably longer.

While a 3-minute chart suffices to describe the move down into the "B" low, a 30-minute chart is required for evaluating the move down into "D". The reason for the longer time frame chart is because of the proportional increase in time for a higher low to be made at the "D" bottom.

To paraphrase, those who do not study the past are doomed to have continuing drawdowns. The details of the similarities between the sell off into "B" and "D" are best left for another topic (Recurrent Structures), as we could get far afield from Fibonacci Retracements.

Given the similarities in the moves down at "B" and "D", we can buy at "D" given presumed support around "A", especially given the spike bars on the 3-minute chart on the morning of February 2nd and the three pushes down in that and longer time frames.

Another approach for entry, is waiting for the retracements at "2" and/or "3". Of course, the longer one waits for certitude of a move, the less the profits will be and the higher the risk. This is why the best trades are the hardest to take; i.e. certitude is low.

After price moves above the high at "C" we have two deep retracements of "B" and "D" and we can make an important measurement that may help us profit in the future when trading this move. (Incidentally, when I use the term "deeper retracement" it means that the retracement under observation is deeper than the earlier breakout retracements in terms of % retracement and net point retracement.

Some markets may have a deeper retracement of 61.8% or more while others may have a deeper retracement of 23.6%; this factor is relative to what has happened in that market previously and is not an absolute value.)