While I don't think Fibs are magical by any means, the fib retracement tool is all that I use to define areas of support and resistance. I picked up most of what I learned from a website ( I don't know if I can list it here, as I am new and don't know the rules of the forum), and things have gotten much better with my trading ever since applying what I learned. If anyone is interested, here is the basis of how I draw fibs and how I use them:
1. I only trade the ES, as it's the instrument I am the most comfortable with
2. I only use the 50%, 61.8%, and -23% (for profit targets).
3. I draw my "fibs" on a 15 minute chart
4. I look for reactions at 50% lines almost exclusively. If I see a reaction at that level then I will only look for longs during the day until the -23% target of that measured move is hit via price.
5. If a -23% target is hit, then I draw the next measured move from the 50% bounce of the last move, to the new high or low.
6. I sit and wait to see what happens when we get to that price, if all of my criteria for entering a trade is met, I will enter the market with the profit target being the next -23% line.
7. If a -23% is hit,and price continues in the same direction without a proper retracement, then the next measured move is actually drawn from a swing HIGH to swing HIGH, or swing LOW to swing low, depending on the trend.
8. If a 61.8% line is pierced by 3 ticks or more, then I anticipate that we can pull back to the 50% of the entire series of moves, so I will draw up the next counter trend retracement and anticipate a reaction there.
9. My entry criteria is based off of NYSE TICK patterns, and that's about it.
Here are examples from the past 2 weeks of price action on the ES. This is a 15 minute Globex chart. Also, if it is allowed to credit the website that I learned this, I would like to, as the guy that owns the site deserves the credit. I hope this helps!
p.s. of course there are other rules and nuances, but this is the basic idea.
