Profiting with Chart Patterns book

Fibonacci Retracements
Pattern number four is Fibonacci Retracements. We do not know why this happens 
but it does—markets retrace on even Eighths levels in a chart, either 38%, 50%, or 
62% of the prior move. This observation is what led me to start looking at prior moves 
in the quantification of these patterns. The prior move in a chart has everything to do 
with the psychology to the right. As you retrace the distance in a prior move by these 
levels, the market tends to become overbought or oversold and turn around and go the 
other way.
Figure 3-16.
Fibonacci Retracement Pattern

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Fibonacci Retracement Structures
Here is the structure of the Fibonacci Retracement. You can see that I have the three 
primary retracement levels drawn: 38%, 50%, and 62%. As you hit one, what you are 
looking for is a reversal off the level through an Eighths line and that is your 
indication to get in. The target will typically be the support or resistance level to the 
left of the entry point. 
Figure 3-17.
Fibonacci Retracement Structure Diagram

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Chapter 3 Definitions, Structures, & Examples
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38% Retracement: Mosaic
As you see a retracement occur in the market, draw your Eighths scale across the 
retracement and see if you land on one of these lines and turn around off of it. In 
Mosaic, you can see that in August we came up to the 38% level, turned around and 
dropped through an Eighths line after drawing the scale. That would be the place to 
get in and we stayed in the trade all the way down to about $37. That is more than a 
14% move in about two months off that trade.
Figure 3-18.
38% Retracement Shown on the Chart for Mosaic

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Chapter 
3 Definitions, 
Structures, 
& 
Examples
Profiting with Chart Patterns
3-20
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