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The
Secrets of Slippage and Fibonacci Price Analysis for Placing Stops
By Barry Rosen
How many times have you placed your stop at a key Fibonacci retracement target
and gotten hit by the locals and stopped out? With everyone using Fibonacci
numbers, you have to be one step ahead to win the race. Here are some tips.
1) Fibonacci numbers work because crowds--including crowds of numbers--are
dynamic systems that conform to mathematical laws. If you have ever been to the
Museum of Science and Industry in Chicago, you may have seen the machine there
that sorts balls randomly into eight slots and at the end of the run, the balls
form a bell curve. Likewise, the Fibonacci numbers of .362, .500, .618, 1.618
and 2.168 etc., create important, predictable price value--even in the wild
chaos of 400,000 T-Bond contracts traded daily in the pits.
2) A bull market is likely to have a minimum retracement of .236 or .382, and if
you are looking to get in an entry from the top that will get you filled, then a
safe, tight stop may be the only slippage factor below the 38% or 50%
retracement. Moreover, more normal or bearish markets tend to retrace .618. The
50% retracement area does not statistically happen as much as people might think
although the stock market may be the one exception.
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