the hAnDbook oF teChnICAl AnAlysIs
10.12 Selecting Effective Inflection Points for Fibonacci Operations
As a general guideline, peaks and troughs used to perform Fibonacci operations
like retracements, extensions, expansions, and projections must be inflection
points that are significantly clear and obvious to the majority of market partici-
pants. In short, this means that these inflection point, or swing points, should be
unencumbered by market noise and exhibit a more visually pronounced price
rejection or reversal pattern (i.e., V‐Tops, V‐Bottoms, Key Reversal and Pin Bars,
Shooting Stars, etc.) rather than an inflection point formed within a longer and
more drawn out formation.
Inflection points that coincide with historical highs or lows or any other sig-
nificant or popular price barriers like trendlines, channels, moving averages, and
bands will tend to yield more reliable results. It is also prudent to use volume‐filtered
inflection points as a basis for Fibonacci operations, that is, the volume and open
interest should be near or at significant levels. Volume action should also indicate
potential buying or selling climaxes.
Figure 10.43 Area of Application for Ellipses and Spirals.
Figure 10.44 Area of Application for Fibonacci Channel Projections.
