Capital Market Chronicles – Episode 264: TECHNICAL ANALYSIS – ELLIOTT WAVE THEORY (Part IV)

 🌟 Capital Market Chronicles – Episode 264: TECHNICAL ANALYSIS – ELLIOTT WAVE THEORY (Part IV)

“Markets may be emotional, but they still respect math.” 🔢📐

 While Elliott Wave Theory explains why markets move the way they do, Fibonacci ratios help answer an equally important question:

How far can a move reasonably go?

Ralph Nelson Elliott noticed something remarkable — market waves often respect Fibonacci proportions when they advance or correct. Not because markets are magical, but because human behaviour is repetitive, and these ratios naturally emerge from crowd psychology.

No mysticism.
No numerology.
Just patterns repeating at scale.

🔹 Common Fibonacci Levels

The most widely watched Fibonacci ratios in trading are:

• 23.6%

• 38.2%

• 50% (not a true Fibonacci number, but psychologically important)

• 61.8% (the famous “golden ratio”)

These levels act like potential pause zones on a price chart — areas where buying or selling pressure may change.

Traders use them to estimate:

• How deep a correction might go

• Where the next impulse wave could stall or reverse

📊 How Traders Use Fibonacci with Elliott Waves

• Corrective waves often retrace 38.2% to 61.8% of the prior impulse

• Strong trends tend to hold above 38.2%

• Wave extensions frequently project to 61.8% or 100% of earlier waves

The idea is not precision, but context.

📌 Key Reminder:
Fibonacci doesn’t predict the future — it frames probabilities and highlights areas where decisions matter.

🔹 Real Trading Benefits

When used with Elliott Wave structure, Fibonacci levels help traders:

• Define more realistic profit targets

• Place smarter stop-losses instead of emotional ones

• Reduce impulsive decision-making during volatile moves

Think of Fibonacci as the measuring tape for Elliott Waves — not perfect, not infallible, but incredibly useful when combined with discipline and risk management.

📖 Next Up:
Applying Elliott Waves in real markets — and the common mistakes traders should avoid 🚧📊

⚠️ Disclaimer: This Blog is for general guidance only and does not replace personalised financial advice.

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