Dynamic Fibonacci Extensions

A highly accurate indicator used to project changing support and resistance levels in real-time, for any market and any time-frame, based on multiple degrees of Dynamic Fibonacci Extensions. The Advanced Trading Workshop refers to this concept as Displaced Alternates or DAlts.

Technical market traders are well aware that price action can be described as the mathematics of mass psychology, and like many other natural phenomena Fibonacci’s Golden Ratio is the mathematical basis.

Fibonacci extensions are more commonly used to project profit targets, but can also be used as an additional confirming factor for market entry. Since the Dynamic Fibonacci Extensions indicator is based on multiple key pivots of differently sized waves, it behaves much like a Fibonacci Cluster, where overlapping Fibonacci extensions represent more significant support and resistance areas.

The indicator is highly configurable. It offers eight commonly-used fib ratios, including the 78.6%, 100% , 119.1% (mid-point between 100% and 138.6%), 127.0%, 138.6%, 161.8%, 200%, and 216.8%. These are referred to in the indicator parameters as the 0.786, 1.000, 1.191, 1.386, 1.270, 1.386, 1.618, 2.000, and 2.168 FibX, respectively. There are also several parameters to customize the appearance of the lines, text, pivots and source waves. The user can also tune the selection criteria for the source waves as well as the strength of the key reference pivots.

(Click images to enlarge)

The image to the right shows computed support and resistance levels on a 5Min ES chart on 8/15/2010 for the 100% and 138.2% Fibonacci extensions of recent prior waves, referred to as a DAlt and DAltX at the ATW, configured as Red and Magenta lines, respectively. Shown are 5 degrees of resistance levels and 3 degrees of support levels with the first degree resistance level off the recent low pivot having been “taken out”; the indicator removes the lines when price action exceeds the drawn level. As referenced above, a red line in close proximity of (or overlapping) a higher degree magenta line signifies a stronger support and resistance level and referred to as a Double DAlt by the ATW.

The snapshot to the left illustrates 5 degrees of support fib extensions. The reference source waves from which the levels were calculated are painted in blue and labeled SW1….SW5, respectively.

The Anchor pivot (which corresponds to the third anchor pivot, when using a manual Fib Extension tool) is shown as a red down arrow. Notice the 168.6% extension is turned on and shown as a green line.

This third picture (to the right) shows 4 degrees of resistance fib extensions. In addition to the blue-colored source waves, you will notice that there is one magenta wave labeled SW1-1. This is due to enabling confirmation of the source waves. This is a filter that will only accept a candidate source wave if a specified minimum number (i.e. indicator parameter, in this case 1) of waves of an identical size have occurred prior to the candidate wave. You don’t see the corresponding confirmation waves for SW2-SW4 since they occurred prior to the left edge of the area shown.

The concept of confirming a wave increases the probability that a wave of the same size (degree) will occur again. Note the projection of a wave of identical size is represented by the red 100% fib extension lines.

Notice the 261.8% extension is turned on and shown as a white line.