As I've mentioned many times now, my common trade setup is to enter a trend when price retraces to the 61.8% fibonacci level. My first exit is between the 23.6% and 38.2% level, to partially protect my position if the price fails to make a new low (assuming a short trade). My second exit is at the fibonacci extension 123.6%. This is the minimum price move I expect, if the pattern completes successfully. My third target is open, or at about 200% extension, to take advantage of a bigger move.
The chart below shows 3 consecutive completions of a pullback to 61.8% followed by a move to the target level at 123.6%.
It makes me wonder if, rather than using the open position to collect the big profits, it would be more efficient to target the 123.6% level more aggressively but also to stack multiple entries for each successive pullback.
Something for me to look out for and test!
I realise that my interpretation and implementation of fib extension levels may differ from other people. However, it doesn't change the point of this post. I tested it with 127.8% level for example and it works equally well. There is some ambiguity in the language and interpretation - so note to self - did your trade plan notes out, and double check it all!
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