You want to learn about Fibonacci as it relates to trading, huh? Thats great!

I hope this is
informative and enriching.

I will go ahead and say this for you: I am not going to add any fluff. For some reason a lot of
analysts, teachers and education companies add a lot of fluff when it comes to Fibonacci
analysis. For example, they will go into the history of Italian Mathematician Fibonacci, then the
sequence and how it appears in nature, blah blah blah. Its all interesting, but it doesnt help me
trade any better.

The other part that is often left out is once you do the Fibonacci analysis, what do you do then?
How do you apply it to specific strategies? That is my aim: To teach you how to use it and how
to apply it to specific strategies.

One other interesting note: Its entirely the norm for people to have different viewpoints on
Fibonacci analysis. Just like everything in the stock market, there are 100 different ways to do
the exact same thing. I am not arrogant enough to say what youre going to read below is the
answer to Fibonacci analysis. Up front Ill say that I probably use Fibonacci analysis about 3% of
the time. I know a lot of traders who use fibs about 99% of the time and rely on it for all of their
analysis. Truth is, the market rewards the specialist. If youre a mathematician, engineer or
someone who loves exact science you will love fibs but hate the application. Why? Because
again, there is no such thing as the perfect fib. There is only Fibonacci analysis that you create,
that helps you determine your trading plan and what youre going to do and when.

Lets get started.

The most challenging part of Fibonacci analysis is the very beginning; the actual finding whats
called waves or ranges.

You see, Fibonacci analysis analyzes human sentiment. It is the deeply rooted, natural and
numerical reasoning for why we do something and when we do it, as humans. Thats my
explanation, of course. Its the measurement of when most people become uncomfortable or
comfortable, when a humans psyche begins to change.

Heres an example: Say youre sitting at a poker table. You sit down and you win your first hand.
Then you win your second hand, back-to-back wins. Immediately you begin to think, Wow, what
a streak! You smile a bit, but then begin to shake it off knowing the next hand wont be quite as
simple. Well, you win that one, too. People start giving you dirty looks, you rake in the money
and you are shocked, but begin to get really excited. Then what happens? You actually go on to
win your next three in a row. Thats right! Six hands in a row; big ones, too! Is this random? Is
this chance? Is this coincidence? Well, as each hand progresses you begin to feel different
emotions. By the sixth win you might be totally comfortable just getting up and walking away
and taking your profit. You might even think to yourself, Well, Im up large, the odds of me
winning again are very low, so Ill just leave and take my money. The people at the table
probably dont want you to leave. They might even be mad or upset with you because you took
their money. Regardless of what happens, these six wins in a row cause a serious stir in your
emotions. A cataclysmic shift, if you will, from how you felt before the game and how you feel
now. Why?

Its human nature. Let me pull up a stock chart and show you what I mean. Im going to look at
the stock ticker FEYE.

In this example, lets say you bought shares of FEYE at $28.00 per share on December 17,
2014 (the blue arrow). Before you say, Jerremy, no one would have bought there. Thats, like, a
solid low! Well, someone definitely bought there. Guaranteed.

After you (or someone else) bought at the blue arrow, how would that person feel at the green
arrow? You would probably be elated and super happy! Why? Because you just made a killer
profit! As an example, say you sold at $45 on February 20th, 2015. Thats a 62% profit in almost
exactly two months!

Notice what happened to FEYE after that move in the stock in that time frame. It went down and
consolidated and got pretty boring for three months. Why? Human sentiment. Human emotion.
The traders who bought at the blue arrow and sold at the green arrow are satisfied with their
profits. They got up and walked away from the table, if you will. The profitable traders walked
away happy and content, and left it to the other traders to battle it out.

If you bought at the blue arrow, how would you have known to sell at $45? We will get to the
exactness of that number later, but for right now if your average investor bought at the blue
arrow and sold at the green arrow its because it felt right. Deep in their bones that trader
simply felt this was the time to sell. As weird as it might sound, thats the core of Fibonacci
analysis.

In the stock market many people trade solely off of emotions. They buy and sell because it feels
right, or they hold a losing trade way too long because they dont want to feel that loss. They
dont want to be wrong; therefore, their emotions turn a green, profitable account into a losing
one. I see it all too often.

Fibs are a way to help see human emotion and turn it into more of a visual representation of
how people feel. In my opinion, fully understanding candlestick trading is the best way to do this,
and Fibs help for sure.

Heres some quick insight! The following are the beginning numbers in the Fibonacci sequence:
0, 1, 1, 2, 3, 5, 8, 13, 21 . . . What you do is take the first two numbers and add them together
to get the third number. Then you continue the sequence. 1+1 = 2. 1+2 = 3, and so on.

How does this help you trade better?

In trading, the very common Fibonacci numbers used are 0, 1, 2, 3. From here you can use
fractions of those above integers as well. Numbers that are included in the Golden Ratio: .318, .
5 and the most important, .618

You ready for something mind blowing? Okay, here goes. Take $28 and multiply it by 1.618
What do you get? $45.304

What was the above price I mentioned on FEYE that was a comfortable place to sell? And how
long did the stock take to reach that price? Two months, which is a Fib number. Is a light bulb
starting to come on?!? Alright!

IN FACT, the close of the candle on FEYE on 12/17/14 was $28.61. 28.61 x 1.618 = $46.29

On 2/26/2015, all Fib numbers by the way, the high of FEYE was $46.44. This meaning that a
Fib extension could have given you a target on FEYE within $0.15 cents. Thats not too bad,
huh?!

How does this help you trade better? Im going to keep asking this question to ensure you can
apply this to your trading. Remember, many companies will sell the above information for
thousands of dollars and still not teach you how to trade with it. I will be doing it all. For free.

When doing Fib analysis the first thing you need to find is a wave, or the range that started the
entire move. The good news is, this work is always done for you. Your job as a trader is to
simply find it. If youre in a bullish trend, ask yourself where the bullish trend started? If youre in
a bearish trend, ask yourself where the bearish trend started? Where was THE CANDLE or
THE DAY on which this whole thing started?

Ill give you some tips. If youre looking at a bullish trade or trend, no candle or price action
should take out the low of the candle or day youre looking at. Heres an example below:

Finding the main range:

Were going to take a look again at FEYE. Get used to this chart. We will be using it a lot.

First, let me draw your attention to the candle with the blue arrow. Some traders might use this
candle to measure the bullish wave. Personally, I would not, because the stock broke the low of
that candle. Obviously thats not THE bullish candle of this trend because the stock went lower
than that candle. Now, the candle with the purple arrow is an important candle. Why? Because
as I write this eBook (June 2015), thats the lowest candle FEYE has ever had. Therefore, that
candle is obviously important because a lot of buying occurred there! How do I know that?
Because the stocks never gone lower than that price!

Keep in mind, when using Fibs you simply use the price action and use that data and project it
into the future to create your trading plan.

So, whats with the red arrows, one might ask? Well, in life you have a beginning and an end.
The same is true in trading. If a bullish wave has a beginning, it also has an end. The ending of
a bullish wave is important to find.

A bullish range/trend/wave is started with a bullish candle and therefore the wave ends with a
bearish candle. Try your best to find the most bearish candle at the top of a wave / trend and try
to use it. Youll notice in the above chart I had many to choose from. So, why did I go with the
one I did? Well, thats the beauty of all Fibonacci analysis, at some point. Is there really a
perfect candle and range to use? I would say likely not. There are definitely good, better and
best, but never perfect. It cant be perfect because human traders who are imperfect created the
price action.

When drawing a Fib range with the data thats already on the chart, what you want to see is how
your internal lines match up with the candlesticks. What do I mean by internal lines?

In your Fibonacci range you will have the 1 line and the 0 line. If you are drawing a bullish
extension, the 1 line should be at your bearish candle. The 0 line should be at your bullish
candle (the beginning of the range). If you are drawing a bearish extension, your 1 line should
be at a bullish candle and your 0 line should be at your bearish candle (the beginning of the
range).

The Fib lines in between 0 and 1 are often called your internal lines. Some traders and analysts
will use an insane amount of lines. I personally use 3: .618, .50 and .382

I am going to zoom into the above chart and show you the internal lines and do my best to
explain what you are looking for.

When drawing your Fib range, you want the candles to stop, trade and bounce nicely from all
three of the ratios, truly. You can see this happening in the above chart. Look and determine if
you can see where the candles are bouncing from the .382, .50 and .618 ratios.

At this point, many traders will say, But Jerremy, you are using the past information, you are
using the left hand side of the chart! Yes! Thats correct. You use the data thats given to you,
find the best range to use and from there, project it forward into the future to find your targets or
whatever it is youre looking for.

The above method is what one should use to ensure this is the best Fib. It means the range
works and the momentum is valid.

A bonus: If the .50 Fib ratio is in the middle of a gap or a strong bullish candle, that is exactly
where you want it to be. If you see a good gap in a range and the .50 falls in that gap or runs
right through a strong bullish candle, you have yourself a great range!

What I am going to do now is show you step by step how I take a beginning range and take it
into the future. In the below image one will notice how FEYE traded perfectly to the 2.618
extension price of our primary range that we found together. Then, FEYE traded back down to
the 1.618 ratio and began to bounce. We can look at this Fib and literally see the strength of
these ratios. So, once we know this range works, you simply begin moving the range into the
future

Moving the range:

When a trader moves a range, all they are doing is getting closer and closer to the more
relevant price action. I am showing you these steps for practice and so you can see how
Fibonacci analysis helps you measure human emotion, sentiment and momentum. As you get
better and better, youll be able to simply look at a chart and see the current wave/range that the
stock is in, which Ill show you soon, and create your targets, or support. However, when you
first start this type of analysis its often conducive to find as many ranges as you can for

practice. After all, practice makes permanent. At this point in my trading career, Ive probably
drawn 5,452 Fib ranges.

The below image is simply a new range. Do you see what I did? I simply moved the 0 line to the
higher low on our original range. The 1 line is now where the 2.618 line was. Why did I choose
that ratio or price? Because we can obviously see thats the price where the bullish trend
stopped and then FEYE traded lower.
Note above, the internal lines. The .382 ratio is acting as a resistance and the .618 ratio acted
as a support. What about the .50 line? See how beautiful it looks sitting right in that gap?! Is this
the perfect Fib? Nope. But its dang good, thats for sure. Did it work?? Ill show you in the next
image.

Again, I know Im currently writing this and I can also see what FEYE has done, but you can see
this same analysis here http://reallifetrading.com/articles/spring-portfolio-2015 and I mentioned

If one were to go long now, at $40, my stop would be $35 with a target of $56, representing a
1:3 Risk:Reward ratio. That was on 4/7/2015. All I am saying is, I do use this type of analysis
and it absolutely does help.

From here, my goal is to show you future price action on stocks and give you an idea of how
one can use Fibs to create a trading plan for the future because thats what matters!

Below is a current chart on FEYE. Notice how it stopped just so perfectly at the 1.5 Fib ratio.
The high of yesterday was $55.33. From my article written back in April, that was $0.67 away
from my target. From here, what are my thoughts on FEYE? Well, I could do two things. I could
keep this exact range or draw a new one, because we can clearly see that FEYE is in a very
bullish wave right now. Is this the end of that bullish wave? Im honestly not sure. Maybe
maybe not.

I definitely do not think this is the all time high on FEYE and it will never trade higher. From
here my main question is, If FEYE does pull back, which it might, where could it bounce?

That question is what the below chart will help me with. Again, I have no idea what FEYE
actually will do, for 100% certainty. What I can do is measure the current wave we have and ask
myself, Do the internal lines work? Yes they do. The .618 ratio works great as a resistance and
the .50 line runs right through a solid bullish candle and the .50 line also is a resistance from our
peak in March.

Therefore, at this point, I will simply say this. FEYE is in a great place to pause and rest. I drew
with some colored lines the three trades I expect. If something else happens, it wouldnt
massively shock me, but these are the three Im prepared for right now. How does this help?
Well, I could easily create a trading plan that says, If FEYE trades down to $46.30 (the .50
ratio) and bounces, I could buy shares, I could buy call options, or I could sell put options
(whichever strategy you want to use), and go from there. I am not personally going to short
FEYE, go bearish, because its in a bullish trend. Thats what the purple line represents. It most
certainly does not have to go lower from here. It could trade sideways to down for three to four
days or a week and then continue higher.

Thats how Fibs help traders. You identify your ranges and create your trading plan based on
the ratios if the stock gives you some confirmations. At this point on FEYE, since its very close
to my target and at a solid Fib target, I could sell the position I was referring to, I could get into a
collar or I could sell a covered call. Fibs help you understand and see where stocks could slow
down or bounce and once you have that information, you simply build your trading plan and
then follow it! I hope this was beneficial.

I will make you a deal. What I will do is include current charts and their links and simply give you
my thoughts and projections on them. You can then see how the stocks played out. If I am right
on the majority of them, tell your friends and any other traders you know about Real Life
Trading. Our mission is To Enrich Lives and we need your help to spread the word about this
tremendous company! I hope to see you on our Trading Floor one day in the future and in our
Free online classes! Have a great day. Thank you for reading this and remember, love life, life
life and trade it!

Jerremy A. Newsome
CEO of Real Life Trading

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