# Plotting the Fibonacci Retracement Levels Video Transcription

Welcome to the second lesson of the Day Trading One Touch Options course. In this course we will go through the Fibonacci retracement levels and how to use them to calculate how deep the correction is going to be.

Remember that we are going to use this correction as an entry level. Because we are going to use the expansion as a target level and then if the price or the strike price of the option is between these two levels, we can take the trade. And if it’s not, we cannot.

The first thing is to go through the Fibonacci retracement levels and calculating how deep the correction is going to be.

Trading one option requires practice and patience because we are only taking trades that have a clear setup. Like I said before, we need the price to be at a full retracement, so we can take the trade, and this is important because if price is not at a full retracement and we take the trade, it might continue to retrace or to correct, making it go against the actual one touch option and going further from the strike price. Which means that the possibility of your option ending out of the money is very, very high. We need that.

We have fully corrected from the main move. This is the first thing. We need to understand this, and we need to know and we need to calculate and we need to make sure the price has fully corrected from the main move.

Then we need for the strike price to be within the range of the expansion move and the correction move. The first thing we need to do is to learn how to use the Fibonacci retracement levels to calculate our retracement zone and to use it in confluence with important levels to have further confirmation that this area is in fact the full retracement zone.

This is the Euro/US dollar for our chart and this the exact same chart that we have seen on the previous lessons. The only difference is that I moved the price action further to the right so we can actually only get bar-by- bar as if we were trading it live. So you can understand how to know or when to know that an area is the full retracement zone. Okay?

Let’s grab this spike low right here and let’s say that we are going to start to trade at this point of the day. Okay? The thing is that price continues to move to the upside, like this and the first thing we need to do, of course, we always put horizontal lines on strong levels that have been tested either as resistance or as support right here.

You can actually draw the level if it has been tested at least two or three times like this one. One here, one here and one here. This fake right here. This one has been tested as support, as resistance, on this we can say it’s a fake because the move or the momentum to the downside did not continue. But even so, before going back up into this range, we tested it twice and of course here as support.

So these are the levels we are going to be looking at. Maybe we can get a retracement price reaches this level right here. The thing is that although we had a retracement right here and we could have actually traded a one touch at this spot right here. Let me show you why.

Because we are clearly on the 38.2 level that confluences with this level of strong support in this case, because we are on the upside of the level and we have a very strong engulfing candle and we have retraced it to the 38.2.

The levels that we are going to be looking at are the 38.2, but mostly the 50 and the 61 level. Because on the next lesson we are going start calculating how deep or how far the move can go. The deeper the correction and the deeper the move or the continuation of the main move.

Even though a 38.2 is an acceptable level of correction, I think that this is way too soon to start putting on Fibonaccis to find a full retracement zone. But, let’s go, let’s continue. Here we have a full correction. As you can see here, we took out these highs right here. And this is important. Here we did not take these highs and here the price action was very choppy. Then we had just a massive push to the upside, just a retest of the broken level.

Here we have a clear retracement because we are taking out these highs. Let me put on a rectangle right here so you can see which highs I’m talking about. These highs right here. We have taken them down because this candle closed below these highs.

Now that we see that price action has clearly broken with the up structure, we can go ahead and put on our Fibonacci levels and wait for, maybe, a retest of this level right here or the full level of the 61.8.

Now we just wait and wait and boom. We have a retest back to the 50 level and a spike low right to the area of support. Here we can actually say that we have hit a full retracement zone because we have retraced its 50% of the entire move up and we have rejected with the previous area of support.

Now you can see the difference between this correction right here, where we have a three way movement and this correction right here that is just part of the first wave up. So, here, this is a good level to look for a possible one touch entry, or a one touch option or a one touch trade. Okay?

In this video we are only going to review how to spot real corrections from just continuations of the main move. The thing about this is that if you would have used this small correction of the main move, I assure you that the strike level would have been way too high, all the way up here. And you would have missed it, meaning that your option would have ended up out of the money.

But now that we have a full retracement to the downside here, to the 50 level of the main move, with a very strong candle to the downside and of course taking out these highs right here, as well as these highs right here, we have reached a full area of correction. Okay?

This is the first step of this strategy. The first thing we need to look at is one, a swing low and a swing high. Then a correction that has taken at least one important level of the swing high. Then a rebound at a clear, and at a key Fibonacci level, which will be the 50 or the 61.8. If you have confluence of previous levels of support that are rejected-, in this case support because we are in an up move, resistance would be if we are in a down move-, we have a clear area of correction. Okay?

In the next lesson we will go ahead and calculate the projection of the move to the upside. 