I’m in grade 3 and at the Fibonacci Retracement lesson. I thought swing highs were identified when the two candles to the left and right had lower highs and that swing lows were when the two candles to the left and right had higher lows. In this example showing the plotted Fibonacci Retracement line there appear to be more recent swing lows that could have been selected. Can someone explain what I’m missing?
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That’s not a bad rule for identifying swing low and swing high. But note that you can have multiple swing lows in a downtrend and multiple swing highs in an uptrend. They are not solely the reversal bottom or top.
The value of identifying a swing low in a downtrend is that if it is followed by a swing high, the low of the swing high bar is a good and low risk place to enter short. Vice versa in an uptrend, if a new swing high is followed by a swing low, the high of the swing low bar is a good place to buy. In both cases, a good place for your stop-loss would be at the opposite extreme of the swing bar’s range.
Can you have 2 swing lows - without a swing high between them ? - I don’t think so because it’s not actually “swung” anywhere. Those circled areas look like periods of consolidation to me - These are quite important to certain types of trader, who may be looking for entries on Box Breakouts perhaps, or the assess the sentiment of the market in an attempt to forecast the directionality of the next move.
In honesty I can’t answeer your question, because your definition of “Swing low” is not the same as mine.
I simply look at a chart and identify “lows” and highs by seeing them as turning points. To me a consolidation is not a turning point, although it is important in it’s own right as it has the potential to become a turning point, or a continuation.
That is a four hour chart and although your right in that ANY of those places you mark had the potential too become swing lows of significance on the daily chart, they did not develop into such and indeed even the “swing” marked is not necessarily going to be of great significance. That is the purpose of the Fibs, to measure the importance of the “retracement”. There is nothing to stop you pulling a Fib scale down from tat swing high, to the low point of ANY of those bottoms (Your SLs ) and looking to see how much “price” DID actually retrace at those points. - That would be a valid excercise. SO you’re not actually “Wrong” or “Missing anything” - Just perhaps looking at a different timescale.
If you were to look at those periods on a smaller timescale say 15 minute, you would see masses of “Swings and Trends”, some of which could be tradeable, within each of those bars.
So I suppose it’s just an “experience thing” - nothing really to worry about, your “eye” will soon get “the hang” of it - and the hardest thing in this game is to identify swing lows and swing highs in time to take advantage of them -
I commend you for your attention to detail and your critical thinking with regard to what you are being taught - it bodes well for your development of “Understanding” -
All the Best
F
[Edit - That “spike” on the bottom of the second circle youu marked, in real time would have looked really like a “swing low” - and I bet a LOT of people took it to be so and lost money at the time, (I probably would have been one of them - lol ) - So again - You’re thinking Well ! ]
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Looking in smaller TF, easy to identify the swing h and Swing L.