Target Ratio Projection

How to project potential pull back zones, using a simple FIB tool

Now that you have understood how to use imbalances to create EMA Boxes, I will show you how to use these exact same imbalances to project potential target zones for pull backs.

First a simple example of this mathematical magic, if you study the chart below, you should be able to see the imbalance between the FBO and the FBO. I have set up my FIB Retracement tool to project expansion targets from this imbalance.

The target zones that are projected here, are repeatable over time, and allow us to anticipate zones where price may pause or even reverse.

You can see that price pulled back inside the 1 to 1.5 zone. If buyers absorb this dip, the 2 to 2.5 zone is next up.

As you can see below, price managed a grind towards the 2 - 2.5 zone and set up another consolidation there. After this consolidation, price gapped up, at which point continuation is a fact, and the 3.5 to 4 zone is next up, as long as EMA9 keeps trending, supporting price higher.

When price finally reached this 3rd pull back zone, again price reacted.

Each time the principle is the same: as long as the dip is absorbed, price will attempt to continue towards the next target, where we again have to anticipate a response. After the third pull back zone has been left behind, the targets become more absolute, and we turn to horizontal lines out of 5, 6 and 7. The chart below demonstrates this trick with striking accuracy.

Here is an example of a trade I’ve just entered last week. PEP pushed out of the base into the first pullback zone and consolidated. If this consolidation produces a dip that is absorbed by buyers, the 2 to 2.5 area is next up…

This tool works on all timeframes, although for weekly projections, the zones become rather big. But regardless of size, they maintain their accuracy. Here is a look at the S&P 500 Futures.

And here for a simple 5 minute timeframe day trade.

Mathematical Expansion

This is a very simple, but highly effective tool that bases its properties on the mathematical principles of expansion. Ranges nearly always expand by 100%, upward or downward, no difference. Flags and wedges retrace at least to the point of origination (100%). When you start measuring FIB relationships, it turns out that they are all based on the same simple rule.

This is the theory behind it. So now that you understand WHY it works, let me explain to you HOW it works.

Setting it up

The first thing you have to do, is set up the FIB Retracement Tool in the following way:

Save this to a preset and call it “Target Zones”, then zoom in on your chart and connect the FIB retracement tool from the bottom to the last lower high, and zoom out.

Simple, and highly effective.