This Medieval Italian Guy Can Help You Maximize Your Upside Every Time

While the markets and media were obsessed with last week's Fed nonevent, they missed a huge move in gold.

In the run up to the FOMC meeting, gold was in the grips of a two-week slump. But right after Yellen announced that there would be no rate hike, gold smashed through several resistance levels, including the "38.2" line (you'll see why that's important), and posted the biggest gains of the past two weeks.

Now, we've talked about resistance lines before. But what you may not know is that everything you trade - gold, oil, stocks, bonds, even currencies - follows the same pattern involving that line.

The pattern can tell you when a pullback is forming, the size of the move in the markets, and even how long it's likely to last.

Learn how to use this pattern, and you need never miss a pullback again.

Here's how every trader can use this to make as much money as possible...

It's Called the "Fibonacci Retracement Ratio," and It's Big

Leonardo Bonacci of Pisa, better known as Fibonacci, was the sharpest mathematician of his age. In 1202, he published "The Book of Calculation," which introduced Hindu-Arabic numerals to the West.

The book was a hit.

Think about it - the enterprising Italian merchants of the time must've been overjoyed to rid their fat ledgers of tedious, clunky Is, Vs, Xs, Ls, Cs, and Ms and ("all new for A.D. MCCII") upgrade to sleek and versatile 1s, 2s, 3s, 4s, and 5s.

That money-making, time-saving innovation alone gets Fibonacci a place in history, but he made an even more remarkable discovery - an uncanny sequence of numbers - the Fibonacci sequence and the related "Golden Ratio" - that can be found almost everywhere in nature and art, from tree branches, to flowers, to honeybee hives, to the distance between your knuckle and fingertip, to the Mona Lisa.

That's amazing, but as traders, the really amazing thing is that we can use Fibonacci's sequence to make money on pretty much every tradable instrument over any length of time. I'll show you how.

But first, let me show you this Fibonacci sequence I've been talking about:

It goes as follows: 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89 (and so on). Each number in the sequence is the sum of the two preceding numbers. So, for example, the next number above would be 144 (55 + 89), and the next would be 233 (89 + 144).

Even more impressive is that each number is about 1.618 times greater than the preceding number. And the relationship between all these numbers in the sequence is the foundation of common ratios when studying retracements (the percentage by which the market corrects itself).

That 1.618 brings us to the "Golden Ratio" (also called the "Golden Mean") I mentioned a moment ago.

You determine it by dividing a number in the sequence by the number that follows it. For example, 55/89= 0.617, 34/55= 0.618, 21/34= 0.617, and so forth, making 61.8% the key Fibonacci ratio.

There's also two other key ratios technicians use:

23.6%, which you can find by dividing one number in the sequence by the number three places to its right.

38.2%, which you can find by dividing one number in the sequence by the number two places to its right.

Anything you trade (whether it's stocks, bonds, commodities, futures, or currencies) tends to pull back to these percentage retracement levels before resuming the overall trend either up or down, which is exactly why technical analysts love the Fibonacci sequence: It's easy to spot - and trade - trend reversals right down to the decimal.

How to Find Fibonacci Retracements on a Stock Chart

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Last week, we talked about Apple Inc. (Nasdaq: AAPL), and I actually showed you a couple of Fibonacci charts to exemplify my point about AAPL shares retracing to their somewhat parabolic move last week.

So let's take a look at a longer view to see Fibonacci at work. My analysis tools include a feature that draws in the Fibonacci levels automatically over a specified date range, so you can easily see these levels below:

maximize your upside

Here, you can track the Fibonacci retracements by running the stock's price movements from peak to trough (two extremes) and calculating the ratios. Then, you can plot them on the chart to assess which ratio would be support or resistance points.

In the chart above, you can see the trend from the $90 and $110 levels, so the Fibonacci retracement uses those points. Prior this recent surge higher, the retracement came in - you guessed it - right around the 38.2% line (where you see the stock's daily upward move off that retracement level).

Remember...

You calculate the golden ratio by dividing one number in the sequence by the following number.

You calculate the 23.6% ratio by dividing one number in the sequence by the number three places to its right.

You calculate the 38.2% ratio by dividing one number in the sequence by the number two places to its right.

As we know, the release of Apple's iPhone 7 and 7 Plus drove interest in the stock and moved it higher. But most of the time, it's downright eerie how news can push stocks right around Fibonacci levels.

And you can see in the chart below just how Apple moved off that Fibonacci level to $115 following the iPhone craze before settling back down a bit:

trading pattern

What I find particularly interesting is that if AAPL performs a 50% retracement on this longer-term view, the 50% retracement takes the stock back to where it launched on Sept. 12, 2016... which is that 38.2% level on the chart above.

In this next chart, I've drawn in for you the percentage retracement levels on AAPL shares with the correlating prices. So if you want to look at the stock's price move earlier this month to spot a potential pullback or reversal in this trend, you can follow the retracement levels in this chart:

Fibonacci sequence

When your stock hits these retracement levels, then you should look for that jump higher and use the retracements to set your stop prices - and cash in on the stock.

You can do this often. Like I said, Fibonacci retracements work on anything you can trade.

More of Tom’s (Highly Profitable) Common Sense

If something happens every year at the same time for the past nine or 10 years… chances are it’s going to happen at the same time again this year. And just imagine the gains you could make if you knew ahead of time the exact dates that a stock is likely to go up. Go here to see how spotting this sequence turned into profits of 100%, 126.3%, 100%, 107.4%, 80.4%, 100%, and 122.6% all in the same week…

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