Fibonacci NumbersFibonacci numbers are commonly used in Technical Analysis with or without a knowledge of Elliot wave analysis
to determine potential support, resistance, and price objectives. 38.2% retracements usually imply that the prior trend will continue,
61.8% retracements imply a new trend is establishing itself.
A 50% retracement implies indecision. * 38.2% retracements are considered nautral retracements in a healthy trend.ABC'sPrice objectives for a natural retracement (38.2%) can be determined by adding (or subtracting in a downtrend) the magnitude of the previous trend to the 38.2% retracement.
After the 38.2% retracement the stock should break through the previous swing point(B) on heavier volume.
If the volume isn't there the magnitude of the move will usually be diminished, especially on very low volume.
* 61.8% retracements are warning signs of a potential trend changes.Trading Strageties ( with .. Fibonacci Number)
Once a new swing point is established in an equity, a new set of fibonacci numbers should be calculated,
and confluence checked
to determine potential support/resistance levels and trading strategies.If a stock is trending up, one may watch it until it forms a top then calculate the fibs. If she retraces 38.2% and turns with confluence, one could bite with an automatic stop under the 50% retracement and objective of the ABC. The Risk/Reward ratio for that trade is 0.118. (If you got stopped out 8 times and hit once you would have a 5.6% profit).
If she's trending down, you could bite at the 38.2% bounce with a stop at the 50% and get the same risk/reward ratio. With both strategies it is critical for the volume to be heavier on the swing point breakout.
If a position is going with you and you're looking for an exit point, calculate the 38.2% fib once a top is clear and put a stop below it. Won't get you out at the top but you may not miss that monster rally either.
Think a stock is a dog but it's trading at it's high wait for a 61.8% retracement from the last trend and sell it, with the stop below the 50% retracement.
