If you have been trading for some time, you will have come across this technique called Fibonacci Levels Stock Trading. In this article, I share what this is and also how you can use it to improve your trading strategies (through an excellent video from Adam).
What is Fibonacci Levels Stock Trading Strategies?
Fibonacci retracement levels are horizontal lines that indicate where support and resistance are likely to occur. They are based on Fibonacci numbers. Each level is associated with a percentage. The percentage is how much of a prior move the price has retraced.
The Fibonacci retracement levels are 23.6%, 38.2%, 50%, 61.8%, and 78.6%. The 3 levels which you should give more focus on are the 38.2%, 50% and 61.8%. You can track this either on the Impulse trend up or the correction trend down.
Please refer to the diagram below for an example of this 3 levels on Fibonacci Levels. Point A to B is the Impulse Trend and Point B to C is the Correction Trend. You can get more details in the video near the end of this blog post.
What Do Fibonacci Retracement Levels Can Tell You?
I generally use Fibonacci retracements to place entry orders, stop-loss levels or set price targets when the market trend is quite clear. While the retracement levels indicate where the price might find support or resistance, there are no assurances the price will actually stop there. This is why other confirmation signals are often used. Personally I also check against signals from Moving Averages and Scholastic.
Once all the signals are aligned, for uptrend situation, I will buy the stock if it hits one of the three Fibonacci levels (ie. Point C in the diagram above). The same can also be applied in a market downtrend situation.
Here’s How You Can Trade With Fibonacci Levels Stock Trading Strategies
I have review through quite a few books and training on stock trading. Personally I find Adam’s sharing of how to trade with Fibonacci levels stock trading strategies the clearest in the video below. Hope this helps you as well.
Disclaimer: First off, please note that this article is not an recommendation for you to buy or sell any stocks. You need to do your own analysis and take your own decision based on your current skills/experience level. I am just sharing this as more of an educational insights. Personally I have been trading for more than 20 years myself and this is part of the techniques that I find useful.
That’s it. All the best to your trading success.
To your success,
P.S. Below are my previous posts related to trading