| If you are a stock trader interested in improving your | | | | An example will make this clear. Let's assume you are |
| ability to pick possible turning points in the stock | | | | looking for a buying opportunity. Starting on the far |
| market, consider using Fibonacci retracements when | | | | right hand side of the stock chart, find the most |
| identifying trading opportunities. | | | | recent significant high. Next, find the first significant |
| Using Fibonacci in your trading does not need to be | | | | low. Finally, you want to look for another low that |
| complicated. Identifying obvious highs and lows on a | | | | occurred before the first low you identified and is |
| stock chart is what you need to focus on. | | | | lower in price. |
| Start by looking at a daily chart of your favorite | | | | For the next significant high and low, determine the |
| stock. One of the fastest ways to determine turning | | | | retracement levels. |
| points using Fibonacci is to start with the shortest | | | | Here's where the magic of Fibonacci retracements |
| amount of time that you can easily identify one | | | | comes in. Compare the first set of retracement |
| significant high and one significant low. Make certain | | | | numbers to the second set of retracement numbers |
| to start with the current date and work back in time. | | | | and look for retracement levels that overlap. That's |
| Once the high and low is identified, use a Fibonacci | | | | where your best trading opportunities typically are. |
| calculator to determine the 38%, 50% and 62% | | | | For instance if the 38%, 50%, and 62% retracement |
| retracement levels. Make note of these price levels, | | | | levels for the shorter time frame are at $54, $51 and |
| you will need them for comparison. | | | | $48, respectively, and the retracement levels for the |
| A Fibonacci calculator takes the difference between | | | | longer time frame are at $55, $49, and $43, then the |
| the high and low prices and multiples the result by | | | | price to focus on is in the $48 to $49 range. |
| either 0.38, 0.5, or 0.62. The new number is added to | | | | Why is that? You have traders from the shorter |
| the low (or subtracted from the high) to get the | | | | time frame using Fibonacci identifying trading |
| appropriate Fibonacci retracement level. | | | | opportunities along with traders from the longer time |
| Now look for the next significant high or low, one or | | | | frame identifying trade setups that coincide with |
| the other, not both. Now you should have either a | | | | each other. Your job is to find out where the most |
| significant high and two significant lows or two | | | | likely opportunity of a reversal is. Fibonacci analysis |
| significant highs and one significant low. | | | | helps you identify the most likely turning points. |