Simplertrading – Fast Fibonacci for Day Traders

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In my perspective, people elevate Fibonacci on a pedestal more than any other indication. At times, it appears like traders provide Fibonacci with almost magical power.

Fibonacci levels are nothing more than basic retracement levels at the end of the day. These levels are the sole representation of where a security’s price response may occur, but nothing is set in stone.

What exactly is a Fibonacci trading strategy?

The Fibonacci trading approach in the stock market follows stock market patterns. When a stock is going in one way, some investors feel that prices will fall. According to Fibonacci traders, a retreat will occur at the Fibonacci retracement levels of 23.6%, 38.2%, 61.8%, or 76.4%. A downturn is also likely for traders at 50%, as described below.

For example, if GE (NYSE:GE) is now trading at $20 and climbs to 21, the pullback will be 23, 38, 50, 61, or 76 cents.

Some day traders regard Fibonacci numbers as a short-sell strategy. For example, if GE stock is trading at $21 and falls to $20.62, some Fibonacci traders may see the 38 cent decline as a signal to sell the company. For some traders, the Fibonacci retracement is a viable stock trading approach. Fibonacci numbers, on the other hand, aren’t necessarily the best predictors of a trend.

What do economists think about Fibonacci trading?

Chris Svorcik is a forex trader who frequently employs Fibonacci retracement. He claims that traders may apply the Fibonacci strategy, but that mastering Fibonacci trading requires more expertise.

“I am a big supporter of EW [Elliott Wave, another trading approach] and Fibs, although they do take some expertise.” Moving averages, in my opinion, reduce the learning curve. “I also believe that using price swings or EW as a support tool rather than a primary trading technique simplifies things,” stated Svorcik.

Daniel Leboe, a Zach’s analyst, too loves to use the Fibonacci retracement. However, he cautions traders to use caution while employing the trading approach.

“Fibonacci retracement is a useful tool for determining if now is a good moment to purchase, but it is not the holy grail.” We are prone to blowing through levels in this turbulent market. “Make a shopping list of equities you like so you can pull the trigger when the time comes,” Leboe said.

“I believe we are in one of the finest buying opportunities of our lives.” “We have to make sure we play it correctly – buy when the market breaks and average down with little orders,” Leboe added.

According to the “Fibonacci queen,” traders should have a trading strategy.

Carolun Boroden, an experienced trader, is known as the “Fibonacci Queen” because she employs the Fibonacci approach so frequently. She believes that even if traders use the Fibonacci approach, they need still have a trading plan.

“You [need] a clear strategy that defines what your trade setups are; how you’re going to get into the trades; what you’re going to risk; how you’re going to manage the trade and take gains; and how you’re going to have certain goals or put a stop,” Boroden explained.

Is the Fibonacci trading approach accurate in predicting stock market trends?

While some financial professionals are suspicious of the Fibonacci approach, it has previously anticipated economic downturns. Before the COVID-19 crisis, the Dow Jones retraced roughly 50% before the economic catastrophe in February. Saut Strategy’s technical analyst is Andrew Adams. In a research report, he stated that the downturn at that ratio signaled the conclusion of the preceding bull market.

“Rallies of all sizes do often draw back to at least the 38.2%-50% Fibonacci levels,” Adams noted.

The stock market was ravaged by the bear market not long after that retracement.

While the approach has anticipated a negative market, it is equally capable of predicting a bullish market. Boroden’s Fibonacci approach anticipated a stock market comeback in May, according to CNBC’s Jim Cramer.

“The charts, as assessed by Carolyn Boroden, indicate that the key averages are continuing rallying, but it’s a hazardous rise where you need to continue with care if we fail to break out from these levels and drop back to where we were not that long ago,” Cramer said.

“She believes the S&P is a good investment right now.” She can’t say anything else since there’s too much going on in her charts. “However, she says you should be prepared to sell if we fail to break out above the 200-day moving average at some point,” Cramer continued.

While the Fibonacci trading approach is not precise, it may forecast big stock market moves when implemented correctly. This post will go through the various Fibonacci trending tactics.

Personas of Fibonacci Trading

Before we get into the specifics of Fibonacci trading methods, have a look at three Fibonacci trading characters and their tactics. Despite being hypothetical, they do an excellent job of outlining prevalent trading methods.

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