Trading Fibonacci

Trading Fibonacci is used when trading stocks, commodities and other financial instruments. Fibonacci numbers are a sequence of numbers where each successive number is the sum of the two previous numbers. These numbers were discovered by an Italian mathematician and the numbers anticipate changes in trends as stock prices tend to be near lines that were created by technical analysis Fibonacci studies.

Retracement is a popular tool used when trading Fibonacci. Retracement is used to identify strategic places for transactions to be placed, or they are used for stop loss orders as well as target prices. Retracement is not only used in this theory but is also used in the Elliott Wave Theory as well. Basically, retracement refers to the likelihood that a stockfs price will retrace a major portion of an original move while finding support or resistance at the key levels before it continues in its original direction.

Fibonacci indicators are used when trading Fibonacci and they are used as reference points in order to predict a retracement versus a reversal. These indicators are also used by technical analysts in order to predict support and resistance levels as well as price targets. For instance, another tool is the Fibonacci arc. This arc is used in order to determine where to anticipate key support and resistance levels. A curved line is drawn and it is created by an invisible trend line between two points, as well as by three curves that intersect this trend line at key levels. The first two points are usually the high and the low in a specific time frame. This is a popular Fibonacci stock charting technique. Just like moving averages, the Fibonacci indicators work like price magnets to old highs or lows. For an even greater degree of accuracy they should be combined with the major Japanese candlestick patterns.

Many traders will use Fibonacci numbers in conjunction with Candlestick Patterns and other technical indicators. Candlestick signals are also great technical analysis tools that is used by many traders in order to find the optimum entry and exit points while trading. There are also many charts that provide confirmation when all of your technical indicator are in agreement. You can learn about this in our 30 minute training tutorial Fibonacci Trading Techniques.

Continue to learn about Fibonacci numbers and determine if it is a technical analysis tool that you would like to use in conjunction with candlesticks analysis, moving averages, or other tools.

Market Direction

The advantages built into candlestick analysis allows an investor to place trades when the probabilities are in their favor. The primary purpose of technical analysis is to take advantage of price movements that have been identified to have specific results. Candlestick signals and patterns are the optimal technical analysis indicators. They show exactly what is occurring in investor sentiment. This becomes a powerful format for ‘when’ to enter and exit trades. However, it also provides information that informs an investor when ‘not’ to be trading.

A Doji represents indecision between bulls and bears. At the extreme of a trend, either in the oversold or overbought conditions, a Doji illustrates when there might be a change of trend direction. The same indecision can be demonstrated by wild oscillations in the markets. As we have seen over the past few trading days, the market has demonstrated a lack of control by either of the Bulls or the Bears. Although the formations are much different, the prognosis is the same. Dramatic indecision usually represents a change of investor sentiment.

Trading Fibonaci, DOW


Will there always be reversals when indecision starts appearing in the markets? Not always, but the probabilities become dramatically favorable when adding confirming indicators. The Dow is currently showing support at the 50 day moving average, the stochastics are in the oversold condition, there appears to be a trend line through the lows since August. The advantage of using candlestick signals is that each formation represents the conditions of investor sentiment. This allows for valuable information to be immediately assessed. If that information coincides with technical levels, such as moving averages, trend lines, Fibonacci retracements, or any other technical indicator that is known to be watched by many investors, the candlestick investor can see immediately what investor attitudes are once those levels are hit.

Common sense stop loss placement, implemented by candlestick analysis, keeps an investors trading funds in tact. The past few days would have executed logical stop loss trading. This would have created every cash positions in a portfolio. When the market is not showing a directional bias, not producing an advantage for the candlestick investor, then what should they be doing? Sitting in cash! Candlestick analysis provides an effective visual analysis of what prices should be doing. That should be the primary factor for any investment program. When those advantages cannot be utilized, trading at that point becomes speculation. When there is no advantage being created by the tools provided in accurate chart analysis, the prudent strategy is to sit out of the market for a few days until the trend information can be identified.

If you can analyze and utilize trading techniques that provide a high probability results, profitable investing should be easy. However, there remains an element that has to be addressed. Your own mental psyche! This past Thursday, Adrian Toghraie gave an excellent presentation on how her training can focus on an individual’s investment flaws. Having a good trading program is the first step. Knowing how to implement with the correct frame of mind is the next step. If you missed her presentation, it can still be viewed in the archives. Also, her website provides excellent explanations on how investing hurdles can be overcome. Please check her website at Mention the Candlestick Forum presentation for her special prices.

embers Chat Session tonight at 8PM ET.

Good investing,

The Candlestick Forum Team

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