Tag: fibonacci

Where is the start point of Fibonacci extension and fan lines

The most difficult thing about the stock chart analysis is that the results vary greatly depending on the reference point. Because the stock signals are very delicate, misapplication of the reference point can lead to large errors in interpretation. Good standards can give good results. However, bad or ambiguous standards only add to the pain of analysis. Many stock traders have spent a tremendous amount of time and effort trying to find those standards. As one of them, I also spent a lot of time in standardizing the Fibonacci technical analysis. I am working to increase the certainty of the analysis.

Generally speaking, the starting point of Fibonacci extension is to use the lowest point of the chart regardless of time frame. And one more thing, the ideal lowest point is starting from under SMA20, SMA100 and SMA200 curves. If the lowest point on the screen is placed above the SMA lines, try not to create a Fibonacci extension. Charts on the screen you use vary greatly in time frame. For example, from the 5 Min/Day to the 1 Mon/10years. If we start anywhere from the lowest point on the chart, we will see a lot of extensions, and the screen will be really dizzy in our view.

The chart below shows the Fibonacci targets by linking the minimum and maximum values of each stock wave ​​from the last 10 years to the last year 2017 in yearly base. This is so complicated that no body like this.

apple chart

Let’s see that start at the point under SMAs. The following chart is the past five years.

From this below chart, we can get an idea that the maximum value from this extension is 229.96. And we can find another dip point on February 2018. Let’s make related Fibonacci extensions for this.

We can get an idea that the bottomed line of Fibo fan can be a defense point to the recent falling. In this way, it is much simpler to do Fibonacci analysis on any time line chart using the start point under the SMA curves. Even small time frame like 1 Min or 5 Min chart, we can apply this concept to those chart and this may better than any starting point which is placed over some SMAs.

Establishing a clear standard of chart analysis is a way to win in an uncertain market.

One stock wave creates 5 target price levels.

 

What this image means?

Many traders are very unfamiliar with Fibonacci extension levels and the Fibonacci fan line. From my long time research and observation, Fibonacci chart technical analysis has been very usefully applied to a significant extent in stock and forex trading.

One uptrend stock wave creates 5 major Fibonacci target levels : 0%, 61,80%, 161.80%, 261.80%, and 423.60%.I consider other levels like 23.60%, 50.0% or 76.80% are minor levels but I would like to say these are also working. If I draw all levels, stock chart will be very much complicated so I just pick up above major 5 levels.

All levels work as a support or a resistance. For example, If stock price is under 61.80% level, that level work for resistance. However once go over 61.80%, this level will work for support. At this time, I want to deliver clear two messages. This is different from Fibonacci Retracement. Retracement is mainly use for where are support points for the downtrend stock.  Extension’s great advantage is forecasting where are resistance or support points in case of going upward. Another message is that this is different from Elliott wave theory.  Disadvantage of Elliott wave theory is there is no clue where is the topped price of stock can go up or where is the bottomed price of stock can go down. Also EW theory is not talking about expected price levels.

 

This table shows the values ​​derived from the calculation of the Fibonacci extension.

fibonacci extension

When you buy the stock at 61.80%, $124.72, the maximum increase you can expect is $269.44, 423.60%. It may reach 423.60% while forming an up-down curve by the action of resistance and support. It does not know how long it will take. It also does not guarantee that stock price can get up to 423.60% if buy at 61.80%.

In order to go up above the 269.44, 423.60%, this need help from another 2nd or 3rd neighbor stock waves which are bigger than 1st stock wave. Because their 423.60% value is much higher than the first.

The image below shows the stock price drop after reaching 423.60. So desirable trading method is to consider selling if stock reach 423.60% of any wave.

fibonacci 423.60%

Like this, the rise of stocks tells the process of climbing up to such meaningful Fibonacci target levels.

Another important element in technical analysis is the fan lines. I use 6 fan lines as below : 0% ~ 78.60%.The Fibonacci target level can be obtained by using Excel, but the fan line must use the built in capabilities of the trading platform. FYI, tradingview.com provides these functions. I am using ThinkorSwim(TOS).

fibonacci fan lines

One up-trend Fibonacci line set is created from one up-trend stock wave. Noteworthy matter is that the importance of the Fibonacci fan line is much higher than that of the Fibonacci extension target value.

The image below, Facebook 6Y/1M chart, shows the stock price started to drop after touched the topped Fibo fan line, 0% level. This image shows that 216.80% level broke up, but did not reach 423.60% due to Fibonacci fan line interference or resistance. We expect other fan line located below the today’s closing price will play a role in defending the price falling.

facebook chart

In this way, Fibonacci extension targets and fan lines can be used to identify and respond to resistance and support points. These two elements show the location information of the stock price level. So we can expect good profitability by observing and responding to the support points and resistance points placed above and below of current stock price.

In conclusion, we need to buy at low point such as 61.80% and sell at high point such as 423.60% because this is the safe way to get profits through stock trading.