How effective is Fibonacci Retracement tool while doing Technical Analysis of shares and stocks?
Posted on June 20th, 2010 in Technical Analysis | 2 Comments »
|
Traders Do You Really Want To Learn How To Trade?
Click Here For Your FREE Course Free 5 Day Video Trading Course Plus Proven Money Making Trade Setup Expert Trading Education Free |
If in a given rally, there is a retracement which touches 0.382 level or 0.5 level and bounces back the share prices are supposed to go up further and if it breaks the 0.5 level the trend is supposed to have reversed. These are the basic rules of Fibonacci Retracement applied to Technical Analysis of Shares and Stocks.
Please browse our blog for more information about technical analysis, don’t forget to checkout the comments section which is where you will find a lot of very useful infornation posted by other traders about technical analysis, look for the comments links
Related Posts
- Which is the best Technical analysis software for stocks?
- Are there websites where we can learn about technical analysis?
- Anyone one know of a great technical analysis website?
- What kind of investors use Technical Analysis and Fundamental Analysis?
- Can I use technical analysis in real estate market?
- What is the best way to learn stock charts? (technical analysis)?
- What stocks/types of stocks are the best stocks for swing trading?
- Is there any practical-mathematical method to evaluate stock using technical analysis?
- How can I practice technical trading without spending real money?
- whats your favorite swing trading site? or blog?
Learn the secrets of successful trading - millionaire trader explains how he did it in less than 2 years starting with just $2000 - Click Here >> Successful Trading
2 Responses
According to science, Fibonacci retracements are as effective as tossing a coin.
My piece of advice to you: find a strategy that works, with a proven track record audited by an independent third party, like this one:
http://www.inside-alpha.com/support-files/ifsa_perf_summary_2003-2005.pdf
Let’s make money!
Good luck
Marc
First of all, you are stating those items as fact. One thing in technical analysis that you must understand is that nothing is set in concrete. All trading is is just "probabilities". When trading, you are trying to stack the odds in your favor. Fibonacci is only a tool to help you do that.
Next, you stated that if prices retrace off a rally to the 38.2% or 50% level and bounces that prices should go further up. What you failed to recognize is that there is also a 61.8% retracement level, so prices moving through the 50% level doesn’t mean a trend change. If prices bounce off the 38.2, 50 or 61.8% levels, then you should wait for prices to break the high set in before the retracement. In other words, say you have a stock that went from $30 to $50 and then started to drop. Fibonacci retracement levels are at $42.36, $40 and $37.64. If prices bounce off of one of those levels (are close to one of those levels), then you should wait for prices to break above $50 before initiating a long position. Granted, you can initiate a long position at one of those Fib levels, but how have you confirmed that it is only a retracement in the trend and not a trend change?
You can not use Technical analysis as a "carved in stone" if this indicator does this, then it is a buy or sell. Indicators can give false readings. That’s why you must never take a trade without a stop loss order in effect.
I’ve used Fibonacci for years and it is a very good tool, but that’s all it is, a tool. I have seen prices bounce off of 38.2, 50 and 61.8% levels and resume their trend countless number of times, BUT I do not ever say that when prices bounce of those levels that the trend WILL resume. I always way for other indicators and price action to confirm that it was indeed a reaction in the trend and not a trend change.