How to use Fibonacci price levels as price targets and possible reversal points
Our software draws on your chart Fibonacci price levels that are based off of yesterday's close or today's open. We have found that they work more accurately off of yesterday's close.
Fibonacci Price Targets are percentage moves from the previous close or today's open.
(.38, .62, 1.62, 3.62, 6.62, and 11.62 ) and (-.38, -.62, -1.62, -3.62, -6.62, and -11.62)
Our software draws these levels on your chart and allows you to quickly toggle them on or off.
There are many ways to use these levels, but here are the 3 most common.
Fibonacci Price Levels are like any other support/resistance areas. Stocks and futures often chop around these levels until they are broken through. Then there is either a continuation move or price will quickly reverse directions. Rarely does price touch these areas and immediately reverse. Consolidations normally occur before the breakout does. The safest way to trade these levels is wait for a consolidation to occur and trade in the direction of the breakout. You can see from the chart above that NVDA is very choppy in the morning and trades down to the 3.62% level, chops around some more before reversing for a large move up. If you had bought that level, you would be preparing to exit near the next line, but since price went through this level without any hesitation, you would hold to the next level and in this case exit.
With all support and resistance areas, if a level holds once before, it many times will hold again and again. You can see that on the chart with the middle red line. It is tested on the first down move, and because it holds, it provides very good support on the next two times down. Depending on the risk parameters in your trading you can either take each trade or wait and see if a level holds before buying or selling.
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