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.

  1. Price Targets - If you are in a trade, these are often excellent levels to get out at or tighten your trailing stop.
  2. Possible reversal points - Markets often fail at these levels, at least temporarily, and these often provide excellent contra move trades.
  3. Breakout signals as stock or futures goes above or below these levels, with expectation of a continuation move.  As stocks and futures go through these levels, large moves often times occur.  Keep in mind that with any breakout trading system, there are lots of failures however the winning trades often make up for the losers.

Example of 5 min chart with our Pro Chart Fibonacci Price Targets. Stock NVDA (5/25/2001)

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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