If you are interested in using Fibonacci retracements in your trading, check out Stephen Pierce’s Fibonacci Secrets course.
Some of the very best trades occur right at key Fibonacci retracement levels.
Check out these two hypothetical intraday trades using the Nasdaq 100 tracking shares, QQQ, that could have resulted in short term profits.
This QQQ 30 minute chart shows a down swing from the June 19, 2003 high of $31.24 to a low of $29.49 on the 25th of June, 2003. If we mark off the key Fibonacci retracement levels of 38%, 50%, and 62%, we have possible sell short opportunities at $30.16, $30.36, and $30.57.
The plan with these price levels is to watch for a reversal bar (a bar with a close less than the open and a higher high than the previous bar) and sell short as the stock trades below the reversal bar’s low.
Watch how this works.
At 12:00 on June 26, the QQQ reverses right at the 38% retracement level. Once the stock trades below the low of $30.07 sell short. To be safe, a protective buy stop order goes in above the reversal bar’s high of $30.17.
A couple hours later the stock trades above the reversal bar’s high and the position is exited for a small loss.
This is the reality of trading, losses occur. How you deal with them ultimately determines your long term success. In this case, the hypothetical loss could have been as little as $0.12.
Within the first half hour of the next trading day, the stock forms another reversal bar. This time at the 50% retracement level. The stock does NOT trade below the reversal bar’s low, therefore no trade.
Waiting for a stock to confirm the reversal by trading below the reversal bar’s low gives you a better chance of profit. The only downside is your profit potential is not as high.
Another reversal bar, right at the 62% level, results in a sell short opportunity at $30.42 with a protective buy stop at $30.58.
This time the stock moves favorably – below the previous swing low of $29.49. Short term traders would consider locking in $1+ profit in less than 2 days.
That’s the power of trading with Fibonacci retracements!
Conclusion: If you are looking to improve your trading results, use Fibonacci retracement levels to identify low risk entry points. Stephen Pierce’s Fibonacci Secrets course provides details on how to use the power of Fibonacci to your advantage.
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